Pakistan seeks US, China aid on energy
By Syed Fazl-e-Haider
QUETTA, Pakistan - Energy-deficient Pakistan is seeking help from the United
States and China to help it overcome its energy crisis through a long-term
upgrade and diversification of the antiquated power sector as larger cities
suffer power cuts on a daily basis.
Last week, US President Barack Obama's special envoy to Pakistan and
Afghanistan, Richard Holbrooke, said that recent gains by the Pakistani army
against militants gave Washington "breathing room" to focus more attention on
the country's economic woes.
A team of American experts arrived on Sunday (August 23) in Islamabad to assess
the ailing energy sector and help the government overcome electricity
loadshedding and outages. US trade promotion agencies are expected to provide
financial
backing for some of the projects in the power sector.
At the same time, President Asif Ali Zardari, who is on a five-day visit to
China, has sought Chinese assistance in hydro, thermal and solar power
generation to overcome the power crisis and has invited Chinese firms to carry
out a feasibility study. The two countries on Saturday signed a memorandum of
understanding for construction of the Bunji dam in the northern area, which
would have a capacity of generating 4,000 megawatts of electricity.
Zardari said Chinese investments were needed in the agriculture, hydropower and
energy sectors, with Pakistan seeking to increase its energy capacity by 10,000
megawatts by 2015. During the president's three previous visits to China, a
number of agreements and MoUs were signed to strengthen economic ties. They
recently signed a US$700 million deal to build 12 small- and medium-sized dams
for electricity generation in Pakistan. China's EXIM Bank will finance these
projects.
In his fourth visit to China since taking office last September, Zardari termed
China the world's next superpower for trade and investment and a place from
which the world could learn a lesson. Zardari offered China the full benefit of
the geographical location of his country, which is seen as a leading route for
future world trade.
"Chinese progress is becoming a lesson for the world to look at. It is the
future's superpower in terms of investment and trade," Xinhua news agency
reported, citing an address by Zardari to a forum organized by the Pakistan
Embassy and the Department of Commerce in Zhejiang province.
During his visit to Hangzhou, capital of Zhejiang province, Zardari urged
Chinese entrepreneurs to set up business ventures in Pakistan to boost foreign
investment. Forty-three Pakistani companies have already set up business in the
province.
Annual trade between the two countries is forecast to more than double to $15
billion by 2011 from $7 billion in 2008. The Economic Cooperation Group of the
two countries met this month to implement a five-year program to boost
bilateral trade and economic cooperation. In December 2007, Pakistan launched
the Pak-China Investment Company Ltd in Karachi and Lahore to implement the
joint economic cooperation plan.
The company is working as a window of the China Development Bank for evaluation
of joint ventures between the two countries.
During a recent visit to Pakistan, Holbrooke stressed the need to tap all
natural sources of electricity generation, including hydro power, wind, solar
energy and coal. US officials are expected to meet their Pakistani counterparts
in Islamabad in October to take decisions in the light of the findings of the
energy experts currently visiting the country.
The US private sector is likely to invest in Pakistan's energy sector to
rehabilitate it on a fast-track basis, according to a report in Dawn newspaper.
The US will play a major role towards that end because it can engage
international financial institutions, including the US Trade and Development
Agency, the International Monetary Fund, the Asian Development Bank and the
World Bank, together with its private sector.
The US believes that Pakistan suffers from an overall shortfall in production,
Business Recorder recently reported, citing a document presented by Holbrooke
and submitted to Zardari last week. The country's electricity supply shortages,
the report claims, resulted 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) totaling
$4.6 billion or 2% to 3% of gross domestic product (GDP), which also prevents
producers from purchasing sufficient fuel to operate at maximum rates.
A revival in economic growth largely hinges on the performance of the
manufacturing sector. Soaring power and gas tariffs are likely to put an
additional burden on industry and squeeze gross margins. Manufacturers are
already forecasting more closures and job losses over the next year.
Exports in July fell to $1.49 billion from $1.89 billion a year earlier,
according to the Federal Bureau of Statistics. July imports tumbled 25.5% to
$2.64 billion from $3.55 billion 12 months earlier, helping to cut the trade
deficit 31% to $1.15 billion in the month from $1.67 billion in July 2008.
In what should be a boost for industry, the central bank on August 15 cut its
benchmark interest rate by 100 basis points, or 1 percentage point, to 13%, but
local businessmen say that is not enough. They have been demanding at least a
2-3 percentage point cut.
"There is a need to make a further cut in the interest rate to turn the economy
around and enhance industrial productivity, which was at its lowest due to
multiple reasons, including acute energy shortages,'' The News recently
reported, citing the president of the Lahore Chamber of Commerce and Industry.
Last week, Moody's Investors Service raised Pakistan's credit rating outlook to
stable from negative after the International Monetary Fund increased its loan
package to the country to $11.3 billion. Islamabad had to turn to the
Washington-based lender for a $7.6 billion emergency loan to avoid a balance of
payments crisis last November.
Syed Fazl-e-Haider (sfazlehaider05@yahoo.com) is a Quetta-based
development analyst in Pakistan. He is the author of six books, including
The Economic Development of Balochistan (2004).
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