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Efforts on to qualify for stuck-up $ 280 million

  1. Interview with Managing Director SITE Ltd
  2. Resolving the IPPs issue
  3. Dar avoids Press on IMF issue
  4. ICMAP Seminar

PM forms 11th committee, headed by Dar, to resolve the IPPs issue which is the main hindrance in the release of IMF tranche

From Shamim Ahmed Rizvi, Islamabad
August 9 - 15, 1999

Finance Minister Ishaq Dar who led the Pakistani team to Washington to negotiate the pending issues with IMF reportedly had a very tough time on non-implementation of the commitments made by Pakistan to the IMF mission. The IMF authorities took the unresolved dispute of Independent Power Producers (IPPs), having foreign investment, very seriously and expressed their dis-satisfaction over the situation that government has not been able to resolve the IPPs issues despite its repeated commitments made during the last 2 years.

Strong resentment of the IMF was promptly conveyed to the Prime Minister who took immediate action and, superseding all previous committees on the subject, appointed a 2-member committee, headed by the Finance Minister and Lt. Gen. Zulfiqar Ali Khan, Chairman WAPDA as its member, to finally resolve the issue within 2/3 months. This is the 11th committee formed by the Government of Pakistan to resolve the dispute with the IPPs lingering for over 30 months since the present rulers came into power.

The IMF authorities were also critical of one step forward and two steps backward pattern of Pakistan's economic reforms which had been agreed upon in the past and the Government of Pakistan was firmly committed to implement them. The Government of Pakistan has been muddling with finance-related problems but the international financial institutions have refused to accept any further commitment and the present stop-go pattern of structural reforms and economic satisfaction measures. It is amply manifest from the present round of negotiations in Washington when the IMF, instead of making any outright commitment, announced to send a monitoring mission to Pakistan and linked the release of next tranche with the report to be submitted by the mission.

Among other things Pakistan is committed to take concrete measures to increase revenue generation by at least Rs 40 billion through increase in prices of gas, petroleum and electricity, levying GST on services and utilities and through a meaningful increase in the tax on agriculture income.

Pakistan is caught in a liquidity crisis in implementing a broad based structural reforms programme. Dispute with IPPs and freezing of foreign currency accounts (FCAs) have substantially reduced the flow of private external resources into the country, increasing reliance on the multilaterial flows to stay afloat. While living on the borrowed resources, Pakistan can not afford to lose the support of donor agencies.

Pakistan's programme with the IFTs faced problem mainly on the IPPs issue, economic revival of the public sector entities and additional resource mobilization, including a tax on the agriculture income and broad basing of GST, to stabilize the budget.

Re-opening of the power purchase agreement (PPAs) file, on charges of corruption, was part of the election manifesto of the PML government. However, during the last two years not a single case was proved in a court of law. Arm twisting tactics of the Ehtesab Bureau only resulted in sheer economic backlash.

After several dozen attempts to resolve this issue, Lt. Gen. Zulfiqar Ali Khan had announced agreement with four IPPs. These included the Southern Electric Power (Sepcol), Habibullah Coastal, Saba Power and Altern Energy.

According to WAPDA Chairman, negotiations with seven power producers, including Hub Power Company (Hubco), Kot Addu Power Company (KAPCO), AES Pakgen, Kohinoor Energy, Liberty Power and Japan Power were at advanced stage.

The IMF and the World Bank managements, tired of repeated promises of the government to solve this issue, had to put their foot down. Meiko Nishimizu, Vice President of the World Bank for South Asian Region, had told the finance minister in Washington to get it done on fast tract basis. Now the government reacted once again by establishing a new committee headed by the finance minister to solve all IPP-related issues. Chairman, WAPDA will be the part of this committee. However, Ehtesab Bureau had been totally isolated in the process. The Bank had told the government to fully implement the orderly framework agreed with the donors community.

Official sources in the Ministry of Water & Power said that the government might have to allow few tax concessions to convince IPPs for some tariff reduction in return. Also, it is being felt that the government has to reverse all its actions against the IPPs.

The government has to comply with the orders to qualify for the already delayed $ 280 million IMF tranche.

Meanwhile, the donors have shown resentment over the sudden government decision to restore old flat electricity tariff rates for agriculturists which was announced on the final day of talks. Donor representatives in Islamabad have also reportedly talked to the finance and power ministries officials on the issue as the World Bank has been stressing for metered electricity in the agri sector for a long time now. "Lower meter rates might be acceptable to them but a reversal to the flat rate without any guarantee that agriculturists would pay the bills is certainly confusing for donors," commented a power ministry official.