Bushs sojourn in Islamabad

PRESIDENT George W. Bushs 24-hour visit to Islamabad was an unusual exercise in diplomacy, given the tight security that hemmed him in and the anti-American demonstrations that greeted him in Pakistan. The unfriendly sentiments here derive not only from some bilateral issues between America and Pakistan but also from Americas global policies, mainly vis-‘-vis Iraq, Palestine, Iran and others. Yet Mr Bush needs Pakistan. He could not have fought Americas war against terror without cooperation from Islamabad. President Musharraf also needs America for his policy of enlightened moderation has earned him enemies in the Islamist circles. His refusal to lay down his military uniform has alienated political elements here. Their mutual need for each other has brought the leaders of the two countries together and sustained their friendship in these times of adversity.

But for ties to be deep and strong, it is essential that they are built on tangible advantages that the countries entering into a partnership derive from each other. In that context, President Bushs visit had something to offer though not everything that Islamabad had been hoping for. The most important development was the reaffirmation by the two sides of their joint commitment to fight terrorism and broaden their strategic partnership within an institutional framework. For Islamabad this is not an easy war as the developments of the last few weeks and the large number of civilian casualties in Waziristan have confirmed. Moreover the struggle against terror is closely linked to the political situation and democracy in the country. The violence in Balochistan has complicated issues. It is plain that it is not just a strategic approach that will win the war. Politics and economics also matter and President Musharraf can ill-afford to be isolated. In order to win the support of the opposition as well, Mr Bush urged President Musharraf to hold open and honest elections in 2007 since “democracy was the way to defeat terrorism. One will have to be a diehard optimist to believe that Mr Bushs sensible advise will change politics in Pakistan.

Without an underpinning of strong economic ties, no strategic partnership can be sustained. This has been tacitly recognised in the joint statement issued in Islamabad on Saturday which states that there is need for a significant expansion of bilateral economic ties including mutual trade and investment. Regrettably, this did not come about. The investment treaty the two sides have been negotiating since Prime Minister Shaukat Aziz visited Washington last month failed to be finalised. Without a treaty the US does not wish to grant free trade rights to Islamabad which otherwise cannot penetrate the American textile market. The only benefit to accrue from the visit was Mr Bushs announcement withdrawing his objections to the IPI gas pipeline. As was not unexpected, the American leader refused to offer nuclear technology for energy generation on similar lines as to India, saying the two were different countries with different needs and histories. Thus the American leader confirmed the de-hyphenation that has emerged as the cornerstone of his South Asian policy. Whether this will stabilise the region is not so certain. With a composite dialogue having started between India and Pakistan, the US appears to be stepping back, leaving it to the leaders of the two countries to negotiate an agreement on Kashmir. Will this approach work?

Hope for justice in Gujarat

THE final report of a retired Supreme Court judge of India on the Gujarat riots of 2002 adds to the growing pile of evidence pointing to the innocence of the Muslim community in the traumatic communal massacre four years ago. Justice Bannerjee’s findings are that the fire in the train at the Godhra station in February 2002 was accidental and not caused by a Muslim mob as the people had been made to believe all these years. This fire had killed 59 Hindu pilgrims returning home from Ayodhya and had sparked a riot that left 2,000 Muslims dead. Justice Bannerjee has also refuted the Gujarat state government’s assertion that a Muslim mob was pelting stones at the train. This report is important in many ways. Coming soon after the Best Bakery judgment of the Mumbai High Court that convicted nine men who had been earlier acquitted, the Bannerjee report should pave the way for justice to be done to the Muslims at long last in Gujarat. Nearly 45,000 cases had been filed in the courts but given the fact that the BJP government was in office in New Delhi and also in Gujarat and it refused to take any responsibility for the killings, justice could not be done. Most of these cases were dismissed for lack of evidence.

