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Dams and Diaspora

It appears that the new government finds itself in catch 22 situation to devise a sound public finance policy to clear the mess created by the previous two governments and particularly the five years tenure of PML-N government. A passionate appeal by the Prime Minister Imran Khan to Pakistani Diaspora to donate at least $ 1000 each indicates that PTI government is not sure about getting the required amount of external financing from the sources of bilateral funding and loans from multilateral donors including International Monetary Fund (IMF), the World Bank and Asian Development Bank.

Donations from overseas Pakistanis for dams’ construction and their investment in Sukuk bonds and Oversea Pakistanis certificate will bring reasonable amount of foreign exchange to the country but it will not be sufficient to meet the entire expenditure needed for financing two mega hydropower megaprojects. A huge foreign exchange component and funding from the domestic sources will be required to ensure their completion within the scheduled time period. The government is working on a plan to scale down federal development programme to Rs.775 billion from Rs.1, 030 billion set in the budget 2018-19. The saving of Ds. 255 billion will be used to increase allocations to water sector projects.

During the tail end of tenure of PML-N government Chairman WAPDA had told Senate Standing Committee that finances of $ 2 billion would be obtained from Asian Infrastructure Investment Bank and Swiss Bank for Diyamer Basha Dam. Will foreign banks undertake financial risks when IMF does not issue letter of comfort to Pakistan? Another factor of uncertainty hovering over the possibilities of external financing is the hanging sword of grey-listing of Pakistan by FATF. It remains to be seen how far the government succeeds in implementing all the 26 points of action plan handed down by this international watchdog on anti-money laundering and counter terror financing, particularly the one that pertains to choking the source of funding to the proscribed organisations. The unwarranted exercise of a controversial appointment on the Economic Advisory Council and then hasty backtracking on it should have been avoided, which conveyed a negative message abroad.

The Meteorological Department has issued an alert of low rain fall, intense spell of drought and water crisis. The rainfall has been 30 percent lower in the past three months and there is possibility of low showers in the next three months as well. A comparative data released by Meteorological Department reveals that rain fall was 69 percent lower in Sindh; 49 percent in Baluchistan; 45 percent in Khyber Pukhtunkhwa; and 8 percent in Punjab. The issue necessitates recourse to strict water conservation methods.

 

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Water storage capacity

The deliberate neglect of building storage dams by successive governments from mid 70s, Pakistan has become a water stressed country, having a capacity of storing water for hardly 36 days. Silting has reduced the storage capacity in the Tarbella dam reservoir from 13.681 Million Acre Feet (MAF) to 9.360 MAF. The water storage capacity of Mangla Dam reservoir has also substantially declined. Other countries of the world have 130 days storage capacity.

Water Resources secretary Sohail Ahmad Khwaja, while briefing the Senate Committee on water scarcity regarding water availability in the country and its storage said that the current water available resources are 138 MAF with a storage capacity of 13.7 million acre feet. It is only 10 percent of the available water resources.

After rigorous deliberations, a National water policy was conceived a few months back. All provinces agreed to water charter according to which it was decided that no matter which political party holds the rein of power, there shall be no change in the policy until 2030 on account of United Nations Sustainable Development Goal (SDGs). However, the bitter fact is that that most of the targets Of Minimum Development Goals (MDGs) have not been achieved. That is why former disqualified Prime Minster Nawaz Sharif had to skip the UN meeting on SDGs in 2016 to hide his incompetence, skewed priorities of his government and escape embarrassment.

In the wake of National Water Policy, agreement was reached among the federating units for building Basha and Mohamand dams. But the fact remains that it were the directives of Supreme Court that paved the way for fast- tracking the launching of these dams. Chief Justice of Pakistan Mian Saqib Nisar announced a fund for receiving donation in the fund for dams’ construction. Government employees and general public are depositing their donations in the bank account opened by the court for this purpose. The Apex Court constituted an Implementation Committee of Diamer Basha and Mohamand Dasm (ICBDM).

Negotiations are being held to arrange finances of $ 2 billion from Asian Infrastructure investment Bank and Swiss Bank for Basha dam. About 90 percent land acquisition process has been completed for construction of this dam, having capacity to generate 4500 MW electricity. It has water storage capacity of 8.1 million acre feet. Mohamand Dam has a storage capacity of 1.28 million acre feet and power generation potential of740 MW. After the completion of these hydropower projects the water storage capacity will rise to 56 days.

