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  #321  
Old Sunday, November 17, 2013
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17.11.2013
Energising farmers
Farmers can now set up biogas plants for Rs170,000 each and run tube-wells for seven hours a day
By Shahzada Irfan Ahmed


The persistent energy crisis has harmed the agriculture sector to a great extent and left farmers with very few choices. They have no electricity to run tube-wells. They use engines which consume expensive diesel in large quantities, making the whole exercise non-viable. They cannot think of using cheaper natural gas to run tube-wells as this commodity is hardly available to them.

The question here is that what the farmers shall do in this situation to get sufficient agricultural output from their fields and keep the prices of the end products within limits. No doubt, the input costs will have to be reduced to achieve this end.

A viable solution in this regard, as suggested by energy sector experts, is immediate conversion to biogas which is quite economical as well. They believe there is immense potential for biogas generation in the country, especially in Punjab, which has a large number of cattle.

An encouraging news for farmers is that an experiment, carried out recently, has achieved success and now they can set up a medium-sized biogas plant for as low as Rs170,000.

This cost is far less than the previous Rs850,000 per plant incurred on installation of 50 plants of same capacity, during the previous tenure of the Punjab government. These plants were established under a pilot project but could not succeed mainly due to their dependence on advanced technologies. Based on floating dome technology, their domes could move upwards and downwards depending on the pressure of gas and required engines, electricity and diesel for their operation. This technology is non-viable due to dependence on these commodities. Another negative of this project was that subsidy amount was too high — Rs570,000 per plant — making farmers devoid of a sense of ownership.

The recent experiment was conducted at the Ravi Campus of the University of Agriculture and Veterinary Sciences (UVAS), Pattoki. The technical committee on biogas, headed by MPA Chaudhry Arshad Jutt, executed the project with financial assistance coming from UVAS and succeeded in bringing down the cost drastically, through introduction of fixed dome technology.

Engineer Naveed Sadiq, member of the technical committee, tells TNS the size of the plant is 25 cubic meters and the gas produced from it can help run a tube-well six to seven hours a day. This is sufficient for the needs of a small farmer who has landholdings up to 12.5 acres. In addition, this gas can also be used in kitchen and the end residue can be sold or used as pure organic fertilizer for crops. If the farmer wants he can use the same gas to run a 12 KVA generator for seven hours, he adds. The raw material required for this purpose is 160 kg to 180 kg cow dung per day.

He says they were entrusted the task to bring the cost of biogas plant down to an affordable level. Punjab Chief Minister Mian Shahbaz Sharif wanted a breakthrough in this regard as he had plans to set up at least 100,000 biogas plants throughout the province. “You can well imagine how much cost has been saved. This will also reduce the subsidy amount considerably which the government intends to pass on to the consumers,” Naveed adds.

Explaining the scientific concept, Naveed says biogas is produced during the decomposition of biodegradable material in the presence of bacteria. Therefore, anything which can decompose can be used to produce biogas. So, he says, it is not only cow dung which is used as raw material. Poultry wastes, plant wastes such as husk, grass, weeds, human excreta, industrial wastes such as saw dust and those generated in food processing industries and domestic wastes including vegetable peels, wasted food materials can all be used to produce biogas, he adds.

The technology used in these low-cost biogas plants is simple and suited to local needs. It is called fixed-dome technology. All that is required is a small well with concrete dome, a distiller where dung is mixed with water and mixed manually to form slurry and a storage tank. Besides, there are pipes and compressor involved if one wants to take gas to a distance. The slurry is passed on the well where it decomposes over days. The gas thus produced rises upwards and is diverted through valves and pipes to the place where it is needed.

Veterinary Officer with Punjab Livestock and Dairy Development department, Dr Asif Sahi, highlights the need for tapping of indigenous energy sources by farmers and explains the potential in detail. He tells TNS there are more than 822,809 diesel tube-wells in operation in Punjab which consume about 2.63 billion liters of diesel oil per annum at the rate of 1600 operational hours and fuel consumption of two litres per hour.

In monetary terms, the cost comes to Rs276 billion per annum. Repeated hikes in prices of petroleum products and devaluation of Pakistani currency have further increased the operational cost of diesel tube-wells. Therefore, there is a dire need to look into alternate energy options which are efficient, sustainable and cost effective to address this issue.

Biogas, he says, is the best option keeping in view the fact that there are more than 34 million cattle, buffaloes and bullocks in Punjab. Animal dung can be utilised to generate biogas through anaerobic process. Each cow provides 12-15 kg of dung daily which can produce 0.62-0.75 cubic meter gas, he adds.

Punjab CM’s Special Assistant on Biogas Committee, Chaudhry Arshad Jutt, tells TNS there is maximum need of 20HP peter engine to operate a tube-well but farmers are using 50HP to 80HP tractor engine for this purpose and wasting huge quantities of fossil fuels. These biogas plants will make optimum use of the fuel. Secondly, he says, the fixed dome plants are simple in construction and operation and do not require any maintenance. A 25 cubic-metre plant would save a farmer Rs 3200 a day or Rs 1.15 million per year, which otherwise would have been spent on buying diesel.

He says the construction of plants will not be awarded to contractors. Instead, sub-engineers and masons from all districts of Punjab will be trained and farmers will be given technical guidance/assistance. The farmers will directly hire sub-engineers and masons and construct plants. The subsidy amount of around Rs50,000 per plant will be paid directly to the farmer.

On the timeline, he says the project is in approval phase and farmers will be able to avail the option shortly. The farmers, he says, shall apply vide city district governments where committees will be formed to scrutinise their applications. The farmers will also be provided with detailed drawings and necessary technical assistance.

Half of the subsidy will be paid at the time of approval and the rest will be paid to the farmers on completion of the project and approval by the inspection committee, he adds.

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Old Sunday, November 24, 2013
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24.11.2013
The change of ownership
Privatisation and liberalisation policies the world over are as much a matter of politics as they are of economics. What are the dynamics of privatisation in Pakistan?
By Fahd Ali


The state’s role in the economy has been a subject of much controversy in the past three decades. With the advent of neo-liberalism, both as an economic as well as a political project, the voices pointing out the ‘failures’ of the state has only gained strength. During the golden age of capitalism (roughly a time period from late 1940s to early 1970s), the state’s intervention in the economy was considered as an important, if not an essential, ingredient of fostering economic growth and prosperity.

Mainstream economic doctrine always accepted the state’s role in the economy on the basis of market’s failure to provide public goods. Private producers of public goods fail to provide them efficiently (and perhaps inadequately) as markets fail to price such goods properly. The state or the government can then step in to correct such inefficiencies. But the post-World War II time period saw all major countries of the ‘free’ world adopting Keynesian policies that particularly stressed on the government’s role in not just providing public goods but also in ensuring economic growth through demand side management of the economy.

The oil crisis of the early 1970s (and then later in 1979) put considerable pressure on the industrialised economies of the western world. The crisis also resulted in an attack on the Keynesian policies pursued by most industrialised countries and the calls for reducing the government’s role in the economy gained strength. The intellectual foundations for the arguments came from the steady rise of the public choice school in the American academia.

Public choice (the application of economic methods to political phenomena) argued that when non-economic (political) costs of government intervention in the market are accounted for then government intervention results in a political market failure (sic!) of sorts.

The government is found to be just as inefficient in its intervention in the economic sphere when providing public (or other) goods as private producers are in some sectors. The stress was then to minimise the state’s intervention in the economic market. Instead, as a neutral umpire it must provide a bare minimum regulatory framework that allows the impersonal markets to operate and govern provision of all sorts of goods.

Hence, the arguments for privatisation took a whole new shape.

Earlier, privatisation was justified on the grounds of economic efficiency. It was argued that private producers in a competitive environment achieved allocative and productive efficiency and the economy as a whole achieved distributive efficiency. But the possibility of market failure was still recognised and used as the basis of government intervention in certain sectors.

The public choice framework argued that government intervention results in a failure no matter what. The problem lied with the ownership structure and incentives. A public (or state) owned company distorts the incentives of the state-managers, which eventually results in either a loss making state-owned enterprise (SOE) or a welfare loss for the society.

