Pakistan can’t afford turning CPEC into another Kalabagh Dam (Part I of II)

The following article has been published in Daily Nation, dated 18th May 2015

(E-Paper (Print Edition)http://nation.com.pk/E-Paper/lahore/2015-05-18/page-9)

(Onlinehttp://nation.com.pk/business/18-May-2015/pakistan-can-t-afford-turning-cpec-into-another-kalabagh-dam)

China Pak Economic Corridor: way forward (Part I of II)

By: Omer Zaheer Meer

PART I

The biggest gift of nature to Pakistan besides all kinds of terrains and weather as well as hardworking young manpower is its strategic location. In this context the strategic significance of Gwadar adds to this dimension of Pakistan’s international importance. Gwadar is a strategically located area on the shores of the Arabian Sea just outside the Strait of Hormuz. It is situated near key shipping routes of global oil transportation with the surrounding areas having two-thirds of global oil reserves. Furthermore it is the closest warm-water port to landlocked Central Asian region and Afghanistan, both rich in untapped natural resources and economically undeveloped with huge potential. As if that was not enough, from a military standpoint, Gwadar is located at the eastern bay of the key passing which if blocked by a strong naval force, can cut off the oil supplies to any adversary with dire repercussions as any military expert will testify.

Before moving ahead on the core matter of China Pakistan Economic Corridor (CEC), let us briefly visit the history of Gwadar. Pakistan identified Gwadar as a site for its future port in 1954 when it was still under the rule of Oman. Government of Pakistan successfully negotiated with the Sultanate of Oman and purchased the enclave in the fall of 1958, ending a 200 year Omani rule of the small undeveloped fishing town. It wasn’t until 1977 that Gwadar was made a part of Balochistan by the Federal Government of Pakistan. Currently it has a population of approximately 85,000 people as per most studies.

Now moving onto CPEC, it is a mega project worth $ 45.6 billion, to connect Gwadar port with Northwestern China (Xinjiang) via Khunjrab (the last connecting point on the Pakistani side) along with development and uplift of transportation, energy and technical infrastructure in Pakistan. A network of road and rail links besides energy pipelines are envisaged.

There are three land routes planned to link Gwadar to Xinjiang in addition to a long-term “route adjustment link”. The three main routes are outlined below:

  1. The “original”, shortest and most popularized route passes through Quetta, Zhob, D.I.Khan and Peshawar. It is termed as the “western route” and is just over 2400 km long.
  2. The second route passes through Ratodero, Sukkuar and the Indus Highway.
  3. The third route which has stirred up the controversy actually passes through Sukkur and Karachi in Sindh and then via Lahore and Peshawar to connect with Khunjrab. This is termed as the “eastern route”.

All the routes are envisioned to be interconnected with industrial and commercial zones along the routes at key sites.

CPEC updatedFurthermore other major projects that are part of the CPEC are as below:

  •  320-kilometre-long Sukkur-Multan motorway
  • 120-kilometre-long Thakot to Hawalian road
  • upgradation of Karakoram Highway
  • 19-kilometre-long Gwadar port East Bay Expressway Project
  • development of Gwadar itself
  • building Gwadar airport
  • upgradation of Karachi – Peshawar “Main (Railway) Line”
  • commission of armed division (Economic Corridor Support Force) for security of CPEC
  • Havelian Dry Port
  • Orange Line Metro (Lahore)
  • Port Qasim 2x660MW Coal-fired Power Plant
  • 720MW Karot Hydropower Project
  • Zonergy 9×100 MW solar project (Quaid e Azam Solar Park) in Punjab
  • Jhimpir wind Power project
  • Thar Block II 2x330MW Coal Fired Power project
  • Hubco Coal-fired Power Plant Project
  • Gwadar-Nawabshah LNG Terminal and Pipeline Project
  • China-Pakistan joint cotton bio-tech laboratory
  • Cross-border fibre optic data communication system project, a digital terrestrial multimedia broadcast pilot project at Murree
  • Development of Private Hydro Power Projects, e.t.c.