If the leadership of political parties adopts reasonable attitude and give preference to national interest, then consensus can be built for the construction of the most suitable hydropower project of Kalabagh dam, which has been delayed since 1975. The dam has water storage capacity of 6.1 million acre feet and power generation potential of 2400 MW. At present Pakistan throws available water resources of $ 21 billion into the sea every year. It is the animosity of political leadership towards storage dams on three westerly rivers that Indian delegation of Water Commission in their recent meeting with Pakistani Water Commission in Lahore gave a slap in the face when they referred to Pakistan’s failure to construct dams as per the provisions of Indus Basin Treaty of 1960. Former Caretaker Minister for Water and Power, barrister Ali Zafar described opposition to Kalabagh dam as conspiracy of the enemies of Pakistan.

The province of Sindh is more affected by the water shortages in rivers and dams. But the myopia of PPP leadership and that of Sindhi Nationalist Parties is a stumbling block in achieving consensus on Kalabagh dam. To allay their misgivings about this project, Chairman WAPDA General (R) Muazzamil Hussain made an offer in the Senate Standing Committee meeting to handover control of Kalbagh Dam to the province of Sindh after its completion. In Khyber Pukhtunkhwa, the leadership of Awami National Party has failed to substantiate their ant-Kalabagh dam stance with authentic and detailed technical data. This ante of imaginary fear about drowning of some districts of the province and mantra of deluge is nothing but a political gimmick for survival.

Political leaders and people of the five southern districts believe that the dam will provide irrigation for one million acre of fertile land. This is what former Chairman WAPDA Engineer Shamsul Mulk and former advisor to President Musharraf Dr. Alman Shah have been emphasising about the utility of Kalabagh dam for the People of Khyber Pukhtunkhwa. Let us hope the new government will succeed in removing the smoke screen created by the vested interest against Kalabagh dam and implement water conservation strategies for conserving wastage of water resources during irrigation.

 

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Safeguarding national interest

US Secretary of State Mike Pompeo one day visit to Islamabad revealed bold indications that the new government is pursuing an independent foreign policy in its relations with the United States and other world powers. It is determined to grab the opportunities that re-alignment of forces offer to it. The low key reception at the PAF Noor Khan Air Base and what transpired from the joint meeting with the Prime Minister says it all. His body language depicted in the handshake how a genuinely and popularly elected leadership should upheld the dignity of his country and its people.

Prime Minister Imran Khan in straight talk told the top US diplomat that Pakistan looks forward to strengthening its relationship with the US based on trust and respect. He underscored his commitment to peace with all neighbours and shared Pakistan’s perspective on the situation in the region and reiterated its desire for peace and stability in Afghanistan.

It appears that Washington has realised the change in the rules of engagement by its longtime ally.  While taking to media on his arrival at PAF Noor Khan Air Base, US of Secretary of State Mike Pompeo said that in a number of meetings with the Chief of Army Staff General Qamar Javed Bajwa he talked about the opportunity to reset the relationship to reset the relationship between the two countries across a broad spectrum—economic, business and commercial, the work that we all know that we need to do try and develop a peaceful resolution in Afghanistan, which benefit certainly Afghanistan but also the United States and Pakistan. “And I’m hopeful that the foundation we lay today will set the conditions for continued success as we start to move forward,” said Pompeo.

The statement issued by the State Department soon after the conclusion of Secretary after the conclusion of Secretary of State visit said that Mike Pompeo conveyed the need for Pakistan’s to take sustained and decisive measures against terrorists and militants threatening the regional peace and stability in his meeting with civil and military leadership of Pakistan. The State Department “Read out” did not mention the sacrifices of 60000 civilians and personnel of security forces in war on terror and loss of $ 100 billion to the economy.

This version was rebutted by Foreign Minister Shah Mehmood Qureshi. He said that Pakistan and the United States have different stance on several issues. However he categorically made it clear that the US had not made a demand for” Do more”. “We got the impression the US policy has been reviewed. We presented the Pakistani stance with self-respect, tolerance and responsibility,” he said. The foreign minister said, “The talks with the US were held in a positive and congenial environment. Our future is linked to Afghanistan. We want to live in peace,” he maintained.  In this context he referred to the latest positive developments on Pakistan-Afghanistan front, including operationalisation of the Afghanistan-Pakistan Action Plan for Peace and Solidarity (APAPPS). He disclosed that he would make his first visit to Afghanistan.