Hence, the conclusion is that the ownership structure of an economic enterprise matters a great deal. Private ownership provides the right type of incentives to ensure profitability and efficiency. The government presence in the market is, therefore, to be shunned at all costs.

The first manifestation of this anti-government/anti-state ideology (captured by public choice theory and neo-liberal economics) occurred in the UK and US in the early 1980s. In both countries, new right-wing governments (in the economic sense of the term) had come into power.

The Thatcher government in the UK launched a privatisation programme that aimed to privatise several state-owned companies and the Reagan government in the US launched further liberalisation of the economy by loosening the regulatory framework that had been in place to check market excesses. Of course, the process of privatisation and deregulation (liberalisation) was not just restricted to these two countries.

In 1989, the programme of economic reforms carried out in the UK and US were enshrined in what popularly came to be known as the Washington Consensus. And privatisation and deregulation were presented among other reforms as crucial to promote growth, prosperity, reduce inequality and — the bane of every government’s existence — fiscal deficits.

From Russia to Latin America, several countries embarked on, with great gusto, the policy of privatisation and liberalisation of their economies under the very visible hands of international financial institutions. In Latin America alone, between 1990 and 1999 over 150 billion US dollars were raised by various countries through privatisation proceeds of the SOEs. Of course, when economic reforms were launched by such fanfare in several parts of the world it also became important to assess them in the post-liberalisation and post-privatisation period.

But before we look at the studies, let us visit another aspect of the economic reforms process. In both the industrialised and developing countries, the Washington Consensus type reform process was also accompanied by a curb on the activities of organised labour. Thus, in the US it started with Reagan’s firing of over 11,00 air traffic controllers who had refused to call off their strike and to back off from their demands. The Thatcher government in the UK refused to budge from its stance after a year-long strike of the miners. The standoff only finished after the miners conceded their demands. In many ways, the actions of the two governments set the tone for governments all around the world where such policies were attempted.

The state-owned enterprises in almost all countries existed with heavy presence of organised labour. In order to push forward the agenda of privatisation and liberalisation, union activity was severely restricted in order to limit union’s ability to protect the rights of the workers they represented. This was achieved either through coercion or by appointing anti-union bosses in the state-run collective bargaining institutions.

Unionised workers were considered to be a major hindrance in hiring cheap labour. The ideology that supported the neo-liberal reform agenda also argued (and of course wrongly) that unionised labour increased wages at the expense of fewer jobs. The other argument was that unionised labour ultimately influences prices making markets inefficient.

Of course, these were mere pretexts and arguably the chief reason behind weakening of unions was to check their political power.

The purpose of the above discussion is to highlight that privatisation and liberalisation policies everywhere were as much a matter of politics as they were of economics but the political (or ideological) agenda was kept hidden by shrouding the arguments for privatisation and liberalisation in a technical language that economics so beautifully lends itself to. Hence, there is no dearth of experts arguing along the lines of ‘efficiency’, ‘profitability’, ‘productivity’, and ‘misallocation of vital or scarce resources’, as if these are the only concerns that matter in running of a state-owned enterprise.

An exhaustive review of studies or the literature assessing the costs and benefits of privatisation around the world is beyond the scope of this opinion piece. Also, I must state in all honesty that there are studies that find privatisation beneficial and there are others that do not. Most have come up with mixed results. In any case it has been very difficult to estimate the true costs and benefits of the privatisation process in their totality.

The Impact of Privatisation: Ownership and corporate performance in the UK (1997) by Stephen Martin and David Parker is a detailed study of 11 firms that were privatised in the UK. The study specifically investigates the relationship between ownership structures and efficiency and profitability among other relationships. It investigates the performance of the 11 SOEs in six different periods — nationalisation, pre-privatisation, post-announcement, post-privatisation, recession and current.

I do, however, invite the readers to look at this work and draw their own conclusions.

When the authors of the study compare the performance of the firms in the nationalisation period with the pre-privatisation, post-privatisation, recession, and the latest period, they say that it’s impossible to conclude that ownership structure (state-owned or privately-owned) matters. To quote them, “the picture with regard to the impact of ownership on performance is mixed”.

The study finds the performance of the corporations on certain variables improve in the post-privatisation period. They also found the growth in total factor productivity (that is the growth in the efficiency with which all inputs are used by firms) declined in post-privatisation period.

This is a non-trivial and controversial result — since such efficiency improvements are precisely the reason economic theory advances in favour of privatisation and liberalisation policies. Also, the strongest punch that they deliver (and most likely inadvertently) is that it is not possible to conclude a change in the ownership structure (from state-owned to privately-owned) was the only way to improve the performance of the 11 firms. This is particularly important when most of the firms showed considerable improvements in the pre-privatisation period, that is the period during which they were primed up (restructured and made attractive) for private buyers but technically were still under state ownership.

The results discussed above are not entirely surprising. Kate Bayliss (2006) argues the studies that show privatisation works don’t necessarily have strong evidence to back their claims. She points out methodological constraints make it extremely difficult to prove it is the change in the ownership that brings improvement in the performance of the privatised SOE.

But at a more general level, Bayliss argues that studies assessing the impact of privatisation are biased towards the private owner.

This, she says, happens when one tries to focus on indicators like profitability, efficiency and more to measure the performance of a firm. This point needs emphasis. When performance is measured against such indicators, it has already been assumed the only purpose of any economic (production) activity’s sole purpose is to maximise profits and do it in an efficient manner. This precludes that an economic activity can be organised for any other purpose. So, according to Bayliss, a bias is already present when one tries to compare the performance of private and state-owned firms working in the same sector or analyse the performance of the same firm in pre- and post-privatisation period.

The discussion so far has focused on providing the historical background in which privatisation and economic liberalisation emerged the world over. We have contrasted the theoretical foundations of the arguments for privatisation and briefly saw how it translated into practice in the real world.

It is pertinent now to focus our discussion on Pakistan’s experience with privatisation. This is important in the current context when calls for mass scale and full rather than partial privatisation of SOEs has been gaining momentum.

One frequently quoted figure is Rs500 billion that the government spends in subsidising various SOEs each year. Some analysts employ a more catching way to put this number. We are told how much the government spends per month, week, day, hour, and second to keep these SOEs afloat. The argument essentially says that the SOEs have now become a fiscal burden and the sooner we get rid of them the better. The freed up resources can then be spent elsewhere.

The fiscal burden argument for privatisation emerged after persistence of fiscal deficits in most developing countries in the 1980s and the 1990s. The push for privatisation and liberalisation became stronger when the policy was seen as an easy way to ease the deficit burden. Again, whether privatising SOEs have resulted in that remains a debatable point. What the evidence does point towards is that fiscal burden was eased off by cutting down social sector spending in various developing countries.

In Pakistan as well some economists have argued that deficit burden was eased off due to cuts in social sector spending and institutional changes governing centre-provincial fiscal relations. Even in theory, the fiscal burden argument for privatisation is used with some caution since privatisation is essentially justified on the grounds of improving efficiency of the economy in general and of the SOE in particular.

Therefore, the privatisation argument holds even when the SOE is making profits. When faced with a loss making SOE, the ultimate decision to privatise must not be made solely on the fiscal burden argument. Agenor has argued that social returns to transfer of resources from public to private sector must be taken into consideration. Again, such comprehensive social cost-benefit analysis has been difficult to prove empirically.

In any case, governments all over the world have had considerable difficulties in privatising loss making SOEs. I will discuss this fiscal burden argument in the context of Pakistan in some detail later but before that it is important to discuss what privatisation and liberalisation policies have meant in Pakistan.

In Pakistan, the privatisation of state-owned enterprises (SOE) accompanied by liberalisation of various sectors of the economy is an on-going process since the early 1990s. The first Nawaz Sharif government had privatised around 90 SOEs in its tenure from 1990-1993. This PML-N government had promised to carry out a similar exercise in its election manifesto for May 2013 elections.

International Monetary Fund’s conditionalities came later but have now linked resolution of our looming balance of payment crisis and persistent fiscal deficits with the implementation of this promise. Hence, the government’s decision to privatise more than 100 SOEs is as much a blast from the past as it is an outcome of the pressure from international lending institutions.

