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| September 14, 2006 | Thursday | Sha'aban 20, 1427 |
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Reshaping power policy
Miseries in rain-hit areas
Economic progress and the challenges
THE three top international financial agencies have lauded the economic achievements of Pakistan during the last six years. The World Bank, IMF and Asian Development Bank have acknowledged the average economic growth of six per cent achieved by Pakistan during the last four years under the military-led regime, with a few cautionary notes.
SOME realities President Pervez Musharraf referred to on Tuesday seem to elude observers of the Pakistani scene in the context of the war on terror. Speaking to the foreign affairs committee of the European Parliament in Brussels, the president said the centre of terrorism had shifted from Al Qaeda to Taliban and the latter posed a greater threat. Al Qaeda, the president said, represented an ideology while Taliban were a social movement and were more dangerous because they had roots in some sections of society in Afghanistan and Pakistan. People the world over, including the western media, often use Al Qaeda and Taliban as synonyms, forgetting that at least theoretically the former is a worldwide phenomenon while the latter are exclusive to Afghanistan and Pakistan. While the adherents to the Al Qaeda philosophy seem to obey an unseen leader who harbours an obsessive hatred of America, the latter have a specific geopolitical aim. Al Qaeda would like to spread death and destruction without achieving or attempting to achieve the takeover of a state, while Taliban’s specific aim is to drive the US-led forces out of Afghanistan and recapture power there. Also, unlike Al Qaeda, Taliban have tasted power and ruled a country; Al Qaeda has no such benefit and merely enjoyed Taliban’s hospitality. In fact, America seemed to be conscious of the difference between the two when its ultimatum to the Taliban government in the aftermath of 9/11 had boiled down to just one demand: hand over Osama to Washington. The Taliban leadership could perhaps have spared the Afghan people the miseries of war if it had accepted the American demand.
The second point the president referred to is a historical truth: Pakistan alone is not responsible for the jihadi culture that today has large segments of the people in Pakistan and Afghanistan in its grip; “we”, by which the president meant America and other western countries, brought mujahideen from all over the world to fight the anti-Soviet jihad. “We armed the Taliban...we did it together”. But once the aim was achieved, he said, “everyone” left, while the Pakistanis had to face the reality of 30,000 armed mujahideen in their midst. Thus Pakistan paid “a big price” for a mistake for which America and some other countries were equally responsible.
Those who today ask Pakistan to “do more” ignore the difficulties in the way. A social and political movement, especially one having a religious orientation, cannot be defeated by commando actions, or through a blanket ban on madressahs. It has to be tackled basically by non-military means. The military, to quote the president, “buys time” and gives an opening for a political solution. Coming from a general, these views indicate the complex nature of the problem Pakistan is expected to solve overnight. The agreement with the tribal leaders in North Waziristan will be watched with hope and fear. The government must seek a solution because the elimination of religious extremism and a philosophy based on violence is in Pakistan’s own interest, for which it does not need foreigners’ prodding. But then the government should also try to establish its credentials. The agreement with the tribal leaders should not mean that North Waziristan becomes a sanctuary for religious militants, and the misgivings in the country and abroad that certain elements in the army, especially the ISI, are still hand in glove with Taliban need to be removed.
THE government is reportedly mulling over a revamped power policy aimed at attracting foreign investment to the sector. The stakes are high by all accounts: the country is set to face an acute power shortage in the years ahead as consumption keeps growing at a fast pace. In the absence of agreed-upon hydro-power projects in the form of big and small dams, the need for developing alternative sources of power generation cannot be questioned. One ready but relatively expensive solution is to set up more thermal power stations. But if the past is any pointer, it was in this particular field that the previous governments had to bend over backwards to accept the terms and conditions of independent power producers (IPPs) which agreed to invest in this sector to relieve the impending power crisis. As it turned out, soon afterwards, the higher cost of power production was passed on to the consumers. The result is that power tariffs in Pakistan today are the highest in the region, and demands are still being made by the existing IPPs, and lately by the privatised Karachi Electric Supply Company, to raise the tariffs even further to make their operations economically viable.