The parameters of the US Administration on war against terrorism are not clear. Strong and decisive action against ISIS in Afghanistan does not figure clearly in the South Asia Policy. That is why former Afghan President Hamid Karzai alleged that ISIS fighters were brought to Afghanistan onboard unmarked helicopters. Other terrorist groups that have sanctuaries inside Afghanistan have come under the umbrella of ISIS. The entry of this international terrorist organisation in the Afghan war theater has posed grave threat to the stability of countries of this region including Pakistan, China, Iran and Central Asian States. Russia is extremely worried about the spell over effect of ISIS to Central Asia and onward to mainland Russia itself. The United States has shot down Pakistan’s proposal to place one of the most wanted terrorist on the United Nations Sanctions Committee List. In July last year, Pakistan requested the UN Security Council for listing the Jamiatul Ahrar (JUA) Chief Umar Khalid Khurasani aka Abdul Wali. The Committee took up Pakistan’s request but had to turn it down after the United States raised objection to it. The JUA operates under the ISIS chain of command and is a banned organision. This sort of double standards lends credence to the theory that destabalised Afghanistan suits the American interests in the region. The independent foreign policy of Pakistan is aimed at restoring peace and stability in Afghanistan.

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Reprioritising CPEC

Prime Minster Imran Khan has formed a Cabinet Committee on China Pakistan Economic Corridor (CPEC) as the new government is discussing reprioritisation of projects under its umbrella. Planning Minister Khusro Bakhtiar will be the chairman of this committee. There will be nine members on the committee including minister for foreign affairs, minister for law and justice, minster for finance, state minister for interior, advisor to the Prime Minister on commerce, textile industry and investment and cabinet Secretary.

The composition of CPEC and other Cabinet Committees reveals that political culture of concentrating decision making in one hand, on the premise of one man say is the order of day, has gone. In Nawaz Sharif government the accountant finance minister Ishaq Dar used  to make all decisions without taking input from other relevant ministries, whereas in PTI government the cannon of delegating powers to the right man for the right job is all pervading. And the Chairmen of Cabinet Committees will take decisions after thorough deliberation with other ministries to obtain useful input.

At the time of CPEC inception, both China and Pakistan had prepared short-to-long term programmes to implement the $ 60 billion of pilot projects of the Belt and Road Initiative (BRI). Both countries had finalised a list of prioritised projects to be completed by 2018-19 and actively promoted projects to be implemented by 2022. CPEC was originally conceived as connectivity project, which was largely converted into health hazardous coal based energy project by PML-N government for achieving political gains in the 2018 polls. The priority list of the previous government comprised 14 coal fired thermal power projects, having total generation capacity of 10600 megawatts. But the PTI government is very much concerned about the vulnerability of Pakistan to the impact of climate change for its being seventh on the list of Climate Change Risk Index. The new government desires to implement environment friendly power projects and has decided to take a holistic view of CPEC projects and wants to move away from the high density carbon emitting coal based power plants to clean energy projects.

The incumbent government is also cognizant of the highly inflated construction cost of certain CPEC related projects. A decision was taken in the meeting of federal cabinet to conduct the forensic audit of mass transit projects including $ 1.65 billion Lahore Orange Line Train Metro Project. However, the same rule should also must apply to the under NAB investigation BRT Peshawar Metro project. It should not be treated as a holy cow.

The finance ministry and planning ministry would closely collaborate to ensure that only financially viable and economically sustainable CPEC projects are taken to the next stage. The $ 2 billion Karachi Circular Railway and $ 8to 10 billion 1782 kilometer Karachi-Peshawar railway track refurbishment Main line M-1 project faced serious problems as the Chinese estimate of cost were not compatible with one worked out by the Railway Ministry. The mainline M-1 railway track project was scheduled to be completed during 2016-20. The revised plan suggests that the project can not be completed before 2022 in case the financing modalities are finalised and the loans liability is taken by the central government. Construction work on certain roads project in Khyber Pukhtunkhwa and Baluchistan had hit snags. Likewise $ 1.7billion Matiari-Lahore high voltage transmission line project did not materialize and delayed for three years.