The writer is a PhD candidate at the New School for Social Research and a Research Fellow at IBA, Karachi. The views are his own. fahdali@gmail.com and @alifdaru
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  #323  
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24.11.2013
Articulation through violence
By Tahir Kamran

Munawar Hassan’s enunciation where he has elevated Hakimullah Mehsud to the esteemed status of a shaheed (martyr) has evoked a sharp response from the other side of the ideological divide. This liberal section of Pakistani bourgeoisie articulates its views more on the social media, the scope and spectrum of which is fast growing. But some Jamaat interlocutors react to the liberal take with their usual belligerence through electronic media, which too is profoundly influenced by the right-wing ideology.

Emergence of electronic media appears to have worked wonders for the Jamaat interlocutors. They are using their freedom of expression vehemently against the fast vanishing breed of liberals in Pakistan. The ubiquitous Jamaat spokesmen appear with their ‘incisive’ analysis on almost every subject under the sun on Pakistani channels. That, too, is absolutely mind-boggling particularly in the days when the frontiers of knowledge have become so diversified and virtually limitless. They spout poison particularly against those with liberal views because they are perceived as agents of the diabolical other, the West. They obviously question their loyalty to Islam.

According to them, the upholders of liberal thought cannot be taken seriously and some of them can even be ridiculed as jahil on the most frivolous television debates ever witnessed. However, the army’s concern over that ‘counter-intuitive’ assertion by the Jamaat’s ameer rattled these stalwarts quite tangibly. As a consequence, they were put on the defensive; indeed a rare occasion at least in the last 40 years.

Liaqat Baloch’s condemnatory statement about army’s interference in political matters may put the holy alliance between the Jamaat and the army, conjured up first in 1971 against the Bengalis, into jeopardy.

Hassan’s feting someone like Hakimullah Mehsud as shaheed opens up a new avenue of deliberation around the abstractness of the idea underpinning Pakistani nationalism. When an abstract idea holds precedence over nationalism’s other signifiers like culture, language, geography and a common bond emanating out of the shared history, bloodshed becomes a norm.

Any idea, no matter how great it claims itself to be, needs validity from the objective conditions of the day, a fact which is clearly lost on the Jamaat stalwarts. Interestingly, Hassan did not have any such commonality with the deceased Hakimullah. One of the contradictions in his eulogising Hakimullah pertains to the latter’s stance towards the constitution of Pakistan to which the Jamaat was one of the signatories. Concomitantly, with divergent languages, cultures, geographies and histories, the only glue that unites them is that of an abstract idea.

The argument I want to advance is that to make an idea amenable to practice, what is required are attendant signifiers of nationalism like language, culture, history and geography. That is the only way the idea can be divested of its abstractness and transformed into a livable proposition.

Ironically, in the case of Pakistani nationalism, the abstract idea has secured not only centrality but so much of importance that its other determinants had been squeezed out altogether. Therefore, in such a circumstance, even Pakistani geography ceases to be of any consequence.

The Jamaat ameer, while calling Hakimullah a shaheed, is refusing to attach any importance to the geographical reality of Pakistani nation state. For him, the abstract idea is the only thing worthy of importance. Some of the pro-Jamaat interlocutors have the gumption to say this rather openly on the electronic media.

Another anomaly plaguing Pakistani state as well as its people is the stark difference between the social and the political. Despite the dominant discourse being exceedingly religious, Pakistani people nevertheless are not favourably disposed to hand over the reins of power to the JI or the JUI. Therefore, these political groups/parties have taken a route of coercion to assert their political self. Besides, the religious parties, particularly the Jamaat-i-Islami, have invested substantially in the socio-cultural realm through controlling education and vernacular media, not only conceptually but practically too.

Pakistani state, since its outset, shirked responsibility towards education and health. The Jamaat picked education and started working steadily to have complete sway on it. The decade of 1980s helped it immensely towards that end. The Jamaat was not only visible among the students of colleges and universities but also among the community of teachers. It had a pervasive presence among schoolteachers too.

Gradually, it was successful in having a strong imprint on the ethos of the middle echelons of Pakistani society. Hence, the Jamaat ideology resonates very clearly in the Pakistani media and educational institutions.

Worryingly, the only determinant of Pakistani ‘social’ is the abstract idea, fully couched in a puritanical Islam which sets stringent limits on the expression of the cultural self. Increased interaction with Gulf States, particularly Saudi Arabia, solidified the puritanical streak in all religious parties considerably. Now that the religious parties see no possibility of coming into power, Muttahida Majlis-i-Amal’s rule being the best they could ever achieve, they are influencing the ‘political’ through the ‘social’.

Thus the underlying notion of employing militant means for political gains becomes understandable. Pakistan’s religious right has been gradually turning militant since the Afghan jihad. Now militancy is the only means left for them to express themselves.

The greatest threat posed to the state of Pakistan is from them whose creed gets articulated through violence.

The writer is a noted Pakistani historian, currently the Iqbal Fellow at the University of Cambridge as professor in the Centre of South Asian Studies
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24.11.2013
Justice online
Electronic-tribunals and e-courts are imperative to reformthe existing outdated judicial system
By Huzaima Bukhari & Dr. Ikramul Haq


Our existing justice system is hopelessly outdated, painfully ineffective and marred with inefficiency and inordinate delays. It needs complete restructuring and modernisation but at the same time elimination of causes of litigation should be our top priority. It needs determination, vision and agenda.

Unfortunately, to make matters worse, our political leadership has neither desire nor vision for providing socio-economic justice. The society, as it exists, will remain prone to excessive litigation. The new courts and increased number of judges is no answer to the prevailing malady. The judiciary and legal fraternity has a vested interest in increased number of litigations. They will never support an agenda for reduction in litigation. Faced with this dilemma, the best one can expect is, at least, effective operational capacity of the existing judicial system that can be achieved by employing better human resource and application of latest technology.

In recent years, the establishment of e-courts in many countries have revolutionised the process of dispensation of justice. In Pakistan, Lahore High Court started use of information technology (IT) as early as in April, 1991 when a Computer Cell was inaugurated — this was the first ever use of modern technology in any judicial department in Pakistan. Since then, substantial progress has been seen in all courts in the use of IT tools for swift disposal of cases and curtailing the backlog. At the moment, application of IT is to the extent of displaying cause-lists on websites of Supreme Court and High Courts, providing vital information related to judiciary and judicial process as well as reporting of important cases. However, the goal of accelerating disposal of cases through e-courts and mobile e-benches is still a dream.

The Indian Supreme Court started e-courts project in 2005 aimed at computerising all courts including taluk (local) courts. The project, during the last eight years, has shown some success.

In Pakistan, National Judiciary Automation Committee (NJAC) has taken many good initiatives towards computerisation of processes since 2010. Both India and Pakistan are just concentrating on automating the processes, which is no doubt good work. However, the real need is that of establishing e-courts and e-benches along with a facility to record statements of witnesses through video conferences, filing papers online, and conducting hearings using IT technology which alone can help in accelerating the process of speedy disposal of cases and making it cost-effective. In these areas, the western countries are far ahead while all South Asian states are still lagging behind.

In Pakistan, for establishing e-benches, a beginning can be made from tax appellate apparatus that can be treated as a pilot project. The establishment of e-benches can reduce pendency of tax appeals and save substantial amount of taxpayers’ money needed for setting up physical offices at different places. The establishment of e-benches can definitely help in delivering justice at the litigants’ doorstep.

Presently, pendency of appeals in Tax Tribunal is over 30,000. If a bench is not functioning in a particular place, say in Multan, in case of an emergency for stay of recovery, the taxpayer is compelled to file an application in Lahore and bear the cost of travelling, boarding, lodging etc. For those in remote areas, situated far away from the nearest available tribunal bench, it’s both costly and time consuming.

The working of e-bench of Appellate Tribunal Inland Revenue and Customs Appellate Tribunal would help taxpayers, tax consultants and tax administration. For example, appeals at Faisalabad, Multan, Sialkot and Gujranwala can be heard at e-bench of tribunal at Lahore. The consultants and departmental representatives at these places could visit the nearest tax office and present their case. Members sitting at Lahore can hear the case through video conferencing and pronounce their judgment. Establishment of e-benches can be extended to all cities of Pakistan where tax offices exist but the tribunal has no establishment.

