Lack of response to energy crisis disappoints US

Saturday August 22, 2009

Washington has expressed disappointment at Islamabad's un-preparedness to deal with the current energy crisis, saying Pakistan's response to address her energy problems so far has been sporadic, seeking silver bullet in gas imports from Iran and Turkmenistan pipelines and turning to expensive oil-fired rental power plants for the short-term, and requesting Saudi Arabia for free oil.

This was revealed in a sensitive but unclassified documents, presented by the visiting US President's Special Representative to Pakistan and Afghanistan Richard Holbrooke and submitted to President Asif Ali Zardari at a meeting in the Presidency a couple of days ago. The US believes that Pakistan suffers from an overall shortfall in production. Pakistan's electricity supply shortages result from distorted pricing, weak management, conflicting responsibilities and the absence of a comprehensive plan. This has been true for over 25 years as Islamabad ignored repeated international warnings.

Non-payment by customers and non-payment of government subsidies to producers and generators have resulted in a large stock of outstanding private and public debt (guaranteed by the government) totalling 4.6 billion dollars or two to three percent of the gross domestic product (GDP), which also prevents producers from purchasing sufficient fuel to operate at maximum rates, the document further discloses. Washington is of the considered opinion that if the government of Pakistan lives up to commitments per the Stand By Arrangement with the International Monetary Fund (IMF), a gradual tariff increase will be passed on to consumers and the government will begin immediately to pay subsidies to the sector.

These actions will improve the cash flow and show results with fewer blackouts rather soon. But it will be politically costly to Zardari in its initial stages. According to the document, the US government has instructed the USAID to develop a viable business plan for the electricity sector as soon as possible for the short-term assistance defined as within one-six month timeframe. The documents further states that a bilateral energy dialogue should be convened to discuss needed policy reforms with the Pakistan government's leadership. The dialogue would be an opportunity to roll out overall US approach on needed policy reforms and the US ideas on international support. "We could also present available technologies and gather the US business community to discuss opportunities and challenges in the Pakistan energy sector. For this, there is no need of additional funding," the paper admitted. Washington is also of the view that the IMF programme puts pressure on Pakistanis to rationalise finances in the energy sector.

Any alternative would continue to bust the budget. Programme eliminates, over time, both overt and hidden subsidies and transfers "circular" debt (resulting from the government policies) out of sector and on to government books. "We must ensure that the government of Pakistan follows through with the commitments to pay subsidies to the sector and that the money is used to boost power generation. "Active US Exim Bank, USTDA and OPIC may support the US companies, which are actively pursuing energy projects in Pakistan which include Virginia-based 'AES' plans in imported coal plant; "4Gas," an affiliate of the Carlyle Group, plans a facility to import liquefied natural gas for integration in the national grid; Oklahoma-based "Walters Co", plans a series of thermal plants nation-wide; and "Global Edison' plans, a gas-fired plant. "The US can announce a special energy finance initiative after seeking the appropriate buy-in from OPIC, USTDA and Exim. For this project, 10 million dollars will be needed as new funding, which could be taken from the FY10," said the paper.

Regarding allocation of funds for rural electrification in Fata and NWFP, the US emphasis is on microhydro and renewable energy to provide off grid, community-based hydro (similar to off grid programme in southern and eastern Afghanistan currently being funded at 100 million dollars). The project will require 25 million dollars, which will possibly be taken from the existing FY10 or pipeline funding to assist with transmission losses by improving the current generation/distribution companies. The USAID began its project to help improve consumer efficiency in April. It is currently developing the partnership and capacity for implementing its programmes. Additional funding could accelerate the process and help to identify any particular transmission bottlenecks. The cost of this project will also be 10 million dollars (or more) in additional funding.

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