The tide has now turned with the coming into power of the Congress in New Delhi. This judgment and the Bannerjee report will facilitate the over 1,000 riot cases that are still pending before various courts in India. The Godhra train fire findings also vindicate the secular claims of the Congress government that had, while in opposition, accused the BJP of connivance with the killers. Since the Nanavati-Shah commission set up by Gujarat Chief Minister Narendra Modi has failed so far to submit a report, it was logical that the central government proceeded to set up the Bannerjee commission. The latter’s report in a way preempts the Nanavati-Shah panel whenever it delivers its findings. Needless to say, if the ruling Congress party wants to hold India’s religious minorities together, it will have to act impartially and show justice and fairness to all communities living in the country.

Organ donation law

THE minister of health has said that the government plans to soon introduce a law in parliament preventing people from selling their organs. Apparently, the government’s attention must have been drawn to the rising number of cases in rural Punjab of those living in poverty selling kidneys in exchange for a hefty payment. In one village, it was reported that several dozen healthy individuals, driven by rampant poverty and lack of jobs, had sold their kidneys. The law, the health minister has said, is designed to regulate the donation of organs, especially if the recipient is a relative or a dear one, but will prohibit their sale. However, such sales are going to decrease only when and if the much-vaunted trickle down effect of the economy’s high GDP growth actually begins to be felt.

As for the law itself, it was about time that the government introduced legislation to permit donation of organs, either from living or deceased donors. This is the practice in most civilized countries and even many Muslim societies have laws to this effect. The reason for that is clear: organ donations can save precious lives and provide hope to countless patients (and their families) who would otherwise not survive certain diseases seriously affecting kidneys or other vital organs. The case of donation is compelling especially when made posthumously — assuming, of course, that when alive the donor signed a document allowing his organs to be so donated. It is unfortunate that we have had to wait for so long for legislation to this effect. A bill was mooted over a decade back but it was sent to a Senate committee from where it never returned to the legislative table. The minister has not mentioned a timeframe but it is clear that given its many benefits the planned law should be adopted as soon as possible.

Selling energy giants to foreigners

ENERGY is the most critical sector in the world economy today. The price of oil has tripled over the last few years, and with increasing security concerns in the Gulf and Nigeria, the price may go beyond 100 dollars a barrel whereas at present it is above $60.

India and China, which are energy deficient, are buying oilfields in Sudan, Kazakhstan and other countries in order to ensure steady supplies for their expanding economies. Energy security has, therefore, become a primary concern for economic policymakers all over the world.

The privatization strategy in Pakistan is driven by the ideologically-based conviction that all units in the public sector, whether profitable or not, strategic or non-strategic, should be sold to any bidder whether a foreigner or a Pakistani. This conviction is also driven by the desire to show higher levels of foreign direct investment (FDI) and give a boost to sagging foreign exchange reserves. The foreign purchase of Pakistani assets is technically not FDI because there is no addition to the capital stock of the country.

Investment by definition means creation of new capital stock for enhancing production with the latest technology and management. This point was highlighted by Mohsin Khan, director, International Monetary Fund (whose theology is privatization), at a recent seminar in Islamabad. He stressed that the foreign purchase of existing assets cannot be treated as FDI because not only is there no addition in capital stock but there is also no change in existing technology. The government should, therefore, deduct privatization proceeds from FDI figures.

Privatization sale proceeds in foreign exchange would give a shot in the arm to the level of reserves but, at the same time, will lead to the recurrent transfer of profits in foreign exchange straining the already weak position of the balance of payments. The outgo on account of foreign income on equity was $1.2 billion in 2004 and it increased to $ 1.6 billion in 2005. If we privatize all major firms, including the oil giant, then this figure will cross two billion dollars by 2006. Hence, acquiring foreign exchange by sale of profitable mega-enterprises is a short-sighted policy as one-time receipts get frittered and a life-long liability is incurred.

The privatization commission has put Pakistan State Oil, Sui Southern Gas and Sui Northern Gas under the hammer. The minister for privatization went on a road show to Singapore to familiarize investors in East Asia with the two gas distribution companies in Pakistan. The privatization secretary is on a similar road show in London. The