Income-tax Appellate Tribunal, established on 25th January, 1941, after independence, was retained by India and Pakistan as such, except that we changed the nomenclature to Appellate Tribunal Inland Revenue (ATIR) on 28 October 2009 through a Presidential Ordinance in the wake of amalgamation of income tax and sales tax into one unified group. The Tribunal, which has already completed 72 years of its existence, is considered as mother of all tribunals.

In Pakistan, it has permanent seats at Lahore, Islamabad, Peshawar and Karachi. In India, it has 27 stations and 63 benches. Since Customs and Inland Revenue Tribunals deal with federal taxes, these should be merged and upgraded as National Tax Court, working directly under the Supreme Court. This would relieve High Courts of undue workload of tax cases. Two-tier tax appellate system — as is the case with Federal Service Tribunal — will ensure speedy disposal of cases involving state revenues.

There is not only a dire need to convert existing tax tribunals into National Tax Court, but also transform them into e-tribunals using modern technology. In India, an initiative in this direction has already been taken. The author of this initiative very aptly observed: “what was in the realm of fantasy till yesterday is now in the realm of reality thanks to the forward-looking approach adopted by the tribunal”.

The Tax Tribunals in Pakistan are grappling with the problems of paucity of members and the increasing case load. It is time that Ministry of Law initiates setting up e-benches to solve the problem. This would help clear the pendency of cases and bring justice to the taxpayers’ doorstep. If the concept is successful, it can be extended to the High Courts and the Supreme Court. This can be the best initiative to revamp the tax justice system in Pakistan — the only prerequisite is willingness on the part of Ministry of Law & Justice to replace the outdated setup with modern apparatus for the benefit of people.

The federal law secretary should immediately consult chairmen of Tax Tribunals and their members to take concrete measures to establish e-tribunal for better administration of justice. For this purpose, an interactive meeting should be held between the chairmen of Tax Tribunals, their members, representatives of tax bars and Federal Board of Revenue (FBR). They should constitute special committees to give proposals as to how the concept of e-tribunal could immensely benefit the taxpayers, tax administration and tax consultants.

In Pakistan, setting up e-benches of Tax Tribunals will not require substantial spending as existing facilities in Customs Houses, Large Taxpayers Units (LTUs) and Regional Tax Offices (RTOs) can be utilised. This would enable the consultants to represent the matter from their own city. This, apart from facilitating taxpayers and tax consultants, would reduce the pendency of cases, save substantial capital and recurring expenditure of the government which can be used for more productive purposes. Above all, there would be complete transparency in justice delivery system. Recording of the proceedings would eliminate any chance of malpractice or allegation of miscarriage of justice.

In many countries, there is an even more exciting initiative called e-mobile court that is a specially designed vehicle having facility of e-library, with all modern technology and as soon as the hearing is over, judgment is delivered to both the parties. This brings transparency and eliminates delay in the justice delivery system. If the concept of e-mobile court is implemented, justice will be at the doorstep of every citizen in Pakistan. Through this mechanism, litigants could get justice within six months of filing of petition or suit in the respective tribunal/court. In Pakistan, it can bring a revolution in the justice delivery system, provided the Supreme Court makes it a priority item on its agenda of judicial reform.

There is an urgent need to establish e-tribunals, e-courts, e-benches and e-mobile courts. It is time that Chief Justice of Pakistan, Chief Justices of High Courts, chairmen of all tribunals, the Ministry of Law and Justice, professional bodies of lawyers, media and civil society join hands for reforming our existing outdated and pathetic judicial system.

The writers, lawyers and authors of many books, are Adjunct Faculty at Lahore University of Management Sciences (LUMS)
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24.11.2013
Under the hammer
Government’s intentions to privatise 32 public entities is part of the same old course of expediency and not prudence
By Ali Javed Manj


With the return of the PML-N to power, that dreaded old ghost of privatisation is back from the dead, with the full might of IMF propping it up. Ishaq Dar, who also holds the portfolio of privatisation, cannot hold his glee spilling out his intentions to put 32 public entities under the hammer. However, true to their form, the details provided so far by the PML-N government are sketchy at best. PIA seems to be the first one to go, with 26 per cent of its shares and a management handover being planned.

There seems to be two reasons for this current push for privatisation. First, in the opinion of both our and IMF’s economic planners it is perhaps the only reliable source of domestic funds to act a buffer to avoid the recurring nightmare of tipping over the fiscal cliff. Second, as judging from the history of both privatisation in Pakistan and by the PML-N itself, it is an easy and one of the least hassle free ways to earn large sums of money, in kickbacks and commissions.

The perpetual state of inaction and myopia on part of our policy makers has morphed easily manageable policy targets into gargantuan structural problems. The resultant set of policy mind-set (commonly present in both dictatorial and democratic dispensations) has resulted in creating rules and institutions so unabashedly extractive that our entire societal fabric is beset with fissures and upheaval.

The current IMF programme, Pakistan’s 9th, creates an impression to force feed the long-term structural reforms, but in fact it relies only upon extra-short-term measures to address the immediate problem of fiscal imbalances. The current drive for privatisation, along with steep and sudden hikes in electricity and fuel prices, is the obvious response.

Privatisation is a sensitive subject all over the world, arousing passionate, and often heated, emotions from both its opponents and proponents. The argument, that it is beyond the appropriate role of a government to run businesses like airlines and steel mills, appears sound and pragmatic at first. In Pakistan, state-run corporations are haemorrhaging more than Rs500 billion annually and are a major source of the fiscal quagmire we find ourselves in. Efforts to reform and turnaround these beleaguered entities will cost additional huge lumps of money, which we don’t have. So it is better to transfer their existing debt and future reform costs to some private sector firm willing to take up the challenge.

This may seem easy enough but the whole story is not as simple as it might seem. The empirical evidence, from our own past experiences and from all over the world, points to widely varying and unforeseen outcomes.

There has been no evidence that privatisation, as originally formulated and pushed forward by the propagators of the so-called Washington Consensus, has proven to be a game changer in pushing forward the overall growth trajectory of a country. In fact, the evidence shows that, in both middle-income and low-income countries, privatisation has brought far more harm than good.

There have been huge differences in the way privatisation has been carried out in developed and developing countries. In developing countries, privatisation has been pushed forward mainly under the guise of IMF stability programmes. The IMF always insists upon the quick disposal of public entities in order to reduce the public debt, without any regard to safeguard the long-term public interests and ensure the improvement in delivery of services. The havoc it has caused in many countries from Argentina to Bolivia to Russia is self evident. But, as it is with all kinds of fundamentalism, the proponents of market fundamentalism don’t seem to fathom the flaws in their failed theories, even as the evidence proves otherwise, and the IMF is the most extremist of these fundamentalists.

The privatisation laws in Pakistan, formed at the behest of the World Bank and the IMF, state that 90 per cent proceeds from the sale of the public entities should be used to retire the debt the country owes. This is one of the most perfect examples in the world of the neo-colonial policies of the international financial institutions and it is downright brutal. The level of debt we owe, to both foreign and domestic creditors, has never had a downward trajectory. The only direction it knows is up. So why sell our prized assets, which the poor people of Pakistan have financed through their blood and sweat, to pay for the mismanagement and corruption of the same ruling class hell bent on ruining their infrastructure just to make a quick buck.

Here the obvious questions arise that, why the government doesn’t fix its own house in order? Why there has been no earnest attempt to improve the performance of loss making public entities (it has been known to happen, like the turnaround of Pakistan Steel in early 2000s)? Why there is no drive against corruption (said to be in trillions of rupees)? Surely if a process of reducing non-developmental expenditure and an effective drive against corruption is begun in earnest, in a period of two to three years the desired fiscal space can be created which will bring long term stability and growth. To privatise, all the 31 intended entities will take much longer. Without the necessary reforms no matter how many entities may be sold, ultimately we will be back to square one. This is not a highly enlightened argument. It is common sense. Yet, the IMF agreement is silent about it.

Since the start of privatisation programme in 1991, GoP has so far netted Rs476.4 billion. Has it solved anything? In fact, since 1991 Pakistan has gone to the IMF six times. Yet, what has been learnt from the past? Time and again, we have found ourselves at the same juncture and have adopted the same course, one of expediency and not prudence, while the costs of this myopic behaviour have been rising ever higher.

