New
premier Ashraf returns to battle with Pakistan
power crisis By Syed
Fazl-e-Haider
KARACHI - The top challenge
facing new Pakistani Prime Minister Raja Pervaiz
Ashraf is the country's desperate power shortages
that are crippling industry and inflaming public
anger. Ashraf took over the office at the weekend
following the Supreme Court's dismissal of Yousaf
Raza Gilani on June 19.
Ashraf on Sunday
said that solving the power crisis and
establishing law and order in the strife-torn
financial capital of Karachi were his priorities.
Expectations that Ashraf will reverse the
country's power shortage are, however, low, as his
tenure as water and power minister between March
2008 and February 2011 was noted by critics for
its incompetence. He was also the subject of
corruption allegations surrounding the import of
temporary power stations.
Besides the
energy crisis, Ashraf, 61, faces tough economic
challenges before general elections that must be
called by next March, including widening trade and
fiscal deficits, declining foreign-exchange
reserves and a reduction of foreign investment
inflows.
Ashraf was appointed prime
minister after the favorite for the post, Makhdoom
Shahabuddin, 65, was arrested last Thursday under
the orders of a narcotics court investigating a
drug scandal. Gilani was ousted after being
convicted of contempt of court in April for
ignoring a Supreme Court order to revive a
corruption case against President Asif Ali
Zardari.
Public protests over extended
blackouts - as long as 22 hours a day in some
areas, amid temperatures as high as 40 degrees
centigrade - are growing, with violent clashes
with police. In Punjab last week, protestors
burned public property and plundered shops and
banks.
Industry is also heavily hit by the
power shortages, with numerous companies moving or
threatening to move factories to other countries.
Textile manufacturers in Faisalabad, the country's
textile hub, have moved their manufacturing units
to Bangladesh.
The immediate cause of the
power crisis is a shortage of oil and gas required
by power generators, with many struggling to pay
bills due to the difference between the production
cost of electricity and the tariff they are
allowed to charge consumers and the failure of the
government to pay agreed subsidies to meet the
difference. Many independent power producers have
stopped producing power. The Gilani-led government
in its budget for the fiscal year starting on July
1 allocated less than half of the required amount
to clear the related circular debt, which has
reached as much as 400 billion rupees (US$4.2
million).
The new premier immediately
chaired a meeting on the energy crisis at the
weekend and directed the Petroleum Ministry to
immediately ensure 28,000 tonnes of fuel supply
daily to the power sector to add 1,200 megawatts
of electricity to the national grid. The power
shortfall at present peaks at around 8,500 MW,
while maximum generation capacity of 13,240 MW is
well short of general demand of 18,065 MW.
Ashraf also cut gas supply to industrial
users so as to boost supply to power plants, a
move critics said will cause further damage to
factories already struggling to keep going. The
long-term solution to the energy crisis requires
power sector reforms, without which energy-chain
liabilities, or circular debt, will continue to
increase.
During his tenure as federal
minister for water and power, Ashraf was unable to
answer 40% of the questions put to his ministry,
according to a report on the parliamentary
performance of the new premier released by the
Free and Fair Election Network.
"Raja's
performance as Federal Minister for Water and
Power has been tainted by failures to overcome the
power shortfall that continued to aggravate even
after he was replaced," The Express Tribune quoted
the assessment report as saying. "His actions and
responses inside and outside the National Assembly
have not been translated into actions."
Ashraf in 2009 promoted a US$5 billion
plan to install 14 temporary power plants (also
known as rental power plants, or RPPs) to generate
2,250 MW of electricity. The Asian Development
Bank (ADB), assigned by the government to evaluate
the RPP agreements, declined to approve the plan
as it could significantly increase consumer
tariffs and use up billions of dollars of foreign
exchange in as little as five years. Instead of
working out a strategy to deal with the energy
shortages, the RPP agreements had been signed in
haste and without examination in detail of the
government's fiscal and contractual obligations.
The Supreme Court in March declared RPPs
illegal and ordered them to be shut down. The
court said regulations were violated by requiring
down payments of up to 14%, causing a large loss
to the public exchequer. The court directed the
National Accountability Bureau to investigate the
RPP plan, with critics claiming it involved
kickbacks to a high level of government office.
Allied to the power shortage and rising
fuel import bill Ashraf must improve the country's
external account to avoid a balance of payment
crisis that could trigger a return to the need for
an International Monetary Fund loan with unwanted,
and vote-threatening strings attached. Foreign
exchange reserves have declined to $15.05 billion
from $18.31 billion last July - depleted in part
by debt repayments (including for former IMF
loans) of $2.53 billion in the fiscal year ending
this month.
Falling European and US demand
for Pakistani products such as textiles, power
cuts that hit factories trying to complete orders,
and rising fuel import bills widened the current
account deficit to $3.8 billion in the 11 months
through May, compared with a $79 million deficit
in the year-earlier period. The trade deficit
widened 45.01%, to $17.7 billion during the 10
months to April from the year earlier period.
Finance Minister Hafeez Shaikh on June 2
did not rule out on that a fresh bailout package
may be sought from the IMF in the coming six
months.
Syed Fazl-e-Haider
(http://www.syedfazlehaider.com) is a
development analyst in Pakistan. He is the author
of many books, including The Economic
Development of Balochistan (2004). He can be
contacted at sfazlehaider05@yahoo.com.
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