In an informative article on the eve of CPEC summit 2018 a Chinese economist Professor Jia Yu cautioned the CPEC is not a gift. Pakistan should not take it for granted. Both public and private sector must take ownership of the opportunities. Pakistan’s interests lie in promoting growth, private sector investment, employment, exports,; technology transfer and skill development for the intended relocation of Chinese industries to the Special Economic Zones (SEZs). The PML-N government kept the Nitti Gritty of CPEC and despite its overselling did not divulge information about the prospects of joint ventures of Pakistani entrepreneurs with their Chinese counterparts in the SEZs. The private sector was not assured that SEZs are open to all for investment. On the contrary Chairman State Engineering corporation shattered the confidence of Pakistani entrepreneurs when he told business leaders at Islamabad Chambers of Commerce and Industry that would have to move from the current second generation technology to fifth generation technology if they want joint ventures with Chinese entrepreneurs. How this long jump can be taken by Pakistani industrialists without the active cooperation the government. It is time to remove the secrecy lid from the CPEC related projects.

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Power sector’s sinking ship?

The burden of power sector’s circular debt has touched Rs. 1200 billion mark, a deadweight legacy left by the PML-N government to the new government. The previous PPP government had left a circular debt of Rs. 480 billion, which was paid in 2013. Members of the Economic Coordination Committee (ECC) in its meeting on Monday could not evolve a mechanism to deal with the recurring circular debt, ahead of another spike in electricity prices that are set to rise by 33 percent which is likely to deepen the sector’s woes.

The ECC was informed by National Power Regulatory Authority (NEPRA) that electricity tariff could further go up as much as Rs. 15 per unit, forcing the incumbent government to review the previous government policy of giving subsidy on electricity to industrial sector. The price of electricity is already the highest in the world which has badly affected the competitiveness of the manufacturing sector as the exportable products are losing comparative advantage in the international market.

The major contributory factors to the recurring circular debt include shady deals of thermal power generation projects; criminal neglect of power generation from cheap and renewable source such as hydel, wind and solar; default of electricity bills of Rs. 850 billion by political and business elite and provincial governments, and Kunda syndrome.

Pakistan People’s in its second tenure in 1993-96 made electricity purchase agreements with Independent Power Producers, envisaging certain clauses heavily loaded against the national interest, particularly the one related to payment liability for the idle capacity of thermal power plants, consuming the most expensive fuel like furnace oil and diesel. These agreements were originally signed on the principle of “build operate and transfer the ownership” to the government of Pakistan. Their documents were then manipulated and changed to “build, operate and own” by the private companies. Renowned legal experts Barrister Sardar Latif Khosa in a current affairs programme of a private TV Channel described the change in the status of the agreement as illegal, although the IPP agreements were made in the government of his party which did nothing to renegotiate and rectify it in its third tenure in 2008-13. The clause pertaining to payment for idle plant capacity plus mark up on loans acquired by private power companies adds 40 percent to the circular debt.

The last PML-N government also did not dare to renegotiate the power purchase agreements because of their policy of protecting the vested interest like Mian Mansha and the shady deals they intended to ink with Chinese Companies for health hazardous coal based thermal power plants which also involve the heavy liability of capacity and reclamation charges, yet another contributory factor of piling circular debt. The National Distribution and Transmission Company (NDTC) lost a case regarding payment of Rs. 11 billion to nine IPPs last year in London Court of International Arbitration (LCIA). An appeal was filed in London High Court against the order of Arbitration Court. It was hastily withdrawn within one week of its filing but NDTC had to pay an additional amount of Rs. 66.7 million as litigation charges to IPPs.

Capital expenditure (Capes) for the coal power projects is 40  percent higher than the international cost and coal power tariff is 8.4 cent per unit as compared to a tariff in many jurisdictions of five cent 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. The bids made for Jamshoro Coal Power Plant by the financiers other than Chinese for Engineering, Procurement and Construction (EPC) were one half of the bidding value of contracts made under CPEC framework. Likewise, the hydropower projects being completed by Chinese under the umbrella of CPEC will alarmingly raise the power tariff. A comparative data of different hydel power projects shows that per unit cost vary widely. Karot has 2.03 times more the reference cost of Dasu, the latter project is financed by the World Bank and former by the Chinese. Similarly, the cost of other projects financed by Chinese is also on high side. Kohal  is 3.31 times, Azad Pattan is 3.97 times, Suki Kinari 2.38 times and Mahal 2.50 times.

