TQ Salon | Private Investors, Public Disasters

Aug 2014

Conversation: Infrastructure and Politics

This is the second essay in this conversation. The is first is here

Photo credit: Seth Anderson

Photo credit: Seth Anderson

In this TQ Salon conversation, we asked a scholars and activists to engage in a discussion about infrastructures in Pakistan. Infrastructures organize space, goods and resources, and as such, form the background for the conditions of modernity. We query the regimes of knowledge and power that come into being through material infrastructures. What forms of politics do the architectures and aesthetics of infrastructures open and foreclose? How do infrastructures circulate power? What kinds of urban or rule social space do they shape? How do the infrastructures imagine the public good?

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The introduction of independent power producers in Pakistan marks a key transition to a new logic of infrastructure development, one in which the role of the private sector is enhanced and a fairly rigid ideology of governance involving commercialization, corporatization, and an expanded role for the private sector has become the new orthodoxy. In Hashim bin Rashid’s periodization, this moment signifies a shift from the state-led developmental era to the neoliberal era. However, in evaluating current trends in the power sector, one can see how the logic of the developmental state has reasserted itself against some of the shortcomings of the policy reforms implemented from 1994 onwards.

Part of the reasoning behind inviting power sector investment in the 1994 power policy was the failure of the developmental state to build the Kalabagh dam, a large dam on the Indus comparable in scale to Tarbela for power generation and water storage. The Kalabagh dam was vociferously opposed in what was then known as the Northwest Frontier Province—today Khyber-Pakhtunkhwa—due to the number of people being displaced from the submerged area. Sindh also opposed the Kalabagh dam due to concerns over access to irrigation water. The conflict over Kalabagh is part of a larger inter-provincial political economy of electrical power in which the center variously takes resources and gives favors to provincial interests. Over time, the center has burdened itself with numerous concessions to buy the goodwill of provincial interests, both resulting from power sector initiatives and other policy arenas.  Such concessions include tube well subsidies to Balochistan, hydro-electric power production royalties due to Khyber-Pukhtunkhwa, non-payment of electricity in FATA, and low-cost supply to Azad Jammu and Kashmir, each of which contributes substantially to the accumulation of circular debt as the center must bear the budgetary burden of providing electricity that is not paid for in full by users. In each of these relationships, the undercurrent is that of a center, which has historically taken more than it has given, and which has preferred (or been seen to prefer) Punjab at the expense of the other provinces. This inter-provincial political economy of power mirrors the unevenness of the social contract, with the federal government struggling to integrate a system of parts where those who are non-Punjabis question whether they are being treated equally and fairly. Though the 18th Amendment and 7th National Finance Commission Award have gone some way to improving center-province relations by decentralizing power to some extent, the inter-provincial political economy of power require careful political handling.

In addition to avoiding the inter-provincial tensions raised by Kalabagh, seeking private investment through private investors was intended to meet the shortfall in investment that the government itself could raise. The 1994 policy is sometimes praised for the amount of foreign direct investment that was brought in, but this claim hides the central role of the World Bank, which provided funding to 11 of the 16 independent power projects or IPPs set up under the 1994 policy. These IPPs are privately owned power plants which generate electricity for the national grid.

In fact, only 20 percent of the total investment was in the form of private equity for the IPPs. The World Bank’s assessment is that the IPPs wouldn’t have been funded without sovereign guarantees, but it was the international financial institutions that provided the majority of the debt financing. That foreign debt was repayable in 10 years on average. Thus, significantly: profits were to be privatized while risks were born by the Pakistan government.

International actors, including especially the World Bank, repeated this pattern in other countries such as Indonesia where they pushed for the induction of private producers.

