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SC directives for construction of dams

Despite the looming water crisis, construction of big dams remained at the bottom of priorities of the ruling political leadership. Starting construction work on Diamer Basha dam and Mohamand dam, officially named Munda dam, was delayed for over 15 years. Consequently, the Chief Justice of Pakistan Mian Saqib Nisar had to take the initiative for immediate construction of two dams. The Supreme Court in its short order passed on Wednesday issued directives to the government for the construction Diamer Basha and Mohmand Dams, and appealed to the general public including Pakistanis residing abroad to donate for the cause.

The apex court formed a committee under airmanship of Water and Power development Authority Chief to monitor the progress of the construction work. It also directed that an account be opened with the SC, s registrar in which all donations will be collected. All those donating for the cause will not be asked of their sources of income. Chief Justice Mian Saqib Nisar initiated donation process by announcing Rs. 1million donation for these dams construction.

The four-member special bench ordered Chairman WAPDA led committee to present a report after completing the formalities within three weeks. Members of the committee include Additional Secretary Budget Finance Division, Joint Secretary Water Resources Division, Senior Chief (Water) Planning Division Chief secretary Gilgit Baltistan, Senior Member Board of Revenue KPK and Additional Chief secretary (Development) KPK.

Last week the CJP said that all stakeholders have agreed to the construction of two dams in the country with money recovered from loans defaulters. He also said that several of 222 individuals and companies who have got their loans written off had agreed to returning 75 percent of outstanding loans as per formula suggested by bench that hearing this case.

Earlier in April, the Executive Committee of the National Economic Council (ECNEC) had given approval for the construction of Diamer Basha dam, with water storage facility only, at an initial cost of Rs. 625 billion to be funded through local resources after international financial institutions showed reluctance and China made irrational demands under CPEC framework financing. An amount of Rs. 18 billion has been proposed in the current fiscal year budget. Likewise, ECNEC had approved Mohmand dam hydro power project at a cost of Rs. 303 billion.

Local rupee component required for the construction of Diamer Basha dam is Rs. 472 billion and foreign exchange component of Rs.153 billion. The dam has a gross storage capacity of 8.1 million acre feet (MAF) and live storage capacity of 64 MAF. Power generation potential of the dam is 4500 megawatts. Mohamand dam has gross storage capacity of 1290 MAF and live storage capacity of 0.676 MAF. Financial allocations for this hydropower project have not been reflected in the budget for the current fiscal year. The project has the power generation capacity of 740 megawatt.

The fast tracking of these mega projects from domestic resources will, hopefully, attract the financial assistance from the international lending agencies like World Bank and Asian development Bank. It is pertinent to mention that bidding for 2160 megawatt first stage of Dasu hydro-electric power project under World Bank financing was lower by more than 50 percent in comparison with similar projects that are being executed with Chinese loans under the umbrella of CPEC. The country needs augmentation and conservation of water resources and availability of hydropower at a competitive cost. The people of Pakistan are grateful to the Chief Justice of Pakistan for this bold initiative of directing the government to immediately start construction of two big dams, which will enhance water storage capacity to 45 days and add 5140 megawatt inexpensive power to the national grid. The completion of these projects will be instrumental in bringing the average power tariff down, which is now highest in the world and has hit hard the competitiveness of the economy.

 

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Rationale for power sector reforms

The Ministry of Finance informed a parliamentary body that the previous PML-N government had borrowed Rs. 180 billion to reduce circular debt, but the burden was shifted to consumers in the form of debt surcharge who honestly and regularly pay their electricity bills. The government has miserably failed to recover Rs. 850 billion from defaulter federal and provincial government departments, politicians, influential businessmen and industrialists. Officials of the Finance Ministry made the disclosure in a meeting of Senate Special Committee on power sector circular debt.

A lopsided power generation policy was implemented by the elected governments of PPP and PML-N. The clauses about the tariff and capacity charges and mark up payment in the agreements with power producing companies both foreign and local are loaded against the national interest. The circular debt accumulated over the last five years is Rs. 900 billion plus. The amounts include 40 percent debt liability on account of idle capacity charges and mark-up on loans that private power producers had obtained. This amount is regularly paid by consumers for the electricity which is not produced and consumed.