Power sector needs urgent drastic reforms aimed at lowering the electricity tariff for reviving and boosting the economy rather than hitting it further with electricity price increases. A more vigilant oversight of EPC bidding process has to be introduced. The focus should shift on more competitive projects like hydel, solar, wind and hybrid of solar and wind. There is dire need of 10000 MW low cost electricity generations, bringing the average tariff significantly down and reducing expensive fuel imports.

 

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Tree plantation initiative

Prime Minister Imran Khan has launched “Plant for Pakistan”, a massive forestation drive in the country by planting a sapling in Haripur district of Khyber Pukhtunkhwa. His call for tree plantation was enthusiastically responded by the people including women and children by planting saplings of different plants’ species. In Kamalia alone 16000 saplings were planted in just 32 seconds.

Talking to media on the occasion of kick starting tree plantation in every nook and corner of the country, the Prime Minister said that their target is to plant 10 billion trees in the five years tenure of PTI government. He said the aim is to beat global warming. “Pakistan is seventh on the list those countries which will be greatly affected by global warming. This is the war of survival of our future generations,”, he said while elucidating the aim of tree plantation drive.

Adopting a strategy of right man for the right job, Prime Minster has appointed a renowned environmentalist Malik Amin Aslam as his advisor. He is the author of a number of publications on environmental issues which were published in the top notch research journals.

The saplings of different varieties of gymnosperms like ‘Depdar’ and ‘Nandar’are expensive and the people, by and large, can not afford their large scale plantation. Provision of these saplings need to ensured from the centers established by the government because the apical hierarchy of forest department has always been devoid of vision in their forestation programmes. The foresters are least bothered about the ecology that is required for the plantation of different species of plants. They are particularly fond of planting saplings of ‘Eucalyptus’ in areas where water table used to be very deep, further pushing it downward. The Prime Minster himself planted the sapling of ‘Deodar’ to launch billions tree plantation campaign. He always preferred its plantation in the Khyber Pukhtunkhwa previous PTI government billion tree plantation programme. This is an example worth emulation by the officials of forest department. In early years of its growth new plants require extra care for which mass awareness among the people has to be created and regular ministering be done by the concerned government departments.

Apart from tree plantation, the policy other than forests cutting which is responsible for pollution and intensifying climate change impact needs a thorough review. The policy of furnace oil and diesel fired thermal power generation of PPP government and the one pursued by the PML-N government for coal based energy projects have contributed in a big way to environmental degradation. In addition to accelerating extreme weather conditions, the coal run thermal power plants of crude Chinese technology with no built-in carbon scrubbles devices will certainly cause health hazards. It is pertinent to mention that half a million people die every year in China from the ailments like Asthma and Cancer caused by the emission of carbon monoxide and other poisonous gases fro coal thermal power plants. The issue was agitated by former leader of the opposition Syed Khurshid ShahIf in one of the National Assembly Standing Committee meetings. If all the 13 coal based thermal power plants are built and made operational thick smog will become a regular feature in Punjab and Sindh. The new government should deliberate over environmental aspect of the thermal power plants being set up by China and ascertain as to whether appropriate environmental laws are applicable. Germanwatch has ranked Pakistan 7th most vulnerable country in its Global Climate Risk Index 2018 report. Every year 523 people perish in the calamities including cyclones, storms, floods, glacial lake outbursts and heat waves. The cumulative death toll has reached 10462 in the last 20 years and economic losses are worth $ 3.8 bill.

The main author of the study, David Ekstein cautioned the previous government of Pakistan against its programme of coal based energy projects. Speaking on Pakistan love for coal, David shared his worst fears that the perception is common in under-developed and developing countries that since the western world has progressed using coal, it is made an excuse to develop coal power plants in the third world countries—such decision can entail dangerous consequences. He said, “Pakistan should think of reducing its carbon emission, which can help reduce the probability of extreme weather events. All factors that increase the chances of climate change effect need remedial measures.

