ID: 151070    4/24/2008 5:51    08ISLAMABAD1659    Embassy Islamabad    UNCLASSIFIED//FOR OFFICIAL USE ONLY    08ISLAMABAD1659    "VZCZCXRO6469 RR RUEHLH RUEHPW DE RUEHIL #1659/01 1150551 ZNR UUUUU ZZH R 240551Z APR 08 FM AMEMBASSY ISLAMABAD TO RUEHC/SECSTATE WASHDC 6647 INFO RUEATRS/DEPT OF TREASURY WASHDC RUCPDOC/USDOC WASHDC RUEHRC/USDA FAS WASHDC 4192 RUEHNE/AMEMBASSY NEW DELHI 3161 RUEHLO/AMEMBASSY LONDON 7772 RUEHML/AMEMBASSY MANILA 2976 RUEHKP/AMCONSUL KARACHI 9607 RUEHLH/AMCONSUL LAHORE 5358 RUEHPW/AMCONSUL PESHAWAR 4096 RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL RHMFISS/CDR USCENTCOM MACDILL AFB FL"    "UNCLAS SECTION 01 OF 02 ISLAMABAD 001659

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E.O.  12958:  N/A TAGS: EFIN, ECON, PGOV, PREL, EAID, EINV, ENGY, PK SUBJECT: AMBASSADOR'S MEETING WITH NEW MINISTER OF WATER AND POWER

1. (SBU) SUMMARY: Ambassador met with the Minister of Water and Power on April 21 to discuss Pakistan's plans for dealing with the current energy crisis. The Government of Pakistan (GOP) emphasizes its desire to have more engagement with the U.S. on energy issues and specifically requests assistance in attracting investors to its energy sector, organizing an investment conference and exploring the possible development of the Thar coal fields. The GOP also confirmed its full support to continue discussions for regional electric transmission lines with Central Asian states. Payment of outstanding debts to U.S. companies, moving forward with the geophysical mapping survey and ending the fuel subsidies were also discussed. Post requests assistance in providing resources on coal development to the GOP. Post also requests that SCA and EEB discuss the possibility of funding a feasibility study on the Thar coal fields with USTDA. END SUMMARY.

2. (U) Action Request see paragraph 11.

--------------------------------------------- ---------- ENERGY TOP PRIORITY- INCREASED ENGAGEMENT WITH THE U.S. WANTED --------------------------------------------- ----------

3. (SBU) At the April 21 meeting with newly appointed Minister of Water and Power Mr. Raja Pervaiz Ashraf, Ambassador noted that he had one of the most challenging jobs in Pakistan and asked how the new government planned to develop additional energy generation for the country. Ashraf noted that the “common man most feels the current power crisis and there simply is not a quick fix.” While noting that the new government planned to make energy a top priority, Ashraf placed blame squarely on the previous government which “failed miserably because they were unable to add a single megawatt to the national grid during nine years of power.” He emphasized that he “intended to rely on old PPP policies” of encouraging private sector development. (Comment: Ashraf serves as the Secretary General for the Pakistan Peoples Party (PPP). His comment refers to the previous PPP policy to increase the number of independent power producers in Pakistan. End Comment.)

4. (SBU) (SBU) Ambassador welcomed Minsiter Ashraf's commitment to greater private sector investment and noted the U.S. is interested in helping Pakistan attract U.S investors to its energy sector. She also urged the GOP to move forward with planning for an Energy Investment Conference in the U.S within the next few months. Ashraf welcomed U.S support in this endeavor and noted that Pakistan wanted to actively recruit U.S. investors to the local energy sector.

5. (SBU) Ashraf also requested U.S. assistance to explore development opportunities on the Thar coal fields in the sourthern province of Sindh and noted that the Ministry of Water and Power hopes to hold a seminar on coal development to bring together experts and investors. Ashraf requested U.S. assistance to help organize and encourage participation in this seminar which the GOP would like to have in Islamabad in either late May or June.

6. (SBU) Ambassador noted that late last year the Embassy was close to getting GOP approval to conduct an aerial geophysical survey of Pakistan to “map” the country for a wide variety of new data, including the location of mineral and energy resources, underground water, seismic fault lines and topographical data useful for infrastructure projects. The Naval Research Laboratories and U.S. Geological Survey would fund the USD 20 million project and the Ambassador asked Ashraf to help secure support for this project to move forward soon. Ashraf was not familiar with the project but noted that it “sounds very promising” and asked for follow up information from the Embassy.

7. (SBU) Ambassador also asked about the new government's commitment to the “CASA 1000” project which would bring 1000 MW of electricity to Pakistan's national grid at an interchange in Peshawar via exports from Tajikistan and the Kyrgyz Republic. Ashraf noted that he is “very keen to move forward on the project and would welcome a Ministerial level meeting to further engage” in the discussions.

8. (SBU) Ambassador also noted that the U.S. is interested in holding another session of the Energy Dialogue soon. She noted that previous energy dialogues have not been as effective or as active as we would like but that we want to engage with Pakistan and revitalize these discussions. Ashraf pledged his support to make the Dialogue “as productive as possible.”

---------------------- SUBSIDIES AND PAYMENTS ----------------------

9. (SBU) Responding to the Ambassador's question about the continuation of fuel subsidies, Ashraf noted that the new government was “facing the accumulating impact of subsidies and high international prices.” He noted that a high level GOP internal meeting would be called soon to discuss how to manage the subsidies.

Ashraf stated that “if the current government were to keep pace with international prices and take away the subsidies, then they would not be able to stay in power.”

10. (SBU) Ambassador also inquired about the outstanding payments to U.S. energy companies in Pakistan such as AES. Ambassador explained that the USD 103 million debt from the Water and Power Development Authority (WAPDA) is creating ripple effects on AES's ability to produce power because now Pakistan State Oil (PSO) is threatening to cut off their fuel supplies. Ashraf acknowledged that this was an issue which needed to be addressed. (Comment: AES has chronic payment issues with WAPDA. Due to the WAPDA arrears and late payments, AES is unable to purchase oil from PSO in a timely manner and thus only has one day of gas supply on hand at AES power plants. Often they are forced to shut down the plants because of insufficient fuel, further contributing to Pakistan's blackouts. PSO has now threatened to cease distribution of fuel to AES due to payment irregularities which result from WAPDA's delayed payments. AES headquarters in Virginia is concerned with the increasing amount of debt with an insolvent government. End Comment.)

-------------------------- COMMENT AND ACTION REQUEST --------------------------

11. (SBU) Comment: The GOP sees that the current 4000 MW shortfall in energy needs are a critical issue facing Pakistan and future economic growth. The new government seems committed to making the tough decisions which will be necessary to plan and invest in major energy infrastructure projects but is also facing a severe cash crunch which could impede upon such plans. Post will continue to work with all the GOP agencies involved in planning this upcoming Energy Investment Conference and report on needed Washington support septel. End Comment.

12. (SBU) Action Request. Post requests assistance in providing resources on coal development to the GOP. Post also requests that SCA and EEB discuss the possibility of funding a feasibility study on the Thar coal fields with USTDA. End Action Request.

PATTERSON