The PML-N government made shady deals with Chinese companies for coal based thermal hydro-power generation at the expense of the country and its people. Capital expenditure ( Capex) for the coal projects was about 40 percent higher than the international cost and coal power tariff was 8.4 cents per unit as compared to a tariff in many jurisdictions of five cents and below. In the meantime more evidence has emerged against irrational coal tariff that Chinese power producing companies will charge and for the payment of which the previous government agreed to create a revolving fund in the banking system. Recently there were bids for Jamshoro Coal Power Plant, wherein bids for Engineering, Procurement and Construction (EPC) contracts were one half than the contracts made under the CPEC framework.

Bidding got underway for 2160 megawatt (MW) first stage of Dasu hydro-electric power project, which is being constructed in the Kohistan district of Khyber Pukhtunkhwa under World Bank financing with reasonably low capital expenditure. The project has two stages with cumulative power generation capacity of 4260 MW. A recent bid was for electro-mechanical works including turbines, pressure shafts etc. In this case too there was a similar trend of rational capital expenditure. Bids were lower by 50 percent or even more to the similar projects that are executed under CPEC umbrella.

The hydropower projects which are being completed by Chinese under CPEC will alarmingly raise the power tariff in future. A comparative data of different projects shows that per unit cost vary widely. Karot has 2.03 times more the reference cost for Dasu, Kohala 3.31 times, Azad Pattan 3.97 times, Suki Kinari 2.38 times and Mahal 2.50 times. It shows how merciless the Chinese and self serving Pakistani political elite are. The power generation and distribution system equipment of China are much inferior in quality and reliability as compared with ones supplied by the companies of Germany, France and Italy.

There are two institutions that are responsible for such egregious cost variations—Private Power and Infrastructure Board (PPIB) and National Electric Power Regulatory Authority (NEPRA). The country needs energy but at competitive cost that can be afforded and make country’s export competitive in overseas markets. In this case none of the two are happening. Production of exportable goods went down because of lack of energy and its high tariff. If the trend set by the governments of two mainstream parties of awarding contracts at high capital cost continues in the next elected government exports will suffer more due expensive energy inputs. Due to sagging exports and rising imports, particularly petroleum products, the current account deficit is widening, adding to Pakistan’s external financing risks, according to report released by Fitch credit rating agency on Tuesday.

Power sector urgently needs drastic reforms aimed at lowering electricity tariff. A more vigilant oversight EPC bidding process has to be introduced. It cannot be left to the discretion of sponsors because the cost and penalty is passed on to the consumers under cost plus tariff As a result phony contractors are invented by sponsors with resultant impact on cost. Breaking the EPC into a number of components and inviting separate bids for them in hydroelectric projects will be in order. It is time to revise list of CPEC projects along with some meaningful negotiations with the Chinese government. The focus should shift on more competitive projects like, solar, wind and hybrid of solar and wind. There is dire need of 10000 MW low cost electricity, bringing the average tariff down and reduce fuel imports.

 

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Is financial crisis emerging?

The downturn of the economy accelerated by the Previous PML-N government now seems to be heading towards financial crisis. The budget deficit has hit a new high of Rs. 2.4 trillion, compelling the finance ministry to instruct the Central Bank and Accountant General Pakistan Revenues (AGPR) to block the clearance of government cheques on June 30 to avoid further embarrassment. The cheques that were issued on June 29 and were not cleared by 30th June will become invalid for the transfer of money to the accounts of clients in the scheduled banks.

The finance ministry conveyed verbal instructions to the State Bank of Pakistan (SBP) and National Bank of Pakistan (NBP) not to honour government cheques on June 30, which was the last day of fiscal year 2017-18. The Central Bank then conveyed the instructions to banking institutions. The finance ministry also conveyed to AGPR to stop issuing cheques on the last day of the fiscal year. Normally, the government cheques issued on 29th and 300h June are cleared till late in night of by SBP. In 2012, the SPB had given three days grace period until July 3, for clearance of cheques issued by AGPR, Provincial Accountant General Offices and their District Account Offices.

Oblivious of the financial situation of the country that was left as legacy to the caretaker government by the previous government; the planning ministry has protested against the decision of the finance ministry and has raised the issue of constitutionality of the move. In its memorandum the planning ministry contended that this would be amounting to non-compliance of constitutional provisions relating to annual budget and its operation.

