Pak-US economic ties

In an exclusive interview to Business Recorder the US Ambassador Richard Olson highlighted the existing economic ties between the two countries specifically in the energy sector and revealed that the US government has been extending up to 3 billion dollar annual assistance to Pakistan since 2009. He noted that the US Embassy's efforts to strengthen economic ties between the two countries manifested itself in two US-sponsored high-level Pakistani delegation's visits to the US as an outcome of the Dubai conference - one to reactivate the energy working group and the other to Houston where the private sector of the two countries (with the Pakistani delegation representing 17 companies) was provided the opportunity to interact and explore possibilities of investment. Olson with respect to the energy sector noted that the US efforts have resulted in the enhancement of generation capacity by 1000 MW and an additional 200 MW would be added to the national grid by the end of the current year. The US engagement in the sector is not only in hydel, the cheapest form of energy generation, but also in solar as well as in refurbishment of existing generation plants. And he added that the US companies have shown an interest in not only the LNG import project but also in exploration of oil and gas. Given that the US Energy Information Administration has estimated 586 trillion cubic feet of shale gas reserves in Pakistan and over 9 billion barrels of shale oil Pakistan's capacity to meet its energy requirements through exploiting domestic natural resources is high.
However, the US Ambassador acknowledged that the impediment to the realisation of US government and private sector interest lies in policy measures that are required to be implemented by the government. The road map of reforms required for the energy sector to enable it to not only be attractive for an investor, foreign or local, but also ensure that the existing capacity is fully utilised with transmission losses brought down to the internationally acceptable levels has been available to successive Pakistani governments for decades. The objective of these reforms is to not only enhance generational capacity but also to ensure that the fuel mix is in favour of cheaper fuels rather than on the more expensive furnace oil - objectives which can only be met in the medium to long-term.
There is, of course, no doubt that the Nawaz Sharif administration has begun a reform process with the main focus on retiring the bulk of the inter-circular debt which allowed a considerable increase in capacity utilisation. However, the debt retirement was not without a major cost as it was possible only through enhanced borrowing by the government which increased the budget deficit with major implications on the country's general price level. The government has also focused on enhancing energy tariff; a policy that was also followed by the PPP-led coalition government with obvious negative political consequences, and has decided not to provide electricity to those areas where dues are not paid. But unfortunately, only about six months down the line it is evident that the inter-circular debt is resurfacing and there appears to be no reduction in transmission losses.
With respect to the US companies' interest in offshore oil and gas exploration the Ambassador said that these are early days and will take some time to develop. The Sharif administration has yet to focus attention on whether it would accept the 2012 Petroleum (Production and Exploration) Policy or formulate its own policy. The 2012 policy includes petroleum concession agreement for onshore and production sharing agreement for offshore operations. Those who argue that the law and order problems would act as a mitigating factor for investment inflow in this sector would do well to heed the words of Ambassador Olson namely that major energy sector companies are operating around the world and even in those parts where security challenges exist. What these companies require are policies that would be implemented in letter and spirit. There is no doubt that economic ties would pave the way forward for the two countries and may help ease what the Ambassador referred to as "ups and downs" in relations between the two countries. However, even in economic ties there is much concern with the failure of the two countries to agree to a Bilateral Investment Treaty nine years after work on it began. The US demands that disputes be decided according to the US laws, that the US companies that have invested from a third country of origin be protected and Pakistan must notify all draft laws and rules concerning any change in investment policies prior to their approval by the Pakistani Parliament have so far proved to be the major stumbling blocks.
To conclude, the Sharif administration has to take measures be they to confirm policies enunciated by the PPP-led coalition government or formulate and implement new policies before the country can take advantage of increased US interest in investing in this country. One would hope that work on this has begun in relevant ministries and is near completion for time is of the essence given the state of the economy with declining foreign exchange reserves and a low growth rate.