Backlash

But, worldwide, this push for private power resulted in many power purchase contracts being restructured as governments rebelled against their unfairness, and the Asian financial crisis introduced new constraints. In Pakistan, the cost of the IPP plan required a substantial consumer tariff hike that the Nawaz Sharif government of 1997-1999 rejected as political suicide. Instead, the government renegotiated the tariffs with the IPPs. The HUBCO deal was challenged in court. Not only was did the court hear the case against HUBCO, but the company was prevented from seeking resolution through international arbitration, although a revised rate was eventually agreed between HUBCO and the government. Despite all the drama, HUBCO remained a poor choice for power production. In the period 2001-2006 when Pakistan had sufficient power supply and started to prioritize the use of its most efficient power plants in preference over less efficient ones, HUBCO’s high costs meant that it was frequently standing idle. Its total power generation in 2003-2004 was less than 25 percent of its 2000-2001 output.

The World Bank acknowledged numerous failings in its Implementation Completion Report for the Private Sector Energy Development Program under which HUBCO was funded. (You can find a shorter, more readable version of the report here.) It rated both its performance and the Government of Pakistan’s performance as “unsatisfactory.” Further, the framework established for independent power producers was “unsustainable,” and that there was “negligible” contribution to institutional development. In other words, the chief force behind the power sector reforms of the neoliberal era acknowledged the poor results in Pakistan in 2001, and studies of similar programs around the world report equally discouraging outcomes.

While hindsight makes such criticisms easier, the risks from the Washington Consensus era power sector polices were predicted before they were ever implemented in Pakistan, or elsewhere. A roundtable between Electricité de France, the French electrical utility, and the World Bank, highlighted that the increase in transaction costs resulting from a complicated power sector structure with private and public entities would be difficult to manage—doubly so in a weak governance environment—and likely to offset any efficiency gains from introducing private sector actors. Introducing private actors would not solve the underlying governance issues, nor could the private actors contribute to improved power sector outcomes without such governance. The 1992 strategy paper framing Pakistani electricity privatization policy agreed, clearly identifying the need to attend to the governance concerns before initiating privatization. Without improved governance, the only candidates for privatization are those operating units with the least challenges. Additionally, French participants observed that the neoliberal agenda abandoned the spirit of public service.

Towards a new development era?

Pakistan’s public power sector has stepped back from some of the failed policies of the  neoliberal period. In particular, the move to have Pakistan’s distribution companies function independently has been substantially reversed by having the chiefs of those companies report once again to the chairman of the Water and Power Development Authority (WAPDA), an arm of Pakistan’s central government. A different reversion to centralized control is manifested in the managerial style of the current secretary of water and power who famously holds daily video conferences with the distribution company CEOs in order to keep a close eye on them. The previous PPP regime also attempted to keep a close watch: After establishing supposedly independent boards of directors as part of its governance reform efforts for the power sector, it still interfered in the conduct of their statutory responsibilities, such as the conflict over the appointment of the CEO of the Lahore Electric Supply Company (LESCO) which resulted in a court ruling in favor of the LESCO board (although the board was later dismissed).

Despite the poor outcomes associated with past efforts at implementing Washington Consensus policies in the power sector, past and current governments still produce statements that assert that privatization is a key goal. The willful ignorance of history and the inability to implement governance reforms doesn’t seem to dent the ideological commitment to bringing private investment and ownership into this uncompetitive space.

What is generally missing from the rhetoric of governance reform associated with internationally supported interventions in the Pakistani power sector is any semblance of democratic participation. As Rashid notes, the concept of a “right to electricity” is reflected in the government’s acknowledgement that electricity’s affordability and availability is central to the wellbeing of the country. Working from the basis of this right to electricity, improved transparency which is oriented towards ordinary citizens can help those citizens make effective claims on the state, see where they stand in relation to each other, and hold the state to account for the promises it makes to them. A genuinely improved governance environment in the power sector requires an active and informed citizenry. Without such a transformation, the fixation on private investment and a technocratic approach to reform in the power sector will only repeat the failures seen in Pakistan and elsewhere.

Ijlal Naqvi is Assistant Professor of Sociology at Singapore Management University.

 

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17 Responses to TQ Salon | Private Investors, Public Disasters

  1. […] This is the third essay in this conversation. The first and second are here and here. […]

  2. […] Private Investors, Public Disasters | Ijlal Naqvi | Photo credit: Seth […]

  3. […] نقوی کا انگریزی مضمون پرائیوٹ انوسٹر، پبلک ڈیزاسٹر […]

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