The ministry of finance took these inevitable steps to stop payments from the treasury accounts, as budget deficit was going through the roof. Its initial assessment showed that budget deficit for fiscal year 2017-18 could widen to as much 7.1 percent of the Gross Domestic Product, excluding power sector circular debt which is Rs. 900 billion plus. The main reason behind the ballooning budget deficit were over spending by the governments of Punjab and Sindh, lack of control by the federal finance ministry and massive shortfall in FBR tax revenues.

The Punjab government took an overdraft of Rs. 59 billion and Sindh Rs. 10 billion. These measures led to no saving by the provinces. The federal government also opened its purse during the last few months doling out the so called development funds to the law makers of ruling PML-N and excessive discretionary spending. The remote controlled finance ministry by the absconder former finance minster Ishaq Dar closed its eyes to 2018 election related slippages against which the International Monetary Fund had forewarned.

Another shock came from the FBR that failed to even achieve its downward revised tax collection target of Rs. 3.935 trillion despite availing the benefit of tax amnesty scheme. Till Saturday, the FBR tax collection was less than 3.77 trillion against its original target of Rs.4.013 trillion. The shortfall in tax collection would add at least 0.6 percent to the budget deficit. The poor show require a thorough reshuffle in FBR and probe as to whether it was the result of inefficiency of tax collectors or their arm twisting by the ruling political elite.

The non-clearance of government cheques by NBP and the banking system will lead to lapses of billions of rupees funds allocated for FY 18. Affectees include federal government ministries, contractors working on public sector projects and provincial governments. The grim scenario was not unexpected. The World Bank in its report, “South Asia Focus Fall 2017” cautioned the government of Pakistan in August last year against the fiscal imbalances including ballooning budget deficit and bulging current account deficit and suggested certain corrective measures. But that report was rejected outright by singing the mantra of economic gains and prosperity that CPEC has brought. It was a ploy to hoodwink public opinion. Pakistan would urgently need another IMF bailout package as opined by a renounced economist who had served in the finance ministry.

 

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Extension in tax amnesty deadline

With a surge in interest in declaration of foreign and domestic asset, the government has extended the tax amnesty for one month with a cut of date of July31. A presidential ordinance has been issued in this regard. The deadline for filing amnesty declarations was June 30, however during last week, a large number of representations have been received from trade bodies, professional associations and general public and general public for extending the closing date due to short operational period after clearing legal and procedural challenges.

Meanwhile, the Federal Board of Revenue (FBR) has received confirmation that approximately Rs. 100 billion has been deposited in tax. However the actual amount that went into the national exchequer is Rs. 75 billion. When the tax amnesty scheme was announced, the Financial Action Task Force (FATF) had expressed reservations about it and said that the international watch-dog on anti-money laundering and counter terrorism financing had not been consulted. The articulate finance Minister DR. Shamshad Akhtar, who has recently attended the FATF meeting, may have also allayed the misgivings about tax amnesty scheme.

Initially the response to tax amnesty scheme was lackluster because of some procedural bottle-necks but of late it saw surge. As the amount of tax on offshore assets is being remitted through banking channels and registered foreign exchange companies are not yet allowed in the transfer of tax money from abroad, therefore people are facing problems in receiving confirmations regarding their payments in dollars. Normally dollar transactions are cleared in New York. The clearance of such transactions takes a little longer time, three to four days. That is why one of the major demands from tax payers is to allow payment of tax through officially registered exchange companies which is not currently allowed under the scheme.

The tax amnesty scheme offers varying rates that will be charged on hitherto untaxed assets. The tax rates rang from two percent to five percent, whether it is domestic or foreign asset, the asset class, and whether or not it is being repatriated to the country.

The number of active tax payers, which was 2.4 million in president Musharraf era showed a decline of 50 percent over the past 10 years. The PML-N government had to announce tax amnesty scheme to allow people to declare their hidden domestic and offshore assets, avoiding the grim consequences of drive against tax evaders by the Organisation for Economic Cooperation and Development (OECD). The scheme is also intended to provide a boost to fast deckling foreign exchange reserves, which now stand at $ 9.66 billion barely sufficient for two months imports. The FBR expects to fetch $ billion foreign exchange from the scheme. Despite the positive impact of the scheme the tax collection is still far lower than the target of Rs. 4.01 trillion and has to be lowered to Rs. 3.77 billion.