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Pak-US relations on the downward trajectory

The United States gave another blow to its partnership with Pakistan in the region for combating global terrorism. Pentagon has made a decision to cancel $ 300 hundred million in aid to Pakistan that had been suspended over the alleged failure to take decisive action against militants. This is a new blow to the deteriorating ties between the two countries ahead of an expected visit by the US Secretary of State Mike Pompeo and the top US military officer General Josep Dunford to Islamabad. It came after Pakistan’s announcement in support of “Iran’s Nuclear Deal.” The United State has pulled out of that agreement.

The so-called Coalition Support Fund (CSF) was a part of broader suspension in aid to Pakistan announced by President Donald Trump at the start of the year in which he accused Pakistan of rewarding past assistance with  “nothing but lies and deceit.”

Pentagon spokesman Lieutenant Colonel Kone Faulker said, “Due to lack of Pakistan’s decisive action in support of the South Asia Strategy the remaining $ 300 million was reprogrammed.” He said another $ 500 million in CSF was stripped by Congress from Pakistan early this year to bring the total withheld amount to $ 800 million.

Pakistan went into partnership with the United States in combating global terrorism after the 9/11 incident. But since then there has been all-along an atmosphere of trust deficit between the two allies although Pakistan was declared a non-NATO ally in this war. Pakistan was repeatedly told reprimanded with “do more” against the terrorist outfits which were alleged to operation from the safe heavens on its territory.

The United States has never appreciated Pakistan’s efforts and sacrifices in its selfless partnership with the former in combating global terrorism. The allegations about sanctuaries of militant have been refuted multiple times by the top civil and military leadership. Pakistan has successfully carried out comprehensive counter insurgency operations in tribal areas, once a hot bed of militancy. Operation Zarb-e-Azb had restored the government writ in the former tribal areas which have now been merged with the province of Khyber Pukhtunkhwa. Law of the land will be extended to these areas in due course of time. The ongoing operation Radul Fasad demonstrates its determination to take the fight against terrorism to the logical end.

The US administration policy on war on terror is not even handed. It appears that strong action against ISIS in Afghanistan does not figure prominently in the South Asia Policy. It has been pretended over the past 18 years that zero tolerance will be shown for all the terror groups but the ground reality tells a different story. The United States had shot down Pakistan proposal to place one of the most wanted terrorist on the United Nations Sanctions Committee List. In July last year, Pakistan requested the UN Security Council Sanction Committee for listing of Jamiatul Ahrar (JUA) Umar Khalid Khurasani aka Abdul Wali, his outfit has already been banned. The Committee took up Pakistan’s request but had to be turned down after the  United States raised objections to it. This is a clear manifestation of double standards on the part of the United States in its much trumpeted war against global terrorism. It has also not used its military might against the ISIS bases in Afghanistan. The stick policy applied against Pakistan reveals the United States want to throw the debris of its losing Afghan war on its all time ally.

The United States is opposed to the “Belt and Road Initiative” of China the flagship project of which is China-Pakistan Economic Corridor (CPEC). In an interview with CNBC, secretary of State Mike Pompeo had issued a red alert in July to International Monetary Fund (IMF) not to accommodate Pakistan’s request for fresh bailout package which it badly needs to pay off its external liabilities on account of bulged current account deficit and ballooned foreign debt.  He warned the multilateral donor that IMF loans can not be used to pay back the Chinese loans acquired by the previous Washington favoured PML-N government for CPEC related projects. He cautioned, “There is no rationale for IMF tax dollars, and associated with that of American dollars which are part of IMF funding for those to go to bail out Chinese bonds holders or China itself.”As a part of triangular cold war the United States is pursuing China containment policy which explains the reasons of its desire to prolong its stay in Afghanistan. In direct talks held with the representatives of Afghan Taliban in Doha, a hint was dropped about maintaining military bases there.

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Transparent decision making

It is a big democratic step that the new government is ensuring absolute transparency in economic affairs by taking parliament in the loop before final decisions are taken. This marks a watershed in the political history of the country. In the past none of elected governments took the parliament into confidence in loan agreements with bilateral and multilateral sources.

