A Long-Term Fix for Pakistan’s Energy Woes
5/28/10
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This is a joint post with Wren Elhai.
It is little wonder the Obama Administration has prioritized Pakistan’s energy sector in its $1.5 billion aid program this year. Pakistan is gripped by a very serious energy crisis. Daily black-outs in major Pakistan cities sometimes exceed 12 hours. Businesses are suffering, jobs have disappeared, and quality of life has plummeted. Frustrated Pakistanis are taking to the streets, and the political turmoil threatens to further destabilize the country and weaken the (already fragile) central government. Pakistani citizens and policymakers have turned to the United States for help. The United States sees an opportunity both to improve its public image, shore up a friendly government, and remove a key bottleneck to economic growth. Ultimately, fixing the Pakistani energy sector would go a long way towards stabilizing a critical state and benefiting U.S. national security interests.
However, the ever-present danger in jumping into a crisis situation with wallet in hand is that the desire to make progress quickly can overshadow the need to fix the longer-term problems that caused this crisis and, if not dealt with, will cause others in the future.
Later this week, we’ll put out a blog laying out the sad tale of power sector reform in Pakistan over the past couple of decades. Suffice it to say, however, that despite billions of dollars in donor funding and decades of external pressure for reform, the core problems in Pakistan’s energy sector remain more or less the same as twenty years ago—byzantine governance and tariffs that don’t cover the cost of producing power. In her third open letter to Ambassador Holbrooke, released this week, CGD President Nancy Birdsall urges the administration to learn from past donor missteps and work with interested Pakistani stakeholders to confront the institutional and financial problems in the sector once and for all. Absent this forward-looking approach, the United States risks making short-term fixes that fall short of lasting change.
Read the full letter here. Nancy’s four main recommendations are as follows:
- Work with the government of Pakistan on the institutional and pricing reforms that will ensure that the power sector does not constrain Pakistan’s growth over the medium to long term. To put the sector on firmer financial footing, the government of Pakistan needs to resolve the circular debt problem and overcome political resistance to increasing power tariffs to adequate levels to spur private investment. (One way this might be done is an announcement by the government of Pakistan that any future tariff increases will occur only if and when brown-outs have been reduced to pre-specified levels). In addition, further governance and institutional reforms are needed to address the corruption and patronage behind some of the fragmentation and lack of coordination that hamper the sector. Without progress led by the government of Pakistan itself on these institutional reforms, U.S. and other outsider spending on Pakistan’s energy infrastructure will never be sufficient to make lasting change.
- The United States need not be out front in pressing for key institutional and governance reforms, but should work with and through the other major multilateral partners. We are concerned that the U.S. team is not taking full advantage of the experience, the ground capacity of the World Bank and the Asian Development Bank in Pakistan’s energy sector, and the broad interest in the donor consortium on Pakistan’s energy needs.
- Beyond the $125 million already promised for repairs and upgrades to Pakistan’s energy infrastructure, we encourage the administration to commit more U.S. funds on Pakistan’s energy infrastructure only as and when the government of Pakistan is able to show progress on the tough financial and political reforms critical to attracting private investment to the sector. We say this not because the United States might have influence on what is a sensitive internal political issue – it probably does not – but because without home-grown and politically sustainable reforms, short-term fixes now can be easily reversed.
- The administration and the government of Pakistan should be transparent about the approach to the energy crisis and to better educate the Pakistani public about the need for it. For example, we urge the administration to agree with the government of Pakistan on simple and transparent benchmarks for progress on the fundamental institutional and pricing reforms, and to make these clear to the Pakistani and American public.
As Nancy points out, this is a critical and perhaps opportune moment for fixing the longstanding weaknesses in Pakistan’s energy sector. Past donor efforts have been defeated by a lack of political will in the government of Pakistan to implement key reforms. Today, however, Pakistanis from Karachi to Islamabad are fed up with the state of things. The depth of the current crisis have given rise to growing internal pressures within Pakistan that might finally be able to break through the impasse on reform that external pressure has to date been unable to overcome. Instead of funding short-term band-aids that might allow Pakistan to just get by for another year or two, the United States and its Pakistani partners should work to create a system that will contribute to a healthy long-term solution. Getting through the power crisis of 2010 is important—making sure such crises become a thing of the past is essential.
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