The previous two governments let the tax culture erode and patronized money laundering by political and business elite. According to the data released by FBR, 1.391 million tax payers filed their tax returns in 2016. On the contrary, the number of tax filers dropped to 1.238, showing that 152,749 tax payers slipped from FBR already narrow tax base. Almost 43 percent of registered companies and partnership firms did not file tax returns and the relevant law was not brought into action against them. The World Bank in its report. “South Asia Focus Fall 2017”urged the government of Pakistan to utilise the available data of potential taxpayers with FBR to expand the tax base with a view to generate more revenue from direct taxes and substantially reduce the budget deficit which went up to 6.1 percent of the GDP. A data of 3.8 million wealthy people, who are still out of the tax net, has been available with the FBR since 2010. It remains to be seen whether or not the extension in tax amnesty scheme brings the desired results.

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Water resource conservation

Caretaker Chief Minister Justice (Retd) Dost Muhammad Khan, while presiding over a meeting of high officials of agriculture and irrigation departments underscored the need for the completion of on going small dam projects. He emphasized long term planning for water conservation projects that are of low cost and provide more benefits. He said these projects should have shorter completion periods and stressed application of modern technology and methods in water usage and farming.

In all 37 small dams had been approved by both federal and Khyber Pukhtunkhwa (KP) government but the implementation of most of them hit snags due non-provision of funds and capacity issue of the departments responsible for the execution of these projects. Central Development Party (CDWP) of the federal government approved the construction20 small dams in KP with a cost of R.s. 970 million on January 15, 2016. Likewise, the previous provincial government decided on 3rd November 2017 to construct 17 small dams in different districts of the province to cater to water needs of agriculture sector, drinking water and providing inexpensive electricity to the people. However, the provincial government could not start the construction work on these dams barring a few exceptions.

Construction of two small dams Gadwalian dam in Haripur and Jalzai dam in Noshera districts have been started and are in the advanced stage of completion. The PTI government included one small dam each in Nowshera and Karak districts in the ADP of 2015-16. But the implementation process of Mairabi and Jaroba dams did not see light of day. Latamber small dam project in Karak district also met the same fate.

There are a number of feasible sites of small dams in southern districts of Kohat, Karak , bannu and Tank for storing the water of flash floods in rains of spring season and monsoon rain spell but attention is yet to be given for their planning and execution. Similarly, there are dozens of feasible sites of small dams in the districts of Charsadda, Mardan, Sawabi, Swat and Dir. The issue is the lack of interest of ruling political leadership in water resource conservation methods.

 

 

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Non-productive loans

In the debt riddled Pakistan’s economy the pendulum has swung towards non-productive mode of financing with high interest bearing loans, mostly acquired from China and floating of Euro and Sukuk bonds. Five years ago, in PPP government two-third of loans used to be taken for productive project with built-in capacity of pay back. The projects added to the increase in gross domestic product (GDP) in real terms. But in the PML-N government around 75 percent foreign loans were obtained for budgetary support, caused by extravagance in current expenditure, and building foreign currency reserves because of sagging exports and rising imports.
The burden of foreign debt has reached $ 92 billion, showing an increase of $ 45 billion over the last five years. Pakistan has received nearly $ 10 billion during the first 11 months of the fiscal year 2017-18 and three fourth of this amount has been utilised for budgetary support and meeting external financing, underscoring that the amount can not be returned without resorting to fresh borrowing. The total loans disbursement from July to May of the fiscal year 2017-18 stood at $ 9.9 billion, according to the report released by Economic Affairs Division. The 11 months disbursements were significantly higher than the budgetary estimate of $ 7.7 billion. During the same period project financing stood at mere 2.8 billion or 28 percent of the total disbursement. But half of this project financing went into only three projects—Orange Line train, Thakot Havelian Highway and Multan Sukkar Motorway.
Overall the government of China and its financial institutions provided $ 3.8 billion or 38 percent of the total loans. A reasonable amount of loans have also been obtained from World Bank, Asian Development Bank and through foreign exchange bearer bonds. The component of Chinese loans consist $ 1.64 billion for project financing and 2.2 billion are commercial loans from Chinese Banks. In addition to $ 3.8 billion of direct disbursement of loans, China has also extended $ 3 billion credit facility that Pakistan has almost utilised to stabalise its nose-diving foreign currency reserves which has now dipped to $ 9.66 billion which is not even sufficient for two months imports.
The PML-N government almost doubled the foreign debt liability in its third stint of government July 2013-May 2018. But the bulk of the loan acquired have not been spent on expanding the productive capacity of the economy by constructing water storage dams, introduction and indigenization of new technologies to make the industry competitive for boosting exports, setting up industries of producing industrial raw materials and intermediate and imports substitution industries. Their main objective was to convert Pakistan into a trading nation. Incentives were not given to facilitate the exploitation of available export potential of $ 12 billion with value addition and diversifying the export market instead of relying the existing market.
The public debt-to-GDP ratio peaked to 70.1 percent as against 63 percent of PPP tenure. This ratio is higher than the sustainable levels of a country like Pakistan. High debt level is consuming over 30 percent of the federal budget on account of debt servicing. It will necessitate drastic cut in development expenditure and will fall on social sector development. The economic situation left by PML-N government after completing its term of five years is much worse than that of its second stint of government of two and a half year that ended on 12th October, 1999. General Musharraf military led government of technocrats succeeded in foreign debt rescheduling with freeze interest and loans waiver. The economy was turned around in three years. This time such a free lunch can not be made available by international lending agencies because of strained relation with the United States and Pakistan’s placement on grey-list by FATF.