The document of China Pakistan Economic Corridor, a project of $ 62 billion, was kept in secrecy by the last PML-N government despite its overselling for intended political ambitions. The agreement with Qatar for the Liquefied Natural Gas (LNG) was made a holy cow, raising question as to why India gets gas at $ 6 per mbtu and Pakistan is paying $ 11per mbtu to Qatar. The terms of the Free Trade Agreement (FTA) with China were neither put before the parliament nor shared with the trade bodies. Consequently, the concession of zero duty on 35 percent import tariff lines created a deficit of more than $ 10 billion in bilateral trade and closure of a number of domestic industries. It was because of these reasons that trade bodies and PTI law makers compelled the PML-N government to postpone the finalization of FTA phase-II, granting the concession of zero duty on 75 percent import tariff lines to save the domestic industry. Likewise, the terms of preferential trade agreement (PTA) with Indonesia are loaded against the business interest of Pakistan, causing a trade deficit of $ 1.7 billion.

Finance Minister, Asad Umar told Senate That Pakistan needs $ 9 billion to meet its external obligations and parliament will decide whether or not the government should approach the International Monetary Fund. “We are deliberating on various options. We will map out a plan over the next few days and will share it with the parliament,” the finance minister said. He made it clear that the decision in this regard would be made after taking the legislature into confidence.

The government is determined to effectively address the issues responsible for fiscal imbalances and the ones that brought Pakistan from the white list to grey list by the Financial Action Task Force (FATF). Home remittances will be fast tracked by issuing Sukuk Bonds to Pakistani Diaspora and Overseas Pakistanis Certificates. To plug the lope holes that facilitate money laundering, Hawala and Hundi business will be curbed.

Budget deficit will be brought down by significantly improving tax collection and exploring new sources of domestic revenue generation. It is pertinent to mention that the number of tax payer was 2. 4 million in President Musharraf era but dropped to 1.2 million in Nawaz Sharif government. In the 2017 alone 43 percent of listed companies and registered partnership firms did not file tax returns and slipped out of the tax net.

Tax collection has grown by 14 percent to Rs. 506 billion in the first two months of the current fiscal year. The government is exploring new avenues for additional revenue receipts to reduce the projected budget deficit to less than 5 percent of the GDP. The World Bank in its reports referred a number of times to the available data of potential tax payers with the Federal Board of Revenue. Former Prime Minister Shahid Khaqan Abbassi had announced to introduce CNIC based authentic tax profile but he ended up in another botched tax amnesty scheme on offshore amnesty scheme at a ridiculously low rate of 2 percent tax and 5 percent tax on undeclared domestic assets.

Provisional tax collection of July-August in FY 19 showed an increase of Rs. 62 billion over the same period last year. The tax collection in August alone increased to Rs. 250 billion, up by 5.5 percent over the same month last year. However, it is less than the monthly target of Rs. 281 billion. The tax payers who managed to get out of the tax net over the past 10 years need to be brought back in the tax net.  The wealthy people who are willing to pay direct taxes but could not do so because of the rigidity of tax collection system can be persuaded to declare their income and pay taxes. A survey for the documentation of the economy failed in the year 2000 because of the arbitrary attitude of tax officials.

 

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Commendable moral victory

Bold stand of the Prime Minister Imran Khan on the planned blasphemous cartoons competition, to be held in Netherlands, hectic diplomacy of the Foreign Minister Shah Mahmood Querishi and his team of Foreign Office officers has paid dividend. Dutch anti-Islam law maker Greet Wilder decided to cancel the controversial blasphemous caricatures contest. In a statement Wilder said he has decided not to let the cartoons contest go. The leader of the far right party ‘Freedom,’ in the past has also called for mosques and Islamic Schools to be shut down and for a blatant ban on Muslim immigrants.

This is the first instance over the past 13 years that a government in Pakistan has taken a bold and principled stand with follow up proactive diplomacy on issues that pained the hearts of 125 billion Muslims living in 50 plus Islamic countries. The foreign minister conveyed to his Dutch counterpart the anguish, indignation and outrage of the government and people of Pakistan in a telephone conversation. This is what a genuine made in Pakistan leadership does. He also remained active to revive and galvanize the unity in the rank and file of Organisation of Islamic Countries (OIC) on this very sensitive issue. He succeeded in persuading the leadership of Tehrik-e-Labaik Pkistan (TLP) to call off its protest march to Islamabad after Wilder’s announcement to cancel the mischievous contest. The cancellation of Islamabad rally was announced by party spokes person Pir Afzal Qadari after talks with foreign minister.

