Normalising relations with India and America - Najam Sethi - Sunday, May 01, 2011

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Contrary to the earlier promises of the minister for water and power, it is now clear that there is going to be an acute shortage of power this summer. One expert has predicted up to 18 hours of “loadshedding” in parts of the country. This is bound to raise temperatures on the shop floor and on the street. The PML-N and other opposition parties will doubtless extract political mileage from the misery of the people and try to block the government from passing a hard budget. Thus, the absence of an energy policy in one sector of the economy could translate into a lack of economic policy for the country as a whole, and exacerbate the political crisis facing us. But we should not be surprised by this lack of policy-making in Pakistan.

In 1994, the top energy “experts” in Pakistan were bitterly opposed to the policy of the Benazir Bhutto government to commission new IPPs to cater to Pakistan’s future energy needs. Hydroelectric power, they argued, was cheaper and more efficient, while the IPPs were a royal rip-off. True, but no one had any idea how to bridge the yawning trust deficit between upper riparian Punjab and lower riparian Sindh over water sharing that had bedevilled all such project proposals. Nor did anyone know how to persuade the US to lift economic sanctions imposed in 1989 as a consequence of our nuclear programme and raise the billions of dollars needed for big water management projects.

Even the modest Ghazi-Barotha project was shelved for lack of money. Indeed, the first thing that the new government of Nawaz Sharif did in 1997 was to tear up sovereign guarantees and [sic] Senator Saif ur Rehman’s dreaded Ehtesab Bureau on the IPPs. This policy gathered momentum under the regime of General Pervez Musharraf when the higher courts were pressured to tighten the noose around the neck of Hubco, the leading IPP, and send a strong signal that multilateral foreign investment in the energy sector wasn’t welcome.

The tragedy was compounded when the civil-military bureaucracy didn’t allow the new government to export surplus power to India because trading with the enemy on the basis of MFN status was not kosher. Later, Nawaz Sharif’s peace overtures to India during the Lahore Summit in 1999 were sabotaged by the military’s Kargil misadventure, followed by General Musharraf’s misplaced concreteness at the Agra summit in 2001. General Musharraf’s pet project of the IPI pipeline also suffered from similar policy contradictions and shortcomings: on the one hand, the proposed IPI pipeline only banked on an annual rental of about US$50 million for transit to India rather than any Pakistani offer of resource stakes in the project. On the other hand, it completely ignored the US opposition to the project that put a severe constraint on its ability to borrow the big bucks needed for completion. The incredible thing was that the military high command saw no contradiction or roadblock in India’s demand for security guarantees at the end of the pipeline even as Rawalpindi seemed bent on continuing its policy of sponsoring jihad in Kashmir.

The absurdity of policy was demonstrated in 2004 when Shaukat Aziz, then prime minister, embarked on a visit to the SAARC region and tried to persuade New Delhi to buy into the IPI project while simultaneously insisting that trade between Pakistan and India could not be relaxed on the basis of granting reciprocal MFN status to India. By the time that General Musharraf realised the error of his anti-India Kargil-Jihad policy and launched a back channel for peace with India in 2005, New Delhi had made up its mind to opt for closer nuclear cooperation with the West in general and the US in particular, and closed the chapter on the IPI project.

Under the circumstances, it is doubly ironic that Pakistan should be exploring the prospects of importing electricity and fuel from India today and granting it MFN status even as it remains locked in a trust-deficit with the old enemy that has extended the conflict with it over the territory of Kashmir to the waters of Kashmir.

The lack of an energy policy framework is especially troubling in the wake of the recent floods when the issue of dams and reservoirs was raised for the umpteenth time, only to be derailed once again by recurring domestic political conflict. The tragedy is compounded by the fact that even when money is available for non-controversial water management projects under the Kerry-Lugar bill, the Pakistani military is inclined to look at the American gift horse in the mouth by staking the country’s economic policy at the altar of its national security doctrine. This explains why only a fraction of the money earmarked for Pakistan has so far come into our coffers.

Of course, the Zardari government cannot be let off the hook. It has done too little too late to stave off the impending crisis. Its rental power projects stink of kickbacks and commissions. It has dragged its feet over raising fuel prices in line with international rates, over narrowing the price gap between CNG and petrol, over injecting money into the circular debt that is at the core of the energy crisis. Indeed, if its relations with the Supreme Court had been better, it would not have been blocked from going ahead with a big LNG project. Even at this stage, the energy crisis can be partly overcome by coming to grips with the circular debt and enabling the IPPs to function at greater capacity.

The core of the issue is the gap of about Rs1000 billion between revenue and expenditure. This can be closed effectively by many means. Privatisation of the leading loss-making state enterprises can save at least Rs200 billion in annual losses, apart from replenishing the treasury’s coffers. Bringing energy prices at par with the region would help bridge the gap enormously. Freezing defense expenditures for the foreseeable future would be as relevant as the imposition of a tax on agricultural incomes. Bringing the services sector comprehensively into the tax net cannot be postponed any longer. And so on. In other words, everyone would have to sacrifice a slice of the good life for the common good.

Are we ready for a collective effort to put our house in order? Nothing will change until two preconditions are met: the national security state must give way to a social security state built on “normal” relations with India and the rest of the world, including America; and civilian democracy must deliver clean, competent, efficient and stable government. If this is too much to ask for, then we should brace ourselves for some terribly rude shocks in the near future.

The writer is Jang Group/Geo adviser on political affairs.

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