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Back on grey-list

Putting back Pakistan on grey-list of countries, having weak anti-money laundering and counterterrorism financing regime, was not unexpected keeping in view the obdurate and unwise response of previous PML-N government to the Financial Action Task Force (FATF) decision of February 22, putting the country on watch-list for the next four months with the advice to put the house in order failing which it will be back on the grey-list. The FATF did not accept the proposed action plan of International Cooperation Review group (ICRG) of Asia Pacific Group (APG), which Pakistan promised to be implemented by the next elected government.

Although speculations as to which political party will win the upcoming polls and form government is a premature proposition, yet the foreign office is optimistic that Pakistan could be removed from the grey- list provided it effectively implemented the plan negotiated with the watch-dog. Earlier, the trouble shooter caretaker Finance Minister Dr. Shamshad Akhtar, who is endowed with the outstanding capability of convincing the international organizations, has urged the FATF to remove Pakistan from grey-list but to no vial. Perhaps the legacy of trust deficit left by previous government was difficult to be disposed of.

Just three days before the  February 20 meeting of FATF, US State Department Spokesperson Heather Nauret had expressed concern in a press briefing over, what she called, Pakistan’s deficiencies in implementation of money laundering and counter terrorism laws. She told reporters the US had been concerned for a long about actions of Pakistani authorities. She said that after placing Pakistan on watch-list more actions will follow which she did not disclose.

Being put back on the grey-list would tighten Pakistan’s risk profile and some financial institution will be wary of transacting with its banks and other counterparts. Others might prefer to avoid dealing with Pakistani banks, viewing the legal risks associated with doing business with them as it will outweigh any economic benefits. A decline in foreign transactions and drop in foreign currency inflow could further widen the current account deficit. If one has to decipher the Ms Naurets’ phraseology of other likely actions, the chances of much needed International Monetary Fund (IMF) next bailout will be slim. At present Pakistan badly needs $ 26 billion from IMF, World Bank and other international financial institutions for balance of payment obligations, payment of external debt and budgetary support. Likewise it may affect the disbursement of project loans that are in the pipeline from World Bank and Asian Development Bank. Foreign banks like Standard Charter Bank, Citi Bank and Dutche Bank, who mostly deal with corporate entities, may pull out. It is pertinent to mention that in September last year Habib Bank was fined $ 222 million by New York regulator and effectively forced to shut its operation in the US.

The country is in fragile state due to the disastrous economic policies of the PML-N government. The grim scenario is reflected in the 75 percent utilization of foreign loans on non-productive expenditure. The current account deficit has swelled to $ 32 billion and budget deficit has gone up to 6 percent of the GDP. Raising foreign capital and arranging badly needed inflows will be extremely difficult after this development. Moody’s Investors Services and Fitch credit rating agency has already pained a negative outlook of Pakistan’s economy. The assessment of these top credit rating agencies will raise the cost of future money lending to Pakistan and scare away both domestic and foreign investment.

