ID: 152294    5/4/2008 5:27    08ISLAMABAD1734    Embassy Islamabad    UNCLASSIFIED//FOR OFFICIAL USE ONLY    08ISLAMABAD1420|08ISLAMABAD1623|08ISLAMABAD1701|08ISLAMABAD655|08ISLAMABAD810|08ISLAMABAD921|08KARACHI199    "VZCZCXRO4938 RR RUEHLH RUEHPW DE RUEHIL #1734/01 1250527 ZNR UUUUU ZZH R 040527Z MAY 08 FM AMEMBASSY ISLAMABAD TO RUEHC/SECSTATE WASHDC 6769 INFO RUEATRS/DEPT OF TREASURY WASHDC RUCPDOC/DEPT OF COMMERCE WASHDC RHEBAAA/DEPT OF ENERGY WASHDC RUEHRC/USDA FAS WASHDC 4209 RUEHNE/AMEMBASSY NEW DELHI 3199 RUEHLO/AMEMBASSY LONDON 7822 RUEHML/AMEMBASSY MANILA 2988 RUEHKP/AMCONSUL KARACHI 9651 RUEHLH/AMCONSUL LAHORE 5400 RUEHPW/AMCONSUL PESHAWAR 4137 RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL RHMFISS/CDR USCENTCOM MACDILL AFB FL"    "UNCLAS SECTION 01 OF 04 ISLAMABAD 001734

SIPDIS

SENSITIVE

SIPDIS

E.O. 12958: N/A TAGS: ENGY, EFIN, ECON, EINV, PREL, PK SUBJECT: NAVIGATING THE MAZE OF PAKISTANI ENERGY POLICY- PART THREE

REFS: A) Islamabad 00655 B) Islamabad 00810 C) Islamabad 00921 D) Islamabad 01420 E) Karachi 199 F) Islamabad 01623 G) Islamabad 1701

1. (U) Please see Action Request in paragraph 28.

2. (SBU) SUMMARY. Concluding the three part roadmap of agencies involved in Pakistan's energy policy, this cable outlines the involvement of the Prime Minister's Secretariat, four additional Cabinet level Ministries, and five other regulatory agencies. The U.S. has an opportunity to engage in diplomatic efforts which can help shape the energy policy of Pakistan and streamline its institutional framework, thereby transforming the energy sector and improving the lives of millions of average Pakistani citizens. Investment opportunities for American companies are abundant and should be promoted. Continuing discussions under the bilateral Energy Dialogue could be the first step in helping Pakistan address these energy issues and Post renews requests for a date to be set for the next discussion. END SUMMARY.

3. (SBU) This is the third piece of a three part cable review of the haphazard mix of the institutions which comprise the energy policy making sector of Pakistan. A lack of coordination and absence of any clear line of authority hampers any formulation of policy efforts to address the current energy crisis in Pakistan. This cable is the seventh in a series of cables on Pakistan's energy sector.

4. (SBU) Part one explained the Ministry of Water and Power and its 19 subordinate agencies. Part two in “Navigating the Energy Maze” addressed the Ministry of Petroleum and National Resources and its 16 subordinate agencies. Part three addresses the other 4 Ministries and 7 subordinate agencies involved in various levels of the GOP policy process.

-------------------- PRIME MINISTER LEVEL --------------------

-------------------- Task Force on Energy --------------------

5. (SBU) In November 2007 interim Prime Minister Soomro formed an Energy Task Force to coordinate, plan and recommend measures for Pakistan to deal with the current energy crisis. The task force is headed by the Deputy Chairman of the Planning Commission and members include the Secretary of the Ministry of Petroleum and Natural Resources, the Secretary of the Ministry of Water and Power, the Chairman of the Federal Board of Revenue and the Member of the Planning Commission for Energy. The Task Force has recommended that the Government develop plans to generate 20,000 MW electricity from Thar Coal reserves in Balochistan by 2020. The Task Force also recommended that President Musharraf seek Chinese assistance on the development of the Thar coal fields during his April 2008 state visit to Beijing.

6. (SBU) Following the February 2008 elections, a new cabinet has been sworn into office and it is unclear whether the Task Force on Energy will continue to exist under the new Government.

-------------------------------------------- Special Energy Advisor to the Prime Minister --------------------------------------------

7. (SBU) Former Prime Minister Aziz created the position of Special Advisor to the Prime Minster for Energy. With an office in the Prime Minister's wing and reporting directly to Prime Minister Aziz, this position was created to oversea the myriad of institutional bodies and policies involved in energy. While serving as a member of almost all energy-related Board of Directors for both the private and public sector, this one man show was the driving force, or lack thereof, for Pakistan's energy security efforts in the last five years and also led the GOP efforts in the US-Pakistan Energy Dialogue. The position was vacant under the caretaker government and it is unclear whether this Advisor on Energy position will continue to exist under the new Government.

