ENERGY SHORTFALL MAJOR ECONOMIC CHALLENGE
LCCI OUTLINES KEY PRIORITIES FOR BUDGET 2012-13.
Apr 2 - 8, 2012
With the power crisis getting worse and people coming out on the streets against long hours of load shedding, pressure is mounting on the government to come up with viable solution to overcome load shedding problem.
The power shortage is harmful to the country's economy and it is hampering GDP growth. The funds spent on import of power generators and their fuel is an enormous drain on the economy.
Larger industries can afford power generators, but small/medium enterprises, which are a nation's primary growth engine, cannot. We need a solution to take care of national power requirements for the next 20 years.
Expensive import-based, oil-run power generation is not the answer. These have already increased fuel import bill. Gas based projects are also not the answer as the country's gas supply is limited.
In this situation, trade and industry bodies are recommending the government to focus on cheap electricity generation and allocate maximum resources in the budget 2012-13 to achieve the objective.
Pakistan Muslim League Nawaz's (PML-N) Chief Mian Nawaz Sharif has held the federal government responsible for the electricity crises.
According to him, people of Punjab are most affected by the electricity crisis, which has compelled them to come out on the streets in protest.
Industries in Punjab are on the brink of disaster because of the power shortage. When people are facing load shedding up to 20 hours, this reaction is completely natural.
Nawaz Sharif also endorsed the idea of importing electricity from India. The Lahore Chamber of Commerce and Industry (LCCI) has outlined key priorities for budget 2012-13 calling for an immediate government attention on a number of challenges facing the economy including energy crises.
The President LCCI, Irfan Qaiser Sheikh, urged the government to focus on investing in energy solutions and enforcement of law and order while lowering of tariffs on smuggling prone items, increasing the share of direct taxes in revenue, and lowering the slab of indirect taxes in the forthcoming budget to achieve key economic targets set for the year 2012-13.
In order to tackle energy shortages, the LCCI president said the government would have to allocate maximum funds for construction of dams/water reservoirs, tapping of Thar Coal, completion of Iran-Pakistan gas pipeline and establishment of LNG terminals.
The LCCI President said that sufficient funds should be allocated in the forthcoming budget for Dasu power project, Diamer Bhasha dam, Munda dam, Gomal Zam, Satpara power project and Kurram Tungi dam.
He said that at least Rs200 billion or 10 per cent of the total budget should be allocated for hydel power projects.
Mr. Sheikh said that the country's reliance on costly thermal power is jacking up the cost of production and import bill. The country needs an urgent shift in its energy mix in favor of hydel power and local fuels. He said that the 175 billion tons of Thar coal reserves with a price tag of $13 trillion in the international market are enough to provide 100,000 MW of electricity for 100 years. Uninterrupted and affordable power supplies can turn Pakistan into an economic powerhouse.
The LCCI President also hoped that the government would earmark funds for the early completion of Iran-Pakistan gas pipeline and LNG terminals to keep the industrial wheel running especially in Punjab that has borne the brunt of recent suspension of gas supplies to industry in the country. On the poor state of law and order, he said that it is hurting the country's potential as a highly attractive investment destination. Foreign and local investors are lacking confidence to operate in Pakistan.
He said that a number of textile-related industrial units had already shifted their operation to other countries. Therefore, the budget must be focused on improving law and order situation. Rising risk perception about investing into Pakistan is hitting hard the foreign direct investment (FDI) that fell sharply in recent months and needs to be tackled through a comprehensive policy approach by involving chambers of commerce in the country.
President LCCI said that the bad law and order situation was one of the major factors keeping the foreign investors away. He feared that the fall in FDI was likely to affect adversely the country's economic growth. He said that all the developed countries accord special importance to economic issues and the challenges. But, in Pakistan the situation is the other way round and the economy is on the bottom of government's to-do list.
Mr. Sheikh said that a number of sectors including infrastructure, coal, energy, agriculture, livestock, textiles and pharmaceutical offer lucrative investment opportunities to foreign investors but unfortunately due to absence of required funding for a proper and well tailored marketing strategy, these opportunities are unattended even today.
It may be mentioned here that Pakistan's investment rate was only 13.4 per cent at end of last fiscal year, which was the lowest since FY74. The low saving rate, coupled with wary foreign investors, led to record low investment rate in the country.
The State Bank had already reported in its annual report that the country had fared poorly when compared to its neighbors in South Asia because of domestic and global factors. Mr. Sheikh also urged the government to cut the rate of duties on all smuggling-prone items in order to check smuggling of plastic molding compound, electronics, chemicals, fabrics and tyres and tubes. He said that direct taxes need to be increased by imposing/enforcing taxes on income or all incomes should be taxed either they are derived from manufacturing, trading, services, imports or exports.
He said that hospitals, clinics, restaurants, bakeries, wedding lawns, travel agents etc. should be brought into the tax net.
The LCCI President also suggested that the sales tax slab should immediately be curtailed to 10 per cent from existing 16 per cent in order to reduce inflationary pressures or simply check inflation.
President American Business Forum (ABF), Salim Ghauri has pressed upon the government to facilitate investments in renewable energy projects to bring down expensive oil-based energy generation in the country.
He said the widening energy demand-supply gap is posing a major challenge to the economy, which is estimated to have curtailed GDP growth by two percent in last few years.
Mr. Ghauri said availability of electricity is vital for economic growth and development. He added that widespread load shedding is affecting industrial growth heavily and it is high time to develop all available energy generating resources including hydel, thermal and wind. He deplored that Pakistan was a country full of hydel potential but still it was benefiting only 15 per cent of it. Pakistan can put its economy back on track by drawing the attention of international lenders towards the potential of hydel and wind generations, he added.
President ABF has appreciated the Sindh Board of Investment for expediting process for nine fast track wind power projects by allotting 347,434 acres of land under Renewable Energy Policy 2006.
According to him, the province of Sindh is blessed with enormous potential for wind energy resource which if tapped can generate more than 50,000MW energy, as the wind corridor of Gahro-Jhampir is 60 KM wide and 180 KM long with average wind speed of 7-8 meter/sec.
He said what is needed is political will and the realization that a failure to tackle economic predicaments in the hands of energy crisis may put the country into a troublesome situation soon.
President ABF has also urged the international community, particularly the US, to help Pakistan in overcoming energy crisis. He said the USAID can play vital role by prioritizing energy sector in its development plans for Pakistan. The international donors should coordinate with the Planning Commission of Pakistan for its power generation projects under the Public Sector Development Plans (PSDP), he asserted.
Mr. Ghauri said liquidity crunch was hitting the economy hard due to elevated lending rates by the banking industry of the country. A rise in global oil prices is triggering inflation in third world countries like Pakistan where energy crisis is crippling investments fast.