The world is getting united against terrorism. The United States and India are in unison in charge sheeting Pakistan time and again, what they allege harboring terrorist heavens. The recent interview of former disqualified Prime Minister Nawaz Sharif to Cyril Aleda of daily Dawn about 26/11 Mumbai terror attacks buttresses the US-Indian narrative against Pakistan. The badly timed move of unfreezing the assets of a sectarian organization to which Lej is believed to be affiliated will also further tarnish the image of Pakistan in the international community. There seems no escape from the actions to be taken sooner or later in accordance with the provisions of United Nations Security Council resolutions 1267 and 1373 if diplomatic isolation in the comity of nations is to be avoided. Abandoning by China and Saudi Arabia at FATF vote in February should serve an eye opener for the decision makers.

 

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Utility of big dam-storages

The ruling political elite knowingly and deliberately delayed the construction of big dam-storages over the past five decades. A number of multidimensional hydropower projects were conceived in the Indus Basin Treaty signed between India and Pakistan in 1960 with arbitration efforts of the World, which also provides finances in collaboration of other multilateral donor agencies for mega hydropower projects. The construction of Kalabagh dam was first shelved in mid 70s and then made politically controversial in mid 80s by KP government alone and threw it as political slogan to the ANP. PPP and Sindhi nationalist parties joined the ant-Kalabagh dam bandwagon later when Benazir Bhutto made it a main election campaign slogan in 1988.

Realizing the future water and electricity needs of the country, President Ayub Khan started the construction of, Mangla and Tarbella dams on the Rivers Jhelum and Indus bides Warsak dam on the River Kabul. Surveys and feasibility study for Kalabagh dam were also started which were completed on fast track. But the elected governments ignored the construction of big dams, downstream and upstream Tarbella on the River Indus. The result is that the country, which is currently water stressed, will be heading towards water starved situation by 2025. Disappointed by the political leadership, the people of Pakistan are now anxiously looking up to the Chief Justice of Pakistan, Mian saqib Nisar for tackling the looming large issue of water crisis and likely desertification of fertile cultivable land in Punjab and Southern districts of Khyber Pukhtunkhwa besides the exacerbated drinking water shortages at present and the acute ones in future.

The Honourable Chief Justice, while presiding over a three member bench on the resumption of hearing pertaining to the construction of Kalabagh dam on Wednesday asserted that its construction is inevitable. Former Chairman WAPDA n engineer Shamsul Mulk, who being its project director has remained versed with the feasibility studies and planning of this project, gave detailed arguments in favour of the dam. Explaining the benefits he cited that China is generation around 30000 thousand megawatts of electricity from dams. “Even India has more than 4000 dams, “he said. We lose billions due to non-construction of dams, Shamsul Mulk added

During the court proceedings, the Chief Justice expressed dismay over elected governments’ failure to reach a consensus on Kalabagh dam. He inquired about the consequences of not constructing dams. “All four provinces will benefit from construction of new dams. It is not about Kalabagh dam, it is about Pakistan, “he added. The top Judge remarked that Quetta and certain areas of Khyber Pukhtunkhwa are already facing water shortages. “I am thinking of halting judicial matters to plan a water seminar instead,” said Justice Mian Saqib Nisar.

Later, the CJP addressed a seminar on water shortages and construction of dams. He said, “It is the duty of the Supreme Court to enforce fundamental rights. We will take the dam issue seriously.”A TV footage of the seminar showed that the Chief Justice of Pakistan very passionately said that he will even beg to save the future generations from acute water shortages.

An Urdu daily newspaper has reported that the CJP also remarked during hearing of this case that we all shall contribute to the fund of this project including the legal fraternity. It is pertinent to mention that Sindhi politicians of PPP and nationalist politicians of this province are now more vocal in voicing their opposition to construction of Kalabagh dam. But it was a Sindhi Prime Minister Muhammad Khan Junejo who made sincere efforts for building consensus on this dam. Imbibed with a true spirit of patriotism and national thinking he held a high level meeting in Governor’s House Peshawar early 1985 to address the reservations of KP government. If the minutes of that meeting are still available on record that will certainly provide a useful input for court proceedings in Kalabagh dam case.