--------------------------------------------- --------- VARIOUS OTHER MINISTRIES AND DEPARTMENTS INVOLVED WITH PAKISTAN'S ENERGY SECTOR --------------------------------------------- ---------

8. (SBU) In addition to the Ministry of Water and Power and the Ministry of Petroleum and Natural Resources, there are four additional ministries which are involved in formulating and approving energy policy decisions.

------------------------ The Planning Commission ------------------------

9. (SBU) While the Prime Minister serves as the Chairman of the Planning Commission, this Ministry is essentially run by the Deputy Chairman who is assisted by nine members including the Secretary of the Planning Commission, the Chief Economist, the Director of Pakistan's Institute of Development Economics, the Executive Director of Implementation and Monitoring, and Members for Social Sectors, Science and Technology, Energy, Infrastructure, and Food and Agriculture. (Comment: While the Pakistani system used the term “member” these officials are essentially the chief technocrats at the level of Additional Secretaries. End Comment.)

10. (SBU) Within the Planning Commission, an Energy Wing is headed by the Member for Energy and Infrastructure. The Commission drafted a Medium Term Development Framework (2005-10) with a detailed Energy Security Plan, analyzing the present energy crisis and making projections for the future with specific development targets. As of March 2008, essentially all of these projects have fallen drastically behind schedule, despite active participation by the Planning Commission on various boards of directors for most of the power sector entities.

----------------------- Ministry of Environment -----------------------

11. (SBU) The Ministry of Environment is headed by a Minister with a Federal Secretary running the administrative functions. It is composed of five functional wings: Administration, Development, Environment, International Cooperation and Forestry. Overlap occurs due to the Ministry's control over specialized departments such as the Energy Conservation Center (ENERCON), the Pakistan Forest Institute, National Council for Conservation of Wildlife (NCCW) and Zoological Survey Department (ZSD).

12. (SBU) In addition to the implementation of the National Environment Policy, the Ministry also handles environmental assessments and “no objection certifications” for power plant operations. Power projects in both the public and private sector are required to submit an Environmental Impact Assessment Report to both the Provincial Environmental Protection Agencies and the Ministry.

13. (SBU) Established in 1987, ENERCON serves as the national focal point for energy conservation and energy efficiency activities. ENERCON is mandated to increase the supply of energy by reducing energy waste and improving efficiency, diversify the national dependency on imported crude oil and refined petroleum products, and promote clean energy technologies such as renewable energy.

14. (SBU) ENERCON is headed by a Managing Director and has a total of 14 employees. This former USAID-funded project has drafted a National Policy on Energy Conservation which has been approved by the GOP. An Action Plan to implement the National Energy Conservation Policy is now being formulated which will include setting codes and standards for various energy consuming equipment.

---------------------------------------- Ministry of Privatization and Investment ----------------------------------------

15. (SBU) With Cabinet approval, the Privatization Commission (PC) is entrusted with selling federal government property, such as GOP shares in banks, industrial units, public utilities, oil and gas companies, transport companies and infrastructure service providers in an open and transparent manner. Within the overall GOP policy to strengthen the private sector's role in the power supply, the Ministry also makes independent recommendations on energy policies to attract foreign direct investment into Pakistan. In addition to the sale of shares or assets, the Ministry may also offer concessions or the right to operate publicly owned assets. It is headed by a political Minister, and had Cabinet status under the previous government.

------------------- Ministry of Finance -------------------

16. (SBU) The Ministry of Finance (MOF) controls the purse strings for all public sector projects, including power projects. In addition, the MOF has financial advisors attached to each ministry to maintain financial discipline. Funds are released to the public sector power plants through the Ministry of Finance upon recommendations of the Planning Commission. The MOF also works with the private sector to promote public/private partnership in capital intensive infrastructure projects.

17. (SBU) In most private sector projects, the GOP extends project loans through a state company called the National Development Finance Corporation (NDFC), the largest development finance institution in Pakistan. NDFC provides financing to both public and private sector industrial enterprises through its own deposits, lines of credit from the State Bank of Pakistan and multilateral credit agencies.

------------------------------------ INDEPENDENT REGULATORY ORGANIZATIONS ------------------------------------

18. (SBU) There are three independent regulatory agencies which merit mention.

