EDITORIAL: Prime Minister Imran Khan while launching Pakistan’s first green 500 million dollar Eurobond (Indus bond) issued by Water and Power Development Authority (Wapda) reiterated the huge hydropower potential in the country and pledged construction of 10 dams to produce 10,000MW environment- friendly clean energy to irrigate 0.1 million acres of land. Acknowledging slow implementation of projects, he nonetheless highlighted the fact that two dams, Diamer-Bhasha Dam and Mohmand Dam, are under construction.
A fact check reveals two disturbing factors prevalent in the country’s power sector. First and foremost, the sector is highly indebted due to sector inefficiencies - circular debt has risen to 2.4 trillion rupees today compared to the 1.2 trillion rupees inherited by this government - reflecting no major improvement in recoveries, transmission or distribution losses. True the previous administration must be held to account for its technically unjustified focus: (i) on generation which rose to 30,000MW well above domestic demand with no attention given to the cost to be borne by the consumer when agreeing to make capacity payments; (ii) rise in generation included setting up coal power plants away from the source of coal (be it domestic coal or imported coal) with severe environmental as well as health hazards; (iii) transmission system was not upgraded whose capacity to vacate the additional supply remains compromised to this day; and last but not least (iv) reliance on heavy borrowing by the sector - be it from international financial institutions or domestic market or indeed through issuance of Eurobonds/sukuk – which accounts for ever-rising annual interest payments which are passed on to the consumers. Thus issuance of bonds or sukuk constitutes debt equity and needless to add the 7.5 percent annual rate of return offered is 0.5 percent higher than the discount rate and more than double the prevalent international rates and therefore the debt of the sector will rise further.
The Prime Minister also indicated in his speech that hydropower is green energy. Hydropower is regarded as an inexpensive renewable energy source, which reduces reliance on imported fuels that bear the risk of price volatility (as well as domestic currency volatility) and offers storage for irrigation/flood control protection. However, Pakistan as a lower riparian country has been facing water shortages due to dam building by India on rivers that as per the World Bank-brokered Indus Water Treaty were earmarked for Pakistan’s unrestricted use subject to some restrictions - Kishanganga and Ratle on Jhelum and Chenab rivers. While there is general agreement that Pakistani administrations were lax in taking the matter for arbitration during a stage in the construction when a rollback in the design was possible yet it is relevant to note Pakistan has been warned by international financial institutions as well as domestic experts that we are the most water-stressed country in the region and more disturbingly the country faces acute water scarcity by 2025. In other words, building dams today, with a construction period not less than 4 to 5 years, without making an assessment of water availability is an approach that may be as flawed as the one followed by the PML-N government, i.e., to focus on generation to the exclusion of all technical matters.
In this context, it is also relevant to note that international financial institutions have more or less stopped extending relatively cheap credit to building dams (cheaper than the 7.5 percent return on the Eurobond) based on their environmental (premised on deforestation as a consequence) and indigenous peoples’ (displacements) policies. In Pakistan’s and India’s case any dam building by either country on what is termed the ‘disputed’ Kashmir region receives no financial support as the project is opposed by the other country.
The Prime Minister appropriately stated that the country cannot move on the path of development with election-specific short-term planning and rightly maintained that the country needs long-term planning. However, one would hope that the Khan administration takes appropriate measures to either mitigate these issues, if possible, or else ensure that long-term planning takes account of the existing and impending issues in an effective and meaningful manner.
Copyright Business Recorder, 2021
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