German investment contingent on reforms

Investment in energy sector is dependent upon Pakistan’s ability to reform the sector as recommended in a report.

ISLAMABAD: Germany has linked investment in the energy sector with the undertaking of painstaking reforms including the creation of the ministry of energy by merging two existing ministries and the linkage of gas prices with crude oil rates.

Stephan Roken, the Deputy Head of Mission of the German Embassy in Islamabad, said that investment in the energy sector was dependent upon Pakistan’s ability to reform the sector as recommended in the report of the energy sector task force. The report was prepared under the auspices of the Friends of Democratic Pakistan, an umbrella organisation of donors.

Roken was speaking after the conclusion of the visit of a 21-member German business delegation. The delegation visited Pakistan to explore investment opportunities in the energy, oil, gas, transport, technology and environment segments.

“Under current circumstances it was very difficult for German companies to even consider investing in the energy sector,” he said, adding that, “the proposed ministry of energy would provide options and a nurturing environment for investors.”

Roken said that circular debt was adversely affecting businesses and the present distorted price mechanism was in favour of the rich at the cost of 180 million people. “Germany urges Pakistan to implement price reforms that are socially equitable and do not hurt the poor,” he said.

Elaborating on problems related to the ministry of water and power and the ministry of petroleum and natural resources, the two ministries proposed to be merged, he said there was no holistic energy policy in place and each ministry was following its own policy while contradicting the others.

The chronic problems of the energy sector have not only crippled the sector itself but the industry at large. According to the Economic Survey of Pakistan, had there been no power outages, economic growth would have been 6.1 per cent last year, two per cent more than what was achieved.

The energy sector task force report has recommended five key areas for reform and is aimed at sustaining the energy sector whilst expanding capacity to meet present and future energy requirements.

The report seeks a strengthening of the governance and regulation of the energy sector through the establishment of the office of a senior energy adviser under the supervision of the prime minster and the creation of the ministry of energy.

It also recommends the phasing out of electricity subsidies, the removal of subsidies for refineries and the rationalisation of ex-refinery oil prices. It also proposes the linkage of gas prices with crude oil prices and an increase in wellhead gas prices as an incentive for exploration companies.

This was the second German business delegation to visit Pakistan since 2006.

Roken said “for Germans, it is commerce”, indicating that the country was willing to undertake business ventures despite security issues. Roken said that, as a follow-up of the April visit, two German companies will be arriving to invest in the renewable energy sector. “Pakistan has to do a lot more to convince German companies to come and invest,” he added.

Currently, bilateral trade between Germany and Pakistan amounts to €1.3 billion, with Germany being the net exporter.

Addressing the issue of the Generalised System of Preferences (GSP) plus regime, he said that the European Parliament was the final authority to amend the criteria to qualify for the comprehensive trade concessions meant for developing countries.

He added that these would not be specific to Pakistan and it would always be difficult for the EU Parliament to give concessions in the wake of the effect of concessions on members’ vote banks.

The deputy head of the mission said that the floods had helped soften the stance of the European Union on giving limited trade concessions to Pakistan. In June, the EU had refused to entertain Pakistan’s request. Nonetheless, the EU Council has approved limited trade concessions for Pakistan contingent on clearance by the World Trade Organisation (WTO).

He said that the EU may finalise the modalities of the trade concession package in consultation with the WTO within two weeks.

Published in The Express Tribune, September 23^rd, 2010.