--------------------------------------------- -------- National Electric Power Regulatory Authority (NEPRA): --------------------------------------------- --------

19. (SBU) In December 1997 the GOP established an autonomous regulatory body, under the administrative control of the Cabinet, to improve the efficiency and availability of electric power services. The Prime Minister appoints a Chairman for a four year term to lead NEPRA as well as Members to represent each of the four provinces. With only 160 employees, NEPRA is responsible for the issuance of licenses for the generation, transmission and distribution of electric power; establishment and enforcement of standards to ensure quality and operational safety and ensuring a consistent supply of electric power to consumers; approval of investment and power acquisition programs; and determination of all tariffs. By law, NEPRA is required to hold public hearings on the proposed tariffs to ensure transparency for investors and customers.

20. (SBU) NEPRA's inadequate and unqualified staff would make it difficult to accomplish its mandate under any circumstances. However, the tariff set by NEPRA is often rejected and altered before being ratified by the government. Fearing popular fall-out, the government attempts to reduce the impact on customers and pays the difference between the actual cost of energy and the domestic charge as a “direct subsidy” to the utility. Most of these payments actually end up as receivables to WAPDA, which in turn reduces payments to the independent power producers and thus to Pakistan State Oil for fuel supplies. The two largest account receivables owed to the distribution companies are from the Karachi Electric Supply Company (reftel E) and the Pakistan Army.

--------------------------------- Pakistan Atomic Energy Commission ----------------------------------

21. (SBU) Under the purview of the Prime Minister's Secretariat, the Pakistan Atomic Energy Commission (PAEC) is responsible for implementation of the national nuclear power program. Currently two nuclear power plants are operational - the 135 MW Karachi Nuclear Power Plant (KANUPP) and the 325 MW Chashma Nuclear Power Plant (CHASNUPP). A third plant, CHASNUPP unit 2, is under construction and will be completed in 2011. The GOP has set a target of 8,800 MW of nuclear power capacity by 2030.

22. (SBU) PAEC management consists of federally appointed members from government and scientific fields. It meets four times per year to deal with all atomic issues including research work, promotion of peaceful uses of atomic energy in the fields of agriculture, medicine and industry, and the development of nuclear power generation projects.

------------------------------------- Sarhad Hydel Development Organization --------------------------------------

23. (SBU) Longstanding conflicts between provincial and federal rights over hydropower potential led to the establishment of the Sarhad Hydel Development Organization (SHYDO). As an autonomous body mandated to explore and develop the hydropower potential in the North West Frontier Province (NWFP), SHYDO conducts feasibility studies for hydropower generation in the province and regulates private sector investment in hydropower projects.

24. (SBU) An eight member Board of Directors under the chairmanship of the NWFP Governor governs SHYDO. Board members include provincial policy makers including the Ministers and Secretaries for Power and Finance, the NWFP Additional Secretary, the Secretary of Law and the SHYDO Managing Director. SHYDO's head office is in Peshawar with field offices in Chitral, Dir, Swat and Kohistan.

-------- Comment --------

25. (SBU) Comment: With a total of six Ministries and 42 agencies involved, there is an obvious need to reassess the usefulness of these organizations and eliminate duplication of responsibilities. Pakistan's electricity supply has almost always lagged behind demand. Unfortunately, the demand for electricity was not a priority of the previous government until it was too late to increase supply to even remotely keep up with demand.

26. (SBU) Comment continued: While many proposals exist for creating new power generation, turf wars for operational control among the Ministries and agencies have seriously slowed or completely halted the approval processes. High level decisions have been further complicated by the capital intensive nature of big infrastructure projects, concerns over political backlash between provinces, officials' not unreasonable fears of being second guessed and accused of large scale corruption by subsequent governments and the long term nature of power projects to achieve tangible results. Timely decisions were not taken to utilize all available resources and no agency or ministry has the lead on implementing the National Energy Strategy.

27. (SBU) Comment continued: The good news is that the new coalition government is making energy policy and dealing with the current energy shortfalls a priority. When the Pakistan Peoples Party (PPP) was last in power, Pakistan had a track record of encouraging domestic and foreign investment in its energy sector. The last additions to the national grid were completed in 2000, a result of projects implemented by former Prime Minister Benazir Bhutto in 1994. No additional mega-watts have been added to the national grid since 2000. With the public outcry increasing, the new government will need to make some quick decisions to begin addressing the long term energy problems, but shortfalls will continue in the immediate future. The lack of new generation capacity will continue to dampen prospects for economic growth for years to come.

28. (SBU) Comment continued: The U.S. has an opportunity to engage in diplomatic efforts which can help shape the energy policy of Pakistan and improve the lives of millions of average Pakistani citizens. Efforts to help Pakistan streamline its institutional framework and policy process could transform the energy sector. Investment opportunities for American companies are abundant and should be promoted. Continuing discussions under the bilateral Energy Dialogue could be the first step in helping Pakistan address these energy issues and Post renews requests for a date to be set for the next discussion. End Comment.

PATTERSON