While reshaping the power policy this time round, the government should ensure that a balance is struck between meeting the growing power needs of the country and the price at which these needs will be met in the years ahead. The subsidy being provided on existing power tariffs must remain in place — to keep offering some relief to the domestic consumers and to sustain industrial and economic growth. If not hedged against inflation somehow, power tariffs will keep rising at an exorbitant rate. It is also time that other potential and less expensive sources of energy were explored. Coal is one such source which is being used successfully by a number of developed countries, and of which Pakistan has considerable untapped reserves in Sindh’s Thar area. The policymakers would do well to consider all these factors before rushing to award contracts to more IPPs for thermal power production to bridge the gap between demand and supply.
THAT life has not returned to normal after last week’s heavy rains in Hyderabad can easily be gauged from report and photographs in newspapers. People are still seen wading through chest-high filthy stagnant water, carrying empty bottles as they search for drinking water. That image alone should shame the authorities into speeding up relief and rehabilitation work which seems to have been slow in moving. Two more army battalions were deployed on Tuesday to assist the government in distributing relief goods as boats are still the only means of transport. But this could have been done much earlier given that the extent of devastation was clear to all. Now that there are more troops on hand, the administration should accelerate drainage work and ensure that relief goods reach those most in need. Many people have not shifted to relief camps for fear that their homes will be looted and are therefore worse off. Not only do rescuers need to get to these stranded people but the authorities also need to address any law and order situation that tends to erupt when a calamity strikes.
Despite tall claims that medical camps have been set up in Hyderabad, the stagnant water is bound to spread diseases of epidemic proportions unless the area is cleaned. People need to be made aware of preventative steps they can take to protect themselves against any water-borne diseases. It is equally important to carry out massive fumigation campaigns against mosquitoes to prevent the outbreak of malaria. Because the rains caused much damage to the Left Bank Outfall Drain, the affected banks need to be strengthened and drains de-silted on a priority basis. All these steps must be carried out speedily in a well planned manner to alleviate the suffering of the people in the rain-affected areas.
The World Bank and its private sector promoting arm, the International Finance Corporation, has listed Pakistan as the 74th business-friendly country among 175 countries. Singapore comes first and New Zealand second followed by the US and Canada. Although Pakistan is way down the list, it is far ahead of India which is listed the 134th country and China as the 93rd.
Happy with the ranking and the compliments paid simultaneously by the three donor agencies, the government has admitted that it still faces many critical challenges, beginning with unemployment and the prevalence of poverty. These are difficult problems to cope with and they directly affect the people but unless they are solved, the high rate of economic growth cannot be sustained and higher rates achieved so that the country reaches a secure takeoff stage.
As a proof of Pakistan’s progress, China has indicated it would invest $50 billion more in and around Gwadar port including the development of a petrochemical complex that will be part of the efforts of Pakistan and China to develop an energy corridor to serve China and Central Asia for the oil and gas coming from the Gulf states.
In addition, the Asian Development Bank has offered to invest three billion dollars in three to five years in water and Hydel power development sector. Meanwhile, the bank has offered $700 million to meet the current needs of energy, power and transport.
As against this, the fact that Japan had invested in Pakistan only 100 million dollars during the last three years, as mentioned by its ambassador, is disappointing. Japan used to say that it had made up for such deficiencies through its large economic assistance which had risen to 500 million dollars a year in the 1999s, but that was cut short when Pakistan exploded its nuclear devices in 1998 because of Japan’s firm nuclear non-proliferation policy. And the full volume of the aid is now being resumed step by step.
Along with the good news in respect of external aid and foreign investment, another welcome development is the fall in world oil prices to 65 dollars a barrel following a reduction in the Middle East tension, including a partial easing of the Iranian nuclear crisis. How soon the fall in world oil prices would reflect in reducing POL prices at home remains to be seen. People want early relief.
The high economic growth and large external aid have not resulted in real economic relief for the low income groups. While the rich are getting richer and the banks are making fabulous profits, the lower income groups are forced to pay higher and higher prices, beginning with the rise in atta prices even before the start of Ramazan. The prices are likely to go further high unless the price magistrates act in time and act effectively. But it seems unlikely in our kind of free market economy.
Meanwhile, a World Bank study says that around 56.2 per cent people of Pakistan run the risk of falling into poverty. A large number of rural households and children under the age of 15 years may fall into the poverty trap in the next two years, it cautions. That means the government cannot draw much satisfaction from its claim of having brought down poverty to a level of 24 per cent.