As can be seen from the above non-exhaustive list, a lot of the projects are related to developing energy and technical infrastructure in Pakistan in addition to the transportation infrastructure projects. Infact more than 70% of the $ 45.6 billion is expected to be spent on these projects. However it is the transportation infrastructure that caught most attention due to its long term strategic significance, revenue generation and potential to be the game changer for the region.

to be continued next Monday  ……

The author is Director of the think-tank “Millat Thinkers’ Forum”. He is a leading economist, CFA Charterholder, experienced fellow Chartered Certified Accountant and anti-money laundering expert with international exposure who can be reached on Twitter and www.myMFB.com @OmerZaheerMeer or omerzaheermeer@hotmail.co.uk

Yemen Conflict: Potential Economic Catalyst for Pak

The following article has been published in Daily Nation, dated 06th April 2015

(E-Paper (Print Edition)http://nation.com.pk/E-Paper/lahore/2015-04-06/page-9 )

(Onlinehttp://nation.com.pk/business/06-Apr-2015/yemen-conflict-potential-economic-catalyst-for-pak )

Yemen Conflict: Potential Economic Catalyst for Pak

Prof Dp

By: Omer Zaheer Meer

Strategic decisions by modern states are based on either some principles, agreements, vested national interests or a combination of the above mentioned. A confusion and lack of clarity often results in ruining of opportunities which could otherwise turnaround the situation of a nation. By now, you’d have most likely heard about the conflict in Yemen, a regional dominance affair portrayed as a Shia-Sunni sectarian conflict by the script writers of the new world order for their own vested interests. While a lot has been written on the Yemen conflict in the past few days, a focus on economic prospects of the potential decisions has been somewhat lacking. We’ll address it in this write-up.

Pakistan currently has a vital economic dependency on Kingdom of Saudi Arabia (KSA) led Gulf coalition. The aid provide during sanctions and the $ 1.5 billion “gift” to Pakistan during current Government just last year maybe one-offs but the continuous provision of oil on “deferred payment” and employment opportunities for millions of Pakistanis in KSA and the Gulf region are of a permanent nature helping sustain Pakistan’s economy. Similarly, Pakistan share important economic ties with United Arab Emirate (UAE) whose companies often invest in Pakistan, albeit of extremely favorable terms in semi-Government or Government owned enterprises. Furthermore Pakistan has recently executed an agreement to import LNG from Qatar to meet its energy needs. The Gulf region is amongst major export destinations of Pakistani products. Annual bilateral trade is in billions of $. In economic terms there is an unfavorable trade imbalance in the trade ties mainly due to the import of oil by Pakistan. Furthermore, there is a convergence on security interests between Pakistan and most of the Gulf countries baring the issues with UAE regarding conflict of interests re Gawadar port as outlined below.

On the other hand, while there are just a few thousands Pakistani employed in Iran (fifteen to twenty thousands), the strategic position of it being a neighbor of Pakistan has serious implications for nation defence and thereby resultant impact on defence spending and national budget. While the past has glorious examples of Pak-Iran collaboration particularly during the 1965 war with India, it is an unfortunate fact that due to the non-convergence of economic and regional security interests, Iran has lately been in partnership with Pakistan’s arch rival India. The process exacerbated due to the divergence of interests in Afghanistan and peaked with the launch of the Gawadar project which directly threatened Iran’s vital “Chahbahar” port just like it threatened the prospects of UAE ports more importantly Dubai. The result has been direct economic costs for Pakistan due to delays in making port operational due to law and order situation supported by foreign interests as well as increased defence spending further straining the national resources.

Keeping in view of the above, perhaps it is high time that the strategic decision makers in Pakistan list the vital national interests that can be secured from both KSA led Gulf region as well as Iran as well as to what extent it can offer its co-operation in return depending on existing agreements. It is vital that we think realistically respecting the support and co-operation we’ve received from our allies over the years but sans undue emotions. USA has done the services expected of Pakistan for years at extremely lucrative terms; it would therefore not be unfair or unethical for Pakistan to pursue the betterment of its inhabitants while supporting its allies.

Below are some proposals in regarding what Pakistan can offer considering its own issues and limitations:

  • Pakistan should focus on its ability play the role of an effective mediator to address the concerns of both Iran and KSA just like it did to bring China and USA closer back in the 1970’s.
  • Deploy air support and commanders to lead Gulf forces within their borders (particularly KSA) to ensure effective defence.
  • Deploying its own forces within KSA to protect its borders from outside attacks.
  • As a last resort conduct targeted air-strikes against local militia on formal request from the Yemen Government and KSA led Gulf coalition on the principle of supporting democratically elected government.