Meanwhile, the pirates are already circling off our shores. They have chosen their prey. Let the privateering begin.
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24.11.2013
Our Language dilemma
The imposition of first Urdu and now
English as the medium of instruction in primary schools, was, and is, ensuring that we
continue to produce half-educated and half-articulate students
By Yaqoob Khan Bangash

A couple of weeks ago, I went to India for a few conferences. The first conference was at Panjab University in Chandigarh, the second one at Punjabi University in Patiala and the third one at the Institute of Defence Studies and Analyses in Delhi. While I had been to Delhi a few times, this was my first visit to the Indian side of the Punjab — and what an eye-opening visit it was.

I landed in Delhi and took a taxi to Chandigarh, the planned city, which was supposed to replace Lahore as the capital after partition. Being a pucca Lahori, of course, I knew that nothing could ever replace Lahore, both in reality or in the imagination of the people, but I was still curious to see the ‘replacement.’ Chandigarh, like Islamabad, is a planned city of the 1950’s and reflects that in its wide boulevards, demarcated housing spaces, green belts, and assigned commercial areas. Obviously, with time, these delineations have blurred, but still the city gives a new, refreshing look. However, what surprised, and pleased me, was the fact that despite its modernity, it was still an avowedly, and unashamedly, Punjabi city.

My host institution in Chandigarh was the Panjab University. I was very eager to visit this institution, since it was set up by scholars who left Lahore in 1947. After almost a decade of uncertain existence, the university finally settled in Chandigarh in 1956, just as the new city was taking shape. Being a newly reconstituted university in a new city, I imagined that the university would be very modern and Westernised in its outlook and only ‘Panjab’ (the old spelling of the province and the university) in name. However, when I was attending the international seminar to celebrate the 150th birthday of Professor Ruchi Ram Sahni entitled, ‘The Making of Modern Punjab: Education, Science and Social Change in Punjab c. 1850-c. 2000,’ I was shocked by many things.

First, the conference was celebrating the pioneer of modern science in the Punjab who lived his most significant years in Lahore where he was a professor at the Government College. Having never heard his name before being invited to this conference, I was very impressed when I learnt about Professor Sahni and his contributions towards popularising science education in the Punjab. He was indeed one of the first generation of scholars in the Punjab who spearheaded the movement towards modern education in the province after its annexation by the British.

The foundation of Government College Lahore and Forman Christian College Lahore, and St. Stephen’s College Delhi, as well as the Indian Academy of Science, owes a lot to people of his generation who set up and led modern educational initiatives in the Punjab. It is such a pity that people like Prof. Sahni are now forgotten in the Punjab, even in the college he taught in, and even the medal initiated in his honour, is, I think, discontinued. His work and legacy certainly deserves more than just this short and insufficient paragraph.

As the conference opened, I was amazed that the Vice Chancellor, Professor Arun Grover, a distinguished scientist, spoke in Punjabi. In fact, he even said that he would highly appreciate if speakers could try and speak in Punjabi as that was the best medium to communicate in. I was simply shocked that an international conference was being conducted in Punjabi! Such confidence and ease with the mother tongue is simply unthinkable in Pakistan. I was wondering if the Vice Chancellor of the University of the Punjab Lahore would speak to an international gathering in Punjabi and encourage others to do so? This is perhaps unthinkable at the original seat of the University of the Panjab in Lahore but normal at the reconstituted Panjab University, which incidentally is in the 226-250 bracket in the world in the Times Higher Education listings, scores of places ahead of any university, let alone the University of the Punjab, in Pakistan.

Similarly, I was astounded when I went to Punjabi University in Patiala. Established in 1962, the aim of this university is to further ‘the cause of Punjabi language, art and literature.’ Spread over an area of five hundred acres, with over five hundred faculty, nine thousand students, and 166 affiliated colleges, this university is at the forefront of Punjabi medium education in Indian Punjab.

At Patiala, I spoke at the South Asian History Conference convened by the dynamic historian Dr Kulbir Singh Dhillon. There I also met the Vice Chancellor of the university, Dr Jaspal Singh, who is a former Indian diplomat. He, too, like Professor Grover, spoke mainly in Punjabi even though he was equally proficient in Hindi and English. In fact, at the conference a number of scholars presented history papers in Punjabi, and a number of official sessions were also in Punjabi.

Seeing the enthusiasm of the students, the scholarly endeavours of the professors, and the general excitement generated by the conferences I spoke at, I wondered why such an environment is not present in Pakistan. Travelling through Indian Punjab, it was patent how the locals have taken on modern education and how it had positively affected their lives. The literacy rate of Indian Punjab stands at over 80 per cent today, at least 15-20 per cent ahead of Pakistani Punjab, and this was clearly reflected in the vibrancy of the universities and life there. I wondered where we had gone wrong? And why we were lagging behind?

There are several reasons behind the different trajectories of the two Punjabs. However, here I want to focus on one of them: Language.

When I came back from India, I happened to come across a book written by Hanif Ramay called, ‘Punjab Ka Muqaddima,’ Punjab’s Lawsuit, published nearly 30 years ago. Ramay dedicated the work to the then ‘five crore Punjabis who have no language.’ He further noted: ‘I apologise for not writing the book in Punjabi. But maybe “Punjab’s Lawsuit” needs to be presented in Urdu, since the Punjabis have discarded the Punjabi language.’

This short dedicatory sentence very aptly summed up the book, as well as the stark reality. In this very well written book, Ramay laments the state of Punjabi in Pakistan noting, rightly, that in trying to become ‘Pakistani’ the Punjabis forgot their own ethnicity, culture and language. The ‘Speak Urdu, Read Urdu, and Write Urdu,’ campaign, he notes, did make Urdu the lingua franca of Pakistan, but killed the Punjabi language. He wonders if any in the Punjab can even read or understand, Waris Shah’s ‘Heer’, Maulvi Ghulam Rasool’s ‘Yousaf Zuleikha’, or Mian Muhammad Bakhsh’s ‘Saif ul-Mulook’.

Similarly, he grieves that even elements of Punjabi culture — its dress, food, household things, dances etc — are slowly dying out. ‘If other provinces did not wear the Kurta, even that would have died out in the Punjab,’ Ramay exclaims.

Ramay’s thought provoking book might seem bizarre to some for lamenting the state of the Punjabi in Pakistan. After all, is the Punjab not the dominant force in Pakistan? Are the Punjabis not controlling the military, the bureaucracy, etc? Are the Punjabis not practically ruling the country and ignoring the fair demands of the other provinces? All this is true, but what Ramay is pointing out is that in doing all of the above, the Punjabis have lost their own language and culture.

In trying to make ‘Pakistan’ synonymous with ‘Punjab’, the Punjabis discarded their language and culture and took on the more acceptable north India Muslim culture. Therefore, at the moment the Punjab is the only province in the country where there is no real provision for the promotion of its language and culture. People in Sindh are taught Sindhi in school and even some schools teach Pashto in Khyber-Pakhtunkhawa, and some schools Balochi in Balochistan. However, hardly any school teaches Punjabi in the Punjab.

In Lahore, I only know of the Lahore Grammar School which started Punjabi classes a few years ago. Except for that school, no one else has even ventured to teach the language which is supposedly the first language of a majority of Pakistanis. At the higher education level, the University of the Punjab only started a Department of Punjabi in 1970 — which is eight years after the Indian side established a full-fledged Punjabi medium university! Even now, except for Punjab University, the Government College and Oriental College properly teach Punjabi, and other institutions only occasionally dabble in the language. The Punjabi medium is not even a consideration in Pakistani Punjab, and even the teaching of the language is still considered slightly odd in its own province.

Even in terms of culture and tradition, I have seen — just through my own experience — how Punjabis in Pakistan are increasingly cut off, and even embarrassed, from their culture. When Forman Christian College, where I teach, allowed local dress on Fridays, I asked a class of mine — which had a majority of Punjabis — what would they wear, and everyone said that they would wear Shalwar Kameez. On inquiring how this was their ‘local dress,’ a number of them responded that how could they wear the Punjabi dress of ‘kurta’ and ‘dhoti’ since that was ‘paindo,’ and inappropriate.