So President Musharraf has come up with the Rozgar Pakistan scheme to lend a total of Rs100 billion in five years to the unemployed, the women and youth in particular. The National Bank of Pakistan which has made fabulous profits is the right institution to initiate such a scheme which can provide jobs to 2.5 million people. The president has also called for an internment scheme for unemployed graduates in government offices in Balochistan and in the private sector.
The government has also begun to move towards increasing Thermal power generation on an urgent basis. The private power infrastructure board has signed an agreement with the Orient power for setting up a 225 MW thermal plant at Beloki to produce power. The 170 million dollar power plant is to supply power from 2008. Another 225 MW power plant is to be set up at Mureedkay by the Sapphire group and a third 225MW power plant at Sahiwal by the Saif group. Both the agreements are to be signed within a week. In addition seven hydel power stations are to be set up to produce 1620 MW of power at a cost of two billion dollars.
Meanwhile the NWFP government has exempted power production from all taxes. And the federal government has provided Rs5.17 billion to Wapda to expand its services. If these steps had been taken earlier instead of offering low rates to the new power companies, the country would not have been facing a critical power supply situation as it did in recent times.
The government’s Economic Outlook for 2006 says that the Pakistan economy has achieved extraordinary success despite exogenous shocks like the earthquake and the high oil prices, but still faces many challenges to sustain the economic growth. Among the challenges is job creation, poverty reduction, social indicators improvement, infrastructure weakness. So it says the government has no time to take a pause or rest.
Inflation which is a major problem has eased a little; it has come down by 7.6 per cent from nine per cent last year. The target for this year is 6.5 per cent. But even that is a high figure as that is the accumulated high inflation of years earlier and the fear is the prices will shoot up during Ramadan.
Prime Minister Shaukat Aziz had earlier spoken of a supply chain from the farms to the retail market, but now he is talking of a supply chain for exports which leaves it to the market to fix its own prices.
Job creation is a top priority to reduce the number of unemployment suicides and the crimes of poverty. Special schemes like Rozgar Pakistan are welcome but more jobs have to be created on a sustained basis through investment and development and larger exports.
All the three donor agencies call for a tight monetary policy. They approve of what has been done in this regard by the State Bank of Pakistan which has taken several steps and continues to watch the situation carefully. Meanwhile, the banks are said to be borrowing from outside on a higher cost to lend for consumer banking as that is very profitable. Another negative area is the balance of payments. The government now wants overseas Pakistanis to raise their home remittances to six billion dollars this year from 4.5 billion dollars last year. But can the overseas Pakistanis send much more money back home at a time when their number is decreasing abroad.
Anyhow the fall in the world oil prices is good for our external account at a time when the import of large machinery and automobiles is pushing up the external deficit. Increasing official expenditure including that on defence and law and order will raise the budget deficit to 5 per cent of the GDP, according to the ADB, from the budgeted 4.2 per cent. Anyway the government’s revenues are increasing.
The central issue is that of building adequate infrastructure beginning with sufficient power production, transmission and distribution for the development of the industry and the service sector. People have also been promised water, power and gas by the year 2007 by the president and the prime minister. That is a very challenging task, but essential to place the country on an even keel.
Equally important for the people is the social infrastructure, particularly education, public health and environmental protection. Not only a great deal has to be spent on this sector, but also the government has to ensure the money is well spent and does not lead to the creation of too many ghost schools and hospitals and ghost teachers. Along with such steps, care has to be taken to ensure the accounts are well audited and discrepancies in the expenditure, if any, checked. The money has to be spent for the purpose for which it was sanctioned and not on erecting showy structures and a fleet of automobiles for the officers of the department.
Meanwhile, the Privatisation Commission says that Rs395 billion has been collected through privatisation of various units during the last fifteen years, 90 per cent of the amount was spent on reducing the external debt and 10 per cent on poverty reduction. How valid are such claims only a proper audit can tell.
Of this amount, which was $6.5 billion, Rs241 billion was collected by selling seven public sector banks and shares of other banks. That means the lion’s share of the income has come from the banking sector.
The government has admitted that despite the recent economic progress, many major problems remain to be solved. And they mostly affect people directly. The government has now to try to solve them resolutely in a sustained manner, not only because of the approaching 2007 elections, but also to reduce the varied tensions within the country.