What Pakistan can achieve economically in return may include the following:

  • Assurances from both Iran and UAE to stop stirring up trouble in Balochistan resulting in a quicker start of Gawadar project as well as lower spending on counter-terrorism there.
  • Membership of important bodies including GCC with economic implications.
  • Removal of tariffs on Pakistani imports in their countries, with preferential treatment.
  • Attractive deals to secure reliable LNG, LPG, oil, e.t.c. at cheap rates to ensure Pakistan’s growing energy needs are met effectively. Depending on some key factors Pakistan can secure even free supplies for a long period.
  • Offering special nationality packages to Pakistanis working in the countries involved, which can positively influence the foreign exchange reserves of the country.
  • Writing-off of Pakistan’s debts due towards GCC countries.
  • Paying off Pakistan’s other external debts.

This is yet another historic opportunity for Pakistan and it should not be squandered like many in the past. The demands listed above are all very realistic and possible considering the vital role expected of and the possible costs for Pakistan. They’re also much less then what had been taken by the USA for similar services in the past. So if Pakistan is to play the most important role for one of the richest regions in the world, it may as well get due recognition and rewards. After all the law of the nature is such that even brothers working in brothers’ businesses must get rewarded for their work. And what’s better if the rewards are sufficient for one brother while less then what the other was paying to outsiders.

The author is Director of the think-tank “Millat Thinkers’ Forum”. He is a leading economist, chartered financial analyst, qualified fellow accountant and anti-money laundering expert with international exposure who can be reached on Twitter and www.myMFB.com @OmerZaheerMeer or omerzaheermeer@hotmail.co.uk

Is Privatization right for Pak?

The following article has been published in Daily Nation, dated 2nd March 2015
(E-Paper (Print Edition): http://nation.com.pk/E-Paper/lahore/2015-03-02/page-9 )
(Online: http://nation.com.pk/business/02-Mar-2015/is-privatisation-right-for-pakistan )

Is Privatization right for Pak?

By: Omer Zaheer Meer

Privatization is coined as a solution to many economic woes facing Pakistan’s economy. It has been hailed as a solution to the woes facing PMLN’s government. The privatization commission has even shortlisted 31 institutions to “sell”. A very competent Mr. Zubair Umar, the brother of the youth icon and PTI MNA Mr. Asad Umar is heading the commission. On the face of it, the arguments appear to be logical and make sense. It’s pointed out that a government’s primary function is to run the state affairs and should facilitate the businesses instead of running them. The “white elephants” in the shape of public sector enterprises (PSE) are costing the national exchequer billions of Rupees annually which can be saved and spent on public welfare.

However once we start to dig deeper the situation is not as glossy as it may appear at first. First of all a successful privatization exercise has some pre-requisites like a conducive environment with investors’ confidence, a strong government able to enforce the agreements, proper selection of non-vital PSE’s and a fair process carried out in a transparent manner. Sans this, privatization cannot turn-around the state of PSE’s or the economy. Past experiences are a testament to this.

Once again the incumbent PMLN government is focused on privatization but unfortunately is ignoring the vital pre-requisites. The faulty selection of profitable and strategically vital entities, the extreme haste in the proceedings, missing policy guidelines, a lack of clarity and transparency in processes, non-conducive investment atmosphere and a less-than-desirable track record all warrants caution in examining the proposed solution of privatization.

Amidst the noise of overhauling loss-leaders several profitable institutions are also earmarked for privatization, which besides funneling billions to the treasury are also providing products/services at cheaper rates to the public as compared to the private sector in the international market.

One such example is the Oil and Gas Development Company Limited (OGDCL) which generated a profit of approximately PKR 91 billion in last fiscal year while providing the gas at 40 to 50% of the prices offered by private sector in international market. Another example is Pakistan State Oil (PSO) generating an after-tax net profit of approximately PKR 12,558,000,000 in the year ended 30th June 2013, a 39% increase from the previous financial year. Privatizing such institutions would not only lead to loss of billions to the exchequer but also an increase in the comparatively cheaper prices currently offered to the masses.

