Diamer Bhasha: Only reforms will pave way for dam financing

ADB urges Pakistan to rationalise tariffs and improve governance.

ISLAMABAD:

Inability to reform the power sector is perhaps the government’s biggest failure and seems to be becoming a hurdle in the way of foreign loans, as the Asian Development Bank (ADB) has linked funding for Diamer Bhasha Dam with the much-needed reforms.

The message was conveyed to Pakistani authorities here on Thursday by a visiting delegation of the ADB. The delegation, led by Executive Director Maurin Sitorus, comprised members of the board of directors of the Manila-based lending agency.

According to the finance ministry, Sitorus said the energy sector and infrastructure reforms were the focus areas of the ADB.

The government has been trying to persuade the ADB to become lead financier for the 4,500-megawatt Diamer Bhasha Dam, which needs financing of $11.4 billion. After initially committing funds, the ADB has shown reluctance until other lenders come forward.

In the meeting, Finance Minister Dr Abdul Hafeez Shaikh asked the delegation to send a review mission for Diamer Basha Dam, according to a press release issued by the finance ministry. The statement was released after the delegation’s meeting with Shaikh in his office.

Shaikh, who headed all committees on energy reforms, is increasingly coming under pressure for his indecisiveness and inability to convince the president and prime minister to implement recommendations of the committees.

Sources said the delegation did not commit anything, even about the review mission. The government wants to see the mission that will revive ADB’s commitment to the project – a gesture the bank is not ready to make until the government addresses key concerns.

The inefficient power sector is one of the reasons behind sluggish economic growth of the country. Instead of resolving the problems of the sector, the government has given Rs1.2 trillion in subsidies in the last four and a half years, most of which went to cover the cost of bad governance, theft and line losses.

In the second meeting, held at the Planning Commission, the ADB delegation asked the government to first do what it failed to do in the last four and a half years, said the sources.

They called for rationalising tariffs, controlling circular debt and improving performance of power generation and distribution companies. The delegation raised these concerns when government officials again requested the bank to become the lead financier and send a review mission.

The delegation cited examples of Bangladesh and India where many mega projects could not be completed due to their inability to remove bottlenecks in the power sector.

In an effort to rationalise tariffs, the Planning Commission deputy chairman said the government had increased electricity tariffs by 80% in the last three years. However, the delegation seemed unsatisfied and asked the officials to focus on other areas as well including improvement in governance as only the increase in tariffs would not resolve the problem.

The Wapda chairman asked whether the delay in reforms meant that the ADB would not fund the mega project. The bank was assured that the government would try to simultaneously take forward both reforms and Diamer Bhasha Dam.

Shaikh blames media

To a question raised by a member of the ADB team about declining investment in the country, Shaikh said the issue was being exaggerated by the media, according to the finance ministry’s statement.

While Shaikh blames the media, the central bank’s investment figures tell the true story. From July to September, the country received only $87.2 million in foreign direct investment, $176 million or 67% less than the corresponding period of previous year.

When the PPP government took over in 2008, the FDI stood at $5.4 billion, which came to an average of $1.35 billion in each quarter.

Published in The Express Tribune, October 19^th, 2012.