The political leadership is well aware of the fact that Pakistan loses 90 percent rivers flow, accruing an annual loss of 21 billions to the country. It was on May 21 that former minister for water resources Syed Javed Ali Shah told National Assembly that the existing water reservoirs can store only 10 percent of rivers flows. Detailing the storage capacity, he told that big dam storages could store just 14 million acres foot MAF water amounting to just 10 percent. The Minister admitted that inaction regarding new reservoirs, reduction in storage capacity of existing ones due to sedimentation, rapidity of climate change, increase in population and water demand are main factors of water shortages.

According to Indus River Water System Authority (IRSA), the body tasked with managing allocation of country’s irrigation water, somewhere between 9MAF to 10 MAF of water is usually released during Kharif crop sowing season. This year the amount that has been released is 5.8 MAF, a near disastrous shortfall of more than 40 percent. The country and its people urgently need big dam storages on the river Indus both downstream and upstream Tarbella, besides a dam on River Chenab, Monda dam on River Swat and Kurram Tangi dam on River Kurram.

 

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Compliance of FATF action plan

Pakistan has committed itself to an ambitious 26 points action plan spanning over a period of 15 months to avoid being blacklisted by the Financial Action Task Force (FATF). The plan envisages curbing financing of terrorist groups like Daish and Haqqani network. The FATF plenary—global international intergovernmental body to combat money laundering—has begun discussion on action plan on Tuesday. A formal announcement about Pakistan’s fate is expected on Friday. This is for the first time that all 26 actions have been published in detail.

The Plan that the International Cooperation Review group (ICRG) of Asia Pacific Group (APG) submitted to the FATF plenary which requires authorities to proactively cooperate with counterpart bilateral agencies to choke financing to Daish, AlQaeda, Jammmaatul Dawa and its affiliates. Let. Jem and the Haqqani network. A source in the minister concerned said that the plan is quite ambitious and added that the country is committed to proving to the world that it is ready to an extra mile to curb money laundering, despite its reservations that the plan is politically motivated.

Pakistan will have to deliver on the first goal by January next year and complete all the 26 actions by September, 2019, which seems to be every difficult job keeping in view of the past record of expediencies of ruling political elite. The FATF approved nomination of Pakistan for monitoring under ICRG is commonly known as grey list. If the FATF formally endorses, it will formally announce to place Pakistan on the list. In case this international watch-dog working against money laundering and terror financing rejects the proposed action plan, Pakistan will be on the FATF statement, being called black list.

The ICRG of APG has identified four key areas of concerns, including deficiencies in the supervision of Anti Money Laundering Laws (AML) and counterterrorism financing regime, cross border illicit movement of currency by terror groups, progress on terrorism financing investigation, prosecution and implementation of the United Nation security Council resolutions 1267 and 1373 for curbing terror financing. The government will have to take into account the concerns enumerated in UNSC resolutions and prove its commitment regarding slamming the doors on terror financing, curbing currency movement across the border and recommendations relating to improvement of supervision mechanism of banks and companies.

The ICRG assessment is that that Pakistan does not demonstrate cooperation between federal and provincial authorities to prosecute terrorism financing commensurate with its terrorism financing risks. The assessment also points out that Pakistan has not provided any information how best it analyse and evaluate these risks. It has also not furnished details on whether the decline in terrorist attacks has any bearing on increase or decrease in terror financing. To address thee concerns Pakistan will have to honour from January 2019 and it will identify, examine and understand both domestic and transnational terrorism financing to guide investigation investigations on them. This is an arduous job which government can hardly perform, particularly when it is fond of pursuing an ostrich policy and prefers to be in a denial mode like the PML-N leadership.

The PML-N government did not take serious the United States sponsored move in February to put Pakistan back on the grey list. The FATF decision to give a short leash of three month was misjudged as reprieve and former foreign minster Khwaja Asif tweeted imprudently on 20th February 2018.  Pakistan on watch list, proposing three months pause and asking APG for another report to consider. We are Grateful to friends who helped us out. The United State instantly repudiated his claim. Pakistan was alone in the FATF plenary meeting and was abandoned at the eleventh hour, including the trusted ones trusted ones like Saudi Arabia and the so called iron brother China. It was only Turkey that supported Pakistan.