In his media talk, the foreign minister congratulated the nation on their moral victory and termed the cancellation a diplomatic victory for Pakistan. The achievement dissolves in thin air the false impression being created by a subjective analyst of a media house about the foreign policy of PTI government. He wrote in his column titled “On the external front,” while foreign policy may not be the top priority for the new government, the challenges on the foreign front are no less important. The backtracking of Dutch government on sensitive issue in the wake of government’s diplomacy suffice that Prime Minister ImranKhan and his dedicated team have the determination, diplomatic spine and capability to confront all the challenges that come their way on the external front.

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Power tariff hike

The process of solely relying on jacking up power tariff continues in the new government, ignoring urgent reforms by exploiting renewable energy sources, reviewing the private sector thermal agreements and recovery of bills from chronic and habitual defaulters. The finance Minster had admitted in a TV talk show that high electricity and gas tariffs are harming the manufacturing sector by affecting its competitiveness.

The power division and National Electric Power Regulatory Authority NEPRA) have projected a misleading scenario largely blaming the accumulation of circular debt on line losses of transmission and distribution system, while not telling the truth about the disastrous power sector agreements and a default on bills of Rs. 850 billion by the influential political and business elite and government departments.

NEPRA has notified yet another increase of 36 paisa per unit in fuel adjustment charges. This is the third increase over the past few months and the cumulative upward revision in power tariff after adding taxes and surcharges has reached to Rs. 4 per unit. The price of crude oil has dropped by $ 8 per barrel in the international market and there is no justification in the recent power tariff increase.

While the new government has inherited a massive circular debt of over Rs. 1 trillion in the energy sector, the power sector regulator has increased its woes by reporting that transmission and distribution companies have continued to fail in controlling line losses which is portrayed the major cause of circular debt and not telling the truth about shady deals made with private power producers. It is the capacity clause incorporated in these agreements that government is bound to pay 40 percent amount of circular debt for the idle plant capacity of private thermal power plants. Likewise, the non-payment of electricity bills worth Rs. 850 billion has also contributed to the burden of circular debt. To understand the actual grim picture, the Prime Minister Imran Khan and Finance Minister Asad Umar need a briefing from the Pakistan Business Council and independent e economists to effectively address the issue of circular debt.

The national exchequer has suffered a loss of Rs. 111 billion on account of line losses and non recovery of monthly electricity bills from the influential defaulters up to 100 percent. According to NEPRA such losses are playing primary role in creation of circular debt but ignore the debt trap laid by the private power producers taking illegal advantage of the capacity clause envisaged in the agreements made with them. It has published annual evaluation report on a date the Economic Coordination Committee (ECC) of the Cabinet said it has identified five to six key areas that account for the piling debt, currently standing at Rs. 1.19 trillion.

Losses to the national exchequer and addition of debt could be higher than the one reported for the year under review as the regulator over a dozens times has shown mistrust on the accuracy of the data the transmission and distribution companies have submitted. NEPRA, however, used the “fudged” data to calculate the losses and evaluate the performance in other categories like bills recovery. Giving the break up of 111 rupees debt, the regulator reported the line losses stood at Rs. 35 billion while non- recovery of revenue accounted for Rs. 76billion in the year. It also reported that all the 10 distribution companies have recovered up to 26 percent line losses from the consumers who regularly pay their monthly bills. The injustice meted out to them is allowed in raising power tariff. This practice of victimizing the honest consumers has made the payment of electricity bills unaffordable and they are compelled to go for installing solar energy systems for domestic use.

Another method of high handedness applied against the honest consumers is the frequent increase in gas tariffs and at the same time refraining from strict action against the defaulter of million of rupees. The ECC treaded carefully and deferred the decision on the summary for increase in gas tariff. Headed by the finance minster, the ECC did not take up the summary for gas price rise up to 180 percent.

The PTI government is aiming to seek solutions to the issues that have caused building up of a whopping Rs. 1.22 trillion circular debt. Theri is dire need to reactivate the “federal adjuster” in the finance ministry to recover receivables of electricity bills from provincial governments, initiating strict action against defaulters and renegotiating the power sector agreements.