When I told them that in India, Punjabis, and others, did not have such qualms about wearing local dress, and that in fact, the prime minister of India, Dr Manmohan Singh, still wears an inexpensive kurta pajama, and that the ex-prime minister of India, Atal Behari Vajpayee, regularly wore dhoti, some of my students were simply shocked.

Since coming back from Indian Punjab, I have dwelt quite a bit on the question of Punjabi language and culture. Even though I am not a Punjabi, I have lived most of my life in Lahore, and at least consider myself a Punjabi by adoption. My Indian Punjab trip has made me realise the critical importance of the mother tongue in the development of a person, a people, a country, a civilisation. The confidence and clarity with which students interacted with me in Chandigarh and Patiala was predicated in the fact that they were conversing with me in their mother tongue — I could understand them and they could articulate their thoughts to me.

How often is the main problem in Pakistani higher education the issue of language where students simply cannot articulate themselves in either English or Urdu, both commonly spoken but rarely mastered languages in Pakistan. Often I comment in my classes that I would teach students in any language if they knew any language well enough.

The real predicament in education in Pakistan is that students do not know any language well enough. I am no language specialist, but even from my cursory reading, I know that there is enough evidence that students learn better if they are taught in their mother tongue in their primary school years, and they are better able to learn a second language well if they know their mother tongue sufficiently. The imposition of first Urdu and now English as the medium of instruction in primary schools, was, and is, ensuring that we continue to produce half educated and half articulate students.

Hanif Ramay wrote his ‘muqaddama’ in 1985, and sadly died in 2006, yet it seems that no one is willing to fight his case. While a wholesale change in thinking will not come and decades of the ‘embarrassing Punjabi language and culture’ tag will not easily go, at least we in the academia can try and fight the case in our own small way by encouraging the study of the Punjabi language (and other regional languages), and by instilling confidence in our students to be accepting and proud of their culture and traditions. Let us not let another thirty years pass.

The writer is the Chairperson of the Department of History, Forman Christian College, and tweets at @BangashYK. He can be contacted at: yaqoob.bangash@gmail.com
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24.11.2013
The Valley without a vision
Sabre rattling by the representatives of India and Pakistan on the Kashmir issue is futile, and there will be no headway until the process of political negotiations and accommodation begins
Dr Nyla Ali Khan

The conscription of a legitimate political space, attempts to decimate institutions of governance, and the inability of political organisations in the state of Jammu and Kashmir, mainstream as well as separatist, to uphold and voice regional political aspirations have caused a loss of faith in the populace and, in my opinion, an unfortunate lack of knowledge about the evolution of a nationalist and political consciousness in Kashmir.

A lot of people at this time do not have the courage to overtly espouse the putatively wilting political cause of struggling for the autonomous status of Kashmir and for the right of the people of Kashmir to determine their own political future.

A state in which the rulers are handpicked by the federal government, governance and non-governance are nearly synonymous, because the rulers of such a state are constantly at the beck and call of their central government, the strategy of which may well be to render the state administration dysfunctional. The so-called packages in pre-partition India, a network of railways throughout pre-partition India, development of international airports and deep sea harbors, establishment of medical and engineering institutions, the building of a new capital city including Lutyen’s Delhi, and the military GHQ in Rawalpindi by the British colonial power did not stop Mahatma Gandhi, Jawaharlal Nehru, and Mohammad Ali Jinnah from carrying their mission forward to its logical end as we see today. This brings me to reiterate that Kashmir is a political problem that can be solved only by a political process, which includes the prime and most important party to the problem, the people of Jammu & Kashmir.

A nation-state cannot continue to wield its military might to render the political process in a conflict zone dysfunctional. Ideally, politics should be governed by conviction and the ability to sway public opinion in one’s favour by one’s moral, legal, and constitutional authority, but in this day and age, politics is the art of pragmatism.

A strong and prosperous India is a guarantee to peace in our region, but a strong and prosperous Pakistan would strengthen that guarantee. So gloating over the instability in either one of these countries serves no purpose and proves detrimental to peace in our region. The goal should be to find a practical solution to the deadlock that would enable preservation of peace in the Indian subcontinent, while maintaining the honour of everyone concerned.

The translation of a political and social vision into reality requires an efficacious administrative set-up and vibrant educational institutions, which produce dynamic citizens while remaining aware of the exigencies of the present. Stalwart politicians who were unable to understand that the changing nature of a struggle required a new vision and pioneering spirit ended up becoming marginalised. A political movement that pays insufficient attention to the welfare of the populace, good governance, and rebuilding democratic institutions ends up leaving irreparable destruction in its wake.

An insurgency or militant nationalist movement that lacks such a vision is bound to falter. The electoral process and establishment of a government are not ultimate goals or ends in themselves but are means to nation-building and societal reconstruction. Even religious and political rhetoric remains simply rhetorical without a stable and representative government.

We cannot underestimate the importance of standing up and being counted. It is important to understand that powers vested in ministers are by the people who elect them to legislative assemblies, unlike the bureaucrat. It is ironic though that India is a country that is run by bureaucrats, because ministers get claustrophobic within the four walls of their offices.

Sabre rattling by the representatives of India and Pakistan is futile, and there will be no headway until the process of political negotiations and accommodation begins. Until the restoration of autonomy as a beginning, even the people-oriented approach adopted by the then Vajpayee-led NDA government and Musharraf’s four-point formula would remain merely notional.

The writer is a faculty member at the University of Oklahoma and a member of the Scholars Strategy Network
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24.11.2013
The horrid political economy of the rupee
A safe level of reserve accumulation and a true value rupee is not round the corner
Dr Pervez Tahir


On the nineteenth of this month last year, you could buy a dollar in the open market for Rs97. The rate touched the Rs100 mark on the eleventh of February, 2013. On the day Ishaq Dar took oath as the finance minister, that is the eighth of June, the exchange rate stood at Rs99.9. It rose sharply to Rs109.95 on the twenty sixth of September. After a brief respite, it is heading north again, as the thirteenth of November witnessed it at Rs108.7. The State Bank quoted its own conversion rate on the same date at Rs107.5. The gap between the two rates has widened over time.

Why has the rupee become so horrid?

In popular parlance, a falling currency connotes a failing national honour. Politicians fear it as it could cost them dear at the hustings. Economists think it is just a price, like any other. Political economists have varied interpretations.

In Oscar Wilde’s The Importance of Being Earnest, set in colonial times, Miss Prism the governance tells Cecily, the child under her care, while going for a walk: “you will read your Political Economy in my absence. The chapter on the Fall of the Rupee you may omit. It is somewhat too sensational. Even these metallic problems have their melodramatic side.” Cecily picked up the books and threw them back on table —“Horrid Political Economy!”

Why does everyone want dollars?

The answer is exceedingly simple: Because we don’t have enough of them. There is no way of knowing exactly how much is enough, but we know it when the rupee stops shedding points by the minute. Who are the players here? Speculators have been mentioned by the finance minister himself. His infamous affidavit some years ago suggests he understands this game more than anybody else.

In anticipation of continued depreciation, the speculators buy dollars to make a killing. The adventurous among them suffer from the winner’s curse: they tend to overplay their hand. Generally, the thin spread in the market makes it infrequent. Some find profit in buying dollars locally to ship abroad with the objective of reimporting as tax free remittances.

The NAB chairman had talked of millions leaving the country every day.

Remittances did take a high jump in July and a smaller one in September, but the months of August and September saw absolute declines. A recurrent pattern is hard to see. Trade invoices are also misquoted to take advantage of depreciation, but the practice has not become as widespread as to cause a crisis.

Another set of players in the market includes multinationals, large commercial banks and financial firms doing business across the world in multiple currencies. Normally, these players are hedging against exchange rate risk.

The most important player is the one without a profit motive — the State Bank of Pakistan. It intervenes in the market to support the rupee value by selling dollars. The purpose is to give a signal to the profit-seeking players that they can’t go on gaining. Whether this outcome materialises depends on the foreign exchange reserves at the disposal of the State Bank.