A case in point is the handing over of PTCL control to Etisalat by the Musharraf regime in which a minority shareholder effectively got all of PTCL for a paltry sum to be paid in installments, still partially outstanding. What is iconic is the fact that Etisalat itself is a Public Sector enterprise of UAE. This means that although the proponents of privatization strongly believe that “state cannot run vital services”, they have no qualms about a foreign state owned enterprise coming to Pakistan and doing the same. And just to analyze how effectively has this privatization venture gone we should realize that the same PTCL which was generating profits of billions of PKR but is now reporting heavy losses despite increased tariffs and with a falling standard of customer service often complained about. Similarly KESC which was sold on the hopes of a turnaround with substantial investments expected in infrastructure by the private party. Unfortunately it has instead become a much bigger white elephant requiring continuous rescue by the government while the new private owners continue to remit their profits abroad. Their failure to even invest in the necessary infrastructure maintenance has lead to undue load-shedding over and above that necessitated by load-management. Not only has the government of Pakistan lost revenues from healthier dividends and resulting taxes, it has also lost by falling share prices of its remaining stake in these entities. The public has suffered a deteriorating service and higher prices.

To put things in perspective let us also recall the privatization of MCB to Mian Mansha’s group, undoubtedly amongst the strongest business conglomerates in Pakistan. The deal was done at a fraction of the fair value of the tangible assets of MCB let alone considering the value of the brand and goodwill. Obviously such moves do not boost confidence particularly when the same group’s head attends important government policy meetings is said to be interested in getting “good” deals on more national assets at the cost of the nation.

It had been reported that the incumbent government sent a letter to IMF claiming a consensus of all political parties and parliament to privatize the national institutions. This obviously points towards the pressure emanating from the terms of the IMF package accepted by Pakistan and explains the underlying motive. This undue urgency leading to lack of planning should be avoided. The government needs to ensure it is not selling off profitable and strategically vital PSE’s in the name of privatization for short-sighted capital injections at the cost of long-term stability and revenues. Furthermore institutions providing vital services to the masses should not be on the wish-list of the potential sell-offs either.

As for those entities generating losses like PIA we need a proper plan of action. One leading argument for privatization is that since the private sector is driven by profit, the efficiency and performance of institutions is supposed to improve in private hands. Unfortunately the past record of privatization in Pakistan does not support this argument. Be it PTCL or KESC, not only their profits but the standard of services too has fallen in private hands. Also it brings up an interesting question as to why the government cannot introduce checks and balances along with incentives to ensure a turnaround they expect from private entities. Moreover, in developed countries strict legislation has been introduced to ensure avoidance of the common pitfalls of privatization, protecting the interests of all shareholders and safeguarding the continuation of service(s). Same needs to be done in Pakistan to address the issues already facing us from past public-private venture which effectively handed over whole PSE’s for a paltry minority stake in ownership.

While some proponents of the privatization point out the previously failed attempts at turning-around of state institutions but they conveniently ignore the major reasons of failure in undue interference, political appointments and misappropriation by government officials. The success stories like the last major successful turnaround of a loss-making steel mill into a profit generating venture are also conveniently swept under the carpet. They also choose to forget that if enterprises like PIA are privatized, which have the highest ratio of employees per aircraft of 500 compared to international standards of fewer than 150; it will still lead to layoffs and resulting backlash. Ideally a better option will be to establish an independent and empowered restructuring institution (RI) to overhaul PSE’s, which if handled properly will make the process less painful compared to a private venture while ensuring cost-effective quality services from a revenue-generating asset of the nation.

All that is required by the RI is to place competent professionals of utmost integrity at the top positions based solely on merit to run the PSE’s, introduction of a system of appropriate checks and balances run by professionals whose life is driven by measuring performance against goals, spurring motivation and ensuring excellence via improved performances. If for some reasons a privatization is deemed mandatory then a hurried privatization without a proper policy, appropriate selection of PSE’s and laws safeguarding the national interests as well as protecting the masses should be avoided as it will only lead to less efficiency by investors with conflicting interests, more unemployment, resulting lawlessness, inflation, loss of revenues and government bailouts.

The author is a leading economist, chartered certified analyst, qualified chartered accountant and anti-money laundering expert with international exposure who is helping reshape businesses at Millennium Law Company. He can be reached on Twitter and www.myMFB.com @OmerZaheerMeer or omerzaheermeer@hotmail.co.uk