President Asif Ali Zardari while addressing PPP lawmakers and prospective candidates for the forthcoming elections stated that the Iran-Pakistan (IP) gas pipeline project will help overcome the energy crisis and reiterated the government's commitment to implement it in spite of international pressure. The world community in general and the US in particular, must desist from pushing Pakistan into a corner. They must offer Pakistan a credible sweetener as offered to India and China because of the serious energy deficit the country faces.
The IP deal has not been finalised yet even though the recent visit by the President to Iran did take it a step further and his forthcoming visit to Iran may further matters in that direction. Those who argue that with less than two weeks remaining, and with the caretakers not having the mandate to implement a project that may have serious consequences on the country's foreign relations and economy, fail to take account of the fact that it has been the duly-elected President who has been engaged in furthering the deal and his term would end in September this year. Why the deal was not finalised during the past five years may be attributable to international pressure. Why now may be due to the need for the PPP to play a trump card with respect to the energy sector; and with loadshedding once again peaking at more than 12 hours in several cities, leave alone rural areas, the IP gas pipeline may be regarded by the leadership as a solution to diverting public attention from its abysmal performance in the sector for the past five years.
Be that as it may, it is necessary to undertake a cost-benefit analysis of the IP gas pipeline project. A number of factors continue to be ignored by the government. First and foremost, the problem of operating well below our generational capacity due to the intractable inter-circular debt continues. In other words, the energy sub-sectors continue to not clear each other's bills disabling the major fuel importer Pakistan State Oil (PSO) to pay for imports, which in turn, accounts for periodic releases by the Ministry of Finance that it can ill-afford. The current policy of periodic disbursement by the Ministry of Finance to enable PSO to pay for fuel has merely increased the budget deficit with its consequent impact on the rate of inflation so in effect this policy has neither solved the energy crisis nor succeeded in combating inflation. The first major step therefore for any government should be to ensure that the country is operating at capacity which would require a sustained effort to rid the sector of the circular debt, a problem that was acknowledged and consequent remedial measures identified in 2008 when Pakistan went on the International Monetary Fund programme and which to this day remain unimplemented.
Secondly, the government through massive annual injections to eliminate the inter-tariff differential has been supporting the inefficiently-run distribution companies (Discos). While it is understandable that no government can allow the poorly-run Discos mainly catering to poor areas to charge a higher tariff than those that supply to relatively richer regions yet there is a need to provide some incentive for the poorly-run Discos to minimise theft and transmission losses.
Thirdly, the government appears to be ignoring US warnings that under its legislation any deal with Iran in the oil and energy sector would trigger sanctions against Pakistan. The US has suggested long-term alternatives to the IP pipeline and is assisting Pakistan with improving the performance of the sector as well as investing in the construction of some dams. In this context, it is relevant to note that no Western country from where the bulk of our assistance emanates or any multilateral agency where US engagement remains significant, will extend any support in case the IP pipeline deal is finalised. It is unclear whether oil-rich Arab countries would follow suit but it is known that many of them have strained relations with Iran. Pakistan relies on foreign assistance to the tune of over 2 to 3 billion dollars each year. True that this amount could easily be generated from our own resources if tax reforms are implemented but that too has remained hostage to political compulsions.
Sunday, March 10, 2013
Pakistan: IP gas pipeline project
President Asif Ali Zardari while addressing PPP lawmakers and prospective candidates for the forthcoming elections stated that the Iran-Pakistan (IP) gas pipeline project will help overcome the energy crisis and reiterated the government's commitment to implement it in spite of international pressure. The world community in general and the US in particular, must desist from pushing Pakistan into a corner. They must offer Pakistan a credible sweetener as offered to India and China because of the serious energy deficit the country faces.
The IP deal has not been finalised yet even though the recent visit by the President to Iran did take it a step further and his forthcoming visit to Iran may further matters in that direction. Those who argue that with less than two weeks remaining, and with the caretakers not having the mandate to implement a project that may have serious consequences on the country's foreign relations and economy, fail to take account of the fact that it has been the duly-elected President who has been engaged in furthering the deal and his term would end in September this year. Why the deal was not finalised during the past five years may be attributable to international pressure. Why now may be due to the need for the PPP to play a trump card with respect to the energy sector; and with loadshedding once again peaking at more than 12 hours in several cities, leave alone rural areas, the IP gas pipeline may be regarded by the leadership as a solution to diverting public attention from its abysmal performance in the sector for the past five years.
Be that as it may, it is necessary to undertake a cost-benefit analysis of the IP gas pipeline project. A number of factors continue to be ignored by the government. First and foremost, the problem of operating well below our generational capacity due to the intractable inter-circular debt continues. In other words, the energy sub-sectors continue to not clear each other's bills disabling the major fuel importer Pakistan State Oil (PSO) to pay for imports, which in turn, accounts for periodic releases by the Ministry of Finance that it can ill-afford. The current policy of periodic disbursement by the Ministry of Finance to enable PSO to pay for fuel has merely increased the budget deficit with its consequent impact on the rate of inflation so in effect this policy has neither solved the energy crisis nor succeeded in combating inflation. The first major step therefore for any government should be to ensure that the country is operating at capacity which would require a sustained effort to rid the sector of the circular debt, a problem that was acknowledged and consequent remedial measures identified in 2008 when Pakistan went on the International Monetary Fund programme and which to this day remain unimplemented.
Secondly, the government through massive annual injections to eliminate the inter-tariff differential has been supporting the inefficiently-run distribution companies (Discos). While it is understandable that no government can allow the poorly-run Discos mainly catering to poor areas to charge a higher tariff than those that supply to relatively richer regions yet there is a need to provide some incentive for the poorly-run Discos to minimise theft and transmission losses.
Thirdly, the government appears to be ignoring US warnings that under its legislation any deal with Iran in the oil and energy sector would trigger sanctions against Pakistan. The US has suggested long-term alternatives to the IP pipeline and is assisting Pakistan with improving the performance of the sector as well as investing in the construction of some dams. In this context, it is relevant to note that no Western country from where the bulk of our assistance emanates or any multilateral agency where US engagement remains significant, will extend any support in case the IP pipeline deal is finalised. It is unclear whether oil-rich Arab countries would follow suit but it is known that many of them have strained relations with Iran. Pakistan relies on foreign assistance to the tune of over 2 to 3 billion dollars each year. True that this amount could easily be generated from our own resources if tax reforms are implemented but that too has remained hostage to political compulsions.
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