The State Bank counts the total liquid foreign exchange reserves as net reserves in its own vault plus net reserves with the scheduled banks. What matter in the short run are the net reserves with the State Bank. Normally, the reserves with the State Bank exceed the reserves with the commercial banks.

But, the opposite has been true since August this year. Reserves with the State Bank have become half of what they were a year ago, falling from 8.7 billion dollar in November, 2012 to 4.2 billion dollar on November 1, 2013.

Many would blame the nearly 9 per cent depreciation of the rupee since Ishaq Dar took oath of office on his agreement with the IMF.

India has no agreement with the IMF and yet it has allowed its currency to depreciate. In our case, the blame sticks but only partly. The rupee had begun to fall much earlier. In a climate of declining net inflows of capital, it became impossible to finance even a current account deficit as low as one per cent of GDP. With limited reserves at its disposal, the State Bank was attempting to defend the rupee against the dollar. The IMF was expected to shore up these reserves. Instead, it put a stopper on the State Bank’s intervention in the market to support the rupee. Rather than selling dollars in the market, the State Bank was made to buy dollars to build reserves.

There was thus a policy shift — from preserving the value of the rupee to letting it depreciate.

A sum of 125 million dollars was purchased from the market to fulfill a prior condition of the IMF. The recent IMF mission was not here earlier than expected because it felt great about our performance, but because the net reserves of the State Bank fell short of the target.

According to the agreement, “Reserve losses exceeding $500 million in any 30-day period during the program will trigger consultation with IMF Staff.” A revised letter of intent signed by the finance minister and the governor of the state Bank has become necessary.

Further, a new commitment is required to bring in alignment the exchange rate and monetary policies. Effectively, this means that the burden of controlling inflation shifts from monetary policy to the exchange rate policy. As the exchange rate policy aims at continued depreciation of the rupee, prices in Pakistan are likely to experience the full effect of the vagaries of the global market.

In any case, the control of inflation is not a key objective of the agreement with the IMF in the first year of the programme.

Since the fifth of September this year, the annualised Sensitive Price Indicator has jumped from 6.99 per cent in the week ended on the twelfth of September, 2013 to 13.89 per cent in the week ended on the seventh of November, 2013. In October 2013, the Consumer Price Index was 9.1 per cent compared to 5.1 per cent in May 2013. For the same period, food inflation has gone up from 6.5 per cent 9.8 per cent.

Depreciation cheapens exports and makes imports more expensive. In July-September, 2013, exports have increased healthily by 9.23 per cent and imports by 2.99 per cent. Exports paid for 60 per cent of imports, up from 57 per cent in the corresponding period in 2012. The recovery in exports is led by the textile group with a growth of 15. 3 per cent in September, 2013. Export of services has fallen sharply compared to the import of services in July-August 2013.

Between June and September, 2013, the Federal government’s external debt increased by 8 per cent, as depreciation adds to debt burden. This does not include the IMF debt. Total external debt and liabilities stood at 60,431 million dollar on September 30, 2013 compared to 59,779 million dollar. Debt servicing also increases by the full extent of depreciation. Trade gains are minimal compared to the increase in debt burden. With inflation entering double-digit, the trade gains might not last long. Import compression may do the trick, but the elite won’t stand it.

On balance, a safe level of reserve accumulation and a true value rupee is not round the corner. The international lender of the last resort is also back — rather than front-loading its installments. Large scale manufacturing growth at 8.37 per cent in July-September 2013 is encouraging. As there is no end to energy shortages and internal security is worsening, economic revival in the medium term is difficult to realise. While the common person suffers the full brunt of inflation fuelled by a depreciating rupee, the economy is likely to see neither stability nor growth in the medium term.
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24.11.2013
No Iran’s nuclear question
The unending saga of Iran’s nuclear programme and the world’s objections to it
By Dr Arif Azad


No sooner had the hopes soared for a historic interim deal on the Iranian nuclear programme on November 10 that they were dashed by French objections to the proposed deal. Only time will tell whether the November 10 constituted a huge missed opportunity or a nail in the coffin of slowly evolving comprehensive deal on the Iranian nuclear programme – with huge ramifications for regional politics in the coming decades.

The Geneva talks convened on November 10 centered on an interim six month deal before a broader understanding of comprehensive deal on the Iranian nuclear programme in return for relaxation of tough sanction regime. The interim deal, worked out between the US and Iran, and seemingly enjoying the concurrence of the five permanent Security Council members plus Germany, was expected to be inked on the day with the US secretary of state, John Kerry, flown in especially for the occasion.

However, hours before the deal, France raised last-minute objections which hinged on diluting the concessions implied in the document to Iran’s right to enrichment, Iranian 20 percent uranium enriched stockpile and on the continuing construction of plutonium capable Arak nuclear plant.

The raft of objections was so obstructive that negotiations had to be adjourned to assess the extent, and implications, of the French objections. The US negotiating team was also at odds with the Iranian interpretation of the Nuclear Non-Proliferation treaty (NPT) which gives the signatories inalienable right to enrichment.

Most seasoned observers see the US objections as unreasonable. More worryingly, the chances for a breakthrough are receding if the chain of events between the last and next round of negotiations are analysed a bit more closely.

Immediately after the Geneva talks failed, US Secretary of State, John Kerry, toured the Gulf states with an important stopover in Saudi Arabia — determined opponents of the deal — to probably discuss the post-Geneva scenario. In tandem, French Pesident François Hollande, also toured Israel to reiterate France’s tough stand on the Iranian nuclear negotiations.

Meanwhile, Israeli prime minister has been actively wooing US Congress and American Jewish leaders in a bid to tighten screws on Iran in order to set terms so punitive and humiliating for Iran that it makes it impossible for Iranian leadership and the hard line elements within the ruling elite to digest terms of the deal.

This troika of naysayers (in The Guardian’s Jonathan Steele’s formulation) may be getting close to generating enough momentum and propaganda in favour of a no-deal. Why this newly aligned troika is hell-bent on torpedoing the long-stalled deal. Each party has a lot to gain from a no deal scenario.

Israel is a long-standing opponent of Iran’s growing power in the Middle East. In particular, Israel is opposed to Iranian nuclear programme which it sees as an existential threat to its survival. That is why Israel has always pushed for a military solution of the Iranian nuclear issue even if it has to go alone. Saudi Arabia, for its own regional considerations, is apprehensive of Iran’s escalating influence in the region in the aftermath of non-military solution to the Syrian chemical weapons crisis which has put Iran in a pole position.

Moreover, as Jonathan Steele has pointed out, shutting Iran from oil export market through continuing economic sanctions serves Saudi interest in terms of higher oil revenues. France, keen to capitalise on growing fracture between Saudi Arab and the US over the Syrian crisis and wider regional issues, stands to gain in terms of more weapons sale contracts. In addition, France has an on-going defence pact with UAE which obliges it to pull itself behind the Gulf States in confrontational scenarios.

Knowing the high stakes involved, the US government is actively pursuing pro-deal mobilisation strategies. This has involved engagement with Congressional and Senate leaders to convince them of the need to refrain from passing any legislation for further sanctions at a time when the deal looks imminent. The US government is also lobbying for progressive Jewish groups to gain support for the proposed deal.

An increasing wind is being pumped into the sails of pro-deal camp by influential columnists and opinion-formers in the west. Simon Jenkins, a Guardian columnist, has advocated greater opening to the new Iranian leader. Similarly, Roger Cohen, of the New York Times, has demonstrated a consistent pro-deal streak in his columns. Roger believes that this is the best Iranian team of negotiators and an opportune moment for regional peace when a war weary US and sanctions weary Iran have every reason to sing from the same song sheet.

However, there are instances from the past which show that if this opportunity is passed up then another may not arrive for decades with disastrous consequences for the region.

David Ignatius of the Washington Post maintains that in 2003 a similar moment was at hand. On that occasion Israel and the US employed similar rough and tough tactics with the Iranian team of negotiators led by the current Iranian president, Hassan Roughen. Iran offered to limit its programme then.

Yet the US-Israeli combine pushed Iran into a situation where terms of the deal became domestically unpalatable for Iranian negotiators. (Israel seems to be resorting to the same strategy again). For his part, knowing the history of nuclear negotiation, Iranian President, Hasan Rouhani, has bent over backwards to pave way for the interim deal.

