EDITORIAL: Reports that Washington has categorically ruled out any further investment in Pakistan by the US International Development Finance Corporation (DFC) unless tariff issues of five wind power projects are settled ought to have sounded serious alarm bells in Islamabad. Yet it’s one thing to give a matter the important consideration it deserves and quite another to deliver results before a certain window of opportunity closes.
It’s also been reported that Minister of State for Foreign Affairs Hina Rabbani Khar assured US Ambassador to Pakistan Donald Blome, in a meeting last month, that she would convey Washington’s concerns to the ministry of energy in the hope that a “mutually acceptable solution can be found to resolve this matter”, but that’s the last that the press hear of this issue.
Islamabad has already initiated the process of reviewing PPAs for IPPs in light of the World Bank-sponsored Program for Affordable and Clean Energy (PACE), which requires revision of generation tariffs for IPPs, but no further details have come out yet, except that the US has now put its foot down and frozen any further business till this matter is settled. The US claims that a solution that favours both sides can be found while preserving conditions essential for future investments in this sector.
In fact, in response to Pakistan’s call to lower tariffs across all IPPs in 2020, DFC proposed a solution that would honour existing contracts and immediately reduce tariffs on DFC-supported wind projects by an estimated 20-30 percent. It is now up to the government of Pakistan, specifically the energy ministry, to resolve this issue. Surely nobody in Islamabad needs to be reminded of the painful credit crunch that the country is currently facing.
Now, if DFC takes the American private sector away from Pakistan, the only foreign investment we’d be left with would be Chinese; which, too, is thinning with time. And that is bad news for a country that will most definitely default without outside help, especially when the IMF (International Monetary Fund) programme remains suspended and there’s no telling when the Fund’s, and other bi- and multilaterals’, money would start coming to the central bank’s vaults.
One can only hope that such important matters have not been pushed down the priority list because the government is so deeply engaged in an ugly political battle with the opposition; one that has already seen all sorts of rules broken and lines crossed by all sides and still shows few signs of subsiding. The energy sector is already plagued by too many problems to list all at once, and the biggest reason that the long process of reforms hasn’t yet even taken off is misplaced priorities of this country’s political elite. Losing DFC support at this time would be a self-inflicted wound from which the energy sector might not fully recover.
Plus, it’s not just tariffs that the Americans have been pressing Islamabad endlessly about for months. Other things include protection of data privacy issues and clearance of soyabean containers. It’s also made it clear that resolution of these issues is crucial for a meaningful outcome of the 9th US-Pakistan TIFA (Trade and Investment Framework) Council meeting held in Washington in February, without which the private sector might not find the Pakistani market worth its time.
These are very hard times for the Pakistani government, no doubt, especially on the economic front. But that should only make it more proactive in finding solutions to problems that should never have lingered this long in the first place. Hopefully, the right tariff balance will be found in time to keep DFC deeply engaged with Pakistan.
Copyright Business Recorder, 2023