The tweet of the foreign minister made Pakistan a laughing stock in the international community. He was also ridiculed in foreign media. A lead story in the FINANCIAL EXPRESS was published under the caption: Did Pakistan’s overzealous foreign minister Khawaja Asif put his foot in his mouth. Another English newspaper went a step. The lead story of DNA India chose a caption: Did Pakistan’s foreign minister Khawja Asif jump a gun on FATF. As if this heavy dose of humiliation was not enough. The flamboyant philosopher interior minister Ahsan Iqbal angrily reacted to FATF decision and said that US move to put Pakistan on watch list is to destroy it economically, ignoring this bitter fact that it were the ill-conceived economic polices of PML-N government that pushed the economy to the verge of collapse. It remains to be seen how the next government deals with the FATF action plan.

 

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Power supply shortfall

The power supply shortfall has reached to a record high of 9000 megawatts (MW), leading to prolonged power outages in the country. The situation has exposed the often repeated claims of the Pakistan Muslim League Nawaz (PML-N) to have brought massive turn around in power fortunes. Former Prime Minister Shahid Khaqan abbasi had claimed on May, 30 ahead of his tenure end that government had added 11,461 MW power generation capacities from new resources. He had also told that electricity demand in June would stand at 22,538 MW against the total expected generation of 22,178, registering a shortfall of 362 MW.

During a press conference a few days ago, caretaker energy minister Ali Zafar also claimed that the average power shortfall is 2000 MW, which is the result of dropping water flows in the rivers. He disclosed that the weak distribution and transmission system is not picking the additional power generation. He also said that the situation would improve within the next few days but it worsened.

According to available data, power demand on Monday stood at 25,044 MW against the supply of 15766 MW that led to the extended power outages across the country. A load shedding of 4 to 17 hours is being carried out nationwide and frequent tripping of feeders disrupting power supply has become a daily feature. The provinces of Sindh, Khyber Pukhtunkhwa (KP) and Baluchistan are the most affected federating units by increasing electricity deficits. Almost 90 percent of domestic consumers in KP have switched over to solar systems in rural areas, whereas water supply system is largely based on solar tube wells and water pumps run by small gas generators, saving the people from Karachi like drinking water crisis. Likewise, government schools have solar systems installed for electricity supply, greatly reducing their dependence on the high cost electricity provided by Peshawar Electric Supply Company (PESCO).

There are multiple reasons of power outages which include faulty transmission lines, obsolete control system, nonpayment of circular debt and electricity bills default of Rs. 851 billion by politicians, influential businessmen, industrialists, federal and provincial government departments. The Economic Coordination Committee (ECC) meeting held in May PML-N government economic managers had acknowledged that financial position of power sector was critical because of host of reasons. These include unsatisfactory performance in terms of regulators benchmarks for lines losses reduction and improvement in recovery, unavailability of subsidy, delay in detailed tariff determination, which has now been notified but its benefits would start emerging in the next few months. The ECC was also informed that higher energy sales due to a significant increase in generation base also contributed to circular debt.

The power division has spent Rs. 93.5 billion over the last five years to improve the power distribution and transmission system network that could not bear the electricity load. Up-gradation work has been completed on 748 Km transmission lines of four 500 KV grid stations and 2293 Km transmission lines of 13220 KV grid stations. The transmission network is spread over 5772 Km for 500 KV grid stations and 10523 KM for 220 KV grid stations. World Bank has approved a soft loan of $ 421 million for rehabilitation of 131 Km transmission lines and modernization of four 500 KV and 8 220 KV grid stations. However, the government could not get the promised Chinese loan of $ 1.7 billion for Mitiari –Lahore transmission project under the CPEC framework and it has been delayed for three years.

The PML-N government after assuming power in June 2013 had announced to establish a mechanism of federal adjuster for at source recovery of utility bills arrears from provinces and federal government departments but the proposal did not materialize. Likewise, no action was taken for the recovery of electricity bills from the defaulter politicians, businessmen and industrialist with the result that electricity bills default swelled to Rs. 851 billion almost equal to the amount of circular debt.

The main factor of one trillion circular debt accumulations after the clearance of the entire circular debt of Rs. 485 billion in 2013 is the 40 percent capacity charges clause included in the agreements made with private sector power produces in the second Benazir Bhutto government. The government is bound to pay for the idle generation capacity of IPPs caused by short supply of furnace oil for which the government itself is responsible to make arrangements of imports through Pakistan State Oil. The power outages of longer durations is taking a heavy toll on the economy because of sharp decline in the productivity of agriculture and manufacturing sectors. The improvement, rehabilitation and up- gradation of distribution and transmission system should be completed on fast track.