In the latest press reports, Iran’s negotiating team has even agreed to find a way around its insistence on Iran’s right to enrichment in addition to offering further concessions on limiting the programme to 3.5 percent uranium enrichment threshold, thus limiting the programme to strictly civilian level. These are huge concessions which must be constructively built upon by the P5+1.The only cheerful news is that P5+1 group is optimistic about the prospect of arriving at a satisfactory interim deal despite huge obstacles created by well-concerted campaign by deal-busters.

arif_azad6@hotmail.com
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01.12.2013
The basis of historical evidence
By Fahd Ali


Looking at the various studies on privatisation of the banking sector as a 'success story' and the potential in privatising electricity distribution companies especially on grounds of efficiency.

The Pakistan Muslim League-Nawaz government has listed some 31 state-owned enterprises (SOEs) for privatisation in the near future. There is no information available at the moment about the modalities of the process but, most likely, it will be along the lines of the procedure followed at the time of privatising Pakistan Telecommunication Company Limited (PTCL) when the government technically only ‘partially’ privatised the SOE but gave up its control over the management of the company. This is how it works.

Government offers 26 per cent shares with management control in these companies to private investors and retains a maximum of 74 per cent shares with it. The management control is given by writing down in the contract that each 1 per cent of the privately owned share carries 4 votes (as opposed to 1 vote for each percentage point of the remaining 74 per cent) in the board of directors (BoD) of the privatised company. This way, the minority shareholder private company (or consortium) commands 104 votes in the BoD and hence also manages the daily and other affairs of the company.
Governments usually face little difficulty in privatising profit-making enterprises. Selling loss-making enterprises poses a much difficult challenge. This is why each privatisation phase is preceded by a restructuring phase. This is the time period during which the SOEs are primed or dressed up before they are sold off.

This is done to ensure the future hiring and firing and investment decisions are in line with the aims and objectives of the new private owner-cum-manager.

Let us now focus our attention on what the evidence actually suggests. The frequently quoted success stories of privatisation in Pakistan are the banking sector and the telecom sector. In electronic and print media, their profitability is presented as an irrefutable evidence for their success. We earlier argued that privatisation argument is made on efficiency grounds.

Let us see what various studies done on the performance of the banking sector in Pakistan say about this indicator. The conclusions give one many reasons to be more humble in claiming undeniable virtues of the privatisation policies. Akhtar (2002) studies the efficiency of privately-owned, public-owned, and foreign banks in Pakistan for the year 1998. He concludes that in terms of efficiency, privately-owned banks do better than the other types and therefore give support to the privatisation argument. A closer look at his results suggests that such a strong conclusion is unwarranted.

Akhtar develops a mean score for efficiency for all three types of ownership structures. The average score for overall efficiency for privately owned banks is 0.80, for publicly owned banks is 0.77 and for foreign banks is 0.75. A difference of 0.03 between privately- and public-owned banks forms the basis of Akhtar’s conclusion.

This is unwarranted because it requires that one must clearly show this difference is entirely due to the difference in ownership structure and for no other reason. What also needs to be shown is that the difference is significant to warrant the strong conclusion drawn from the analysis.

Akhtar’s analysis falls short on both these counts.

Qayyum and Khan (2007) measure the efficiency in the banking sector from 1998-2005. They have not directly focused on changes in efficiency due to ownership structures but conclude that efficiency is falling for the domestically-owned banks since 2000.

Akmal and Saleem (2008), in their study on the banking sector from 1997-2005, found the opposite result. They argue that efficiency of the banking sector has generally improved since 2000. They also find that, during this period, the efficiency of the state-owned banks has improved the most. Again, the improvements are only in the relative sense and not against some international benchmark.

Burki and Niazi (2006) is the only study I have read that finds non-state owned banks to be more efficient than the state-owned banks. However, Ahmad (2008) used a methodology similar to Burki and Niazi’s to conclude that the state should not promote privatisation of state owned banks!

The point of the discussion is that it has been quite difficult to show that privatisation policy (coupled with liberalisation) was the key ingredient that improved the performance of the banking sector. The studies that have attempted to show this have found results that either contradict each other or tend to oppose the results advanced by economic theory.

The privatisation of Pakistan Telecommunication Company Limited (PTCL) is also roundly hailed as a success story. I do not feel the need to go into a detailed analysis of what various studies have concluded regarding PTCL’s performance in the post-privatisation phase. I believe it is sufficient to make two points here. First, I urge the readers to read Kamal A. Munir’s excellent piece on PTCL’s post-privatisation performance that appeared in The Express Tribune in 2012. Second, the new ‘owners’ of PTCL still owe the government 800-900 million US dollars since 2004/05.

The previous government made considerable efforts to recover this amount but to no avail. Let us wait and see how the current government led by Nawaz Sharif fares on the issue.

There is another important point to note. Governments usually face little difficulty in privatising profit-making enterprises. Selling loss-making enterprises poses a much difficult challenge. This is why each privatisation phase is preceded by a restructuring and reorganising phase. This is essentially the time period during which the SOEs to be privatised are primed or dressed up before they are sold off. This particularly requires firing workers or weakening the unions in order to “rightsize” the enterprise.

Prospective private investors/buyers usually require the government to undertake these actions to avoid political costs of rightsizing an enterprise after privatisation. But this phase does not just involve such sensitive political decisions but also at times requires substantial amounts of investments to turn the enterprise around. It is obvious that all government outlays in this turning around phase come from the public.

This raises an important question – why must public resources be utilised for eventual private gains?

In this round of privatisation, these issues will become particularly important. For example, the most cited figure to highlight mismanagement in Pakistan International Airline (PIA) is that its employees-to-aircraft ratio is over 450 employees per aircraft when the international average is between 150-180employees per craft. Due to this mismanagement and other reasons, the only way to sustain PIA is to privatise it. PIA currently employs around 19,000 employees. If it has to be privatised it must be primed up before the final transaction.

The politically sensitive decision of rightsizing the organisation before privatisation will have to be taken by the government. This means that a maximum of around 11,000 works needs to be fired. This is a figure that you and I don’t hear about from our economic experts.

Similarly, PIA is taking decisions to buy new planes or upgrade existing ones. All of these will be paid for by the public money and, after privatisation, passed on to the private owners.

Similarly, the other SOEs that all our experts seem interested in privatising are electricity distribution companies (DISCOs). This is not going to be an easy task, particularly because of the way WAPDA’s grid is organised. This may require substantial investments financed by public money.

The problem is that WAPDA’s grid has evolved in such a way that it is difficult to ensure that power plant A provides electricity only to City A. So if a distribution company is privatised, the owner would demand some sort of guarantee regarding the supply of electricity. Some basic amount will have to be guaranteed to it, otherwise no buyer would be willing to touch a DISCO. This became a crucial issue in Karachi Electricity Supply Corporation’s (KESC) post-privatisation performance.

It found it difficult to supply electricity at an affordable price using its production plants. Ultimately, a special agreement had to be signed between KESC and WAPDA that promised the former around 600 MW of electricity on a daily basis. But WAPDA’s electricity is subsidised to ensure its accessibility to the public.

WAPDA sells this subsidised electricity to KESC – a private distributor. KESC in turn sells this electricity at the rates that are determined on the basis of its own cost of generation. In such an arrangement, what is essentially happening is that the public at large is subsidising the private owner of the company. This is not entirely a new thing. Pakistan has a long history of government creating rents through its various policies that ultimately became channels of wealth transfer from the public at large to a few private investors.

Hence, whenever any DISCO is privatised in the future, the government will have to ensure some minimum supply of electricity. This can happen only in the long run where the power production is increased gradually in the country. Again, the state’s role in it will be crucial. In the absence of any supply guarantees, the government will have to offer contracts to the buyers of DISCOs that promise a certain rate of return on their investment.

The point here is that privatisation of DISCOs cannot work unless the government undertakes major restructuring of the power sector and offer lucrative contracts to the private owners. This requires considerable levels of investments, which will most likely come from the national exchequer or publicly-guaranteed foreign debts. The question is that if the government must undertake such expenditures, then why should we hand it over to a private investor? The answer to this question has important ramification that I shall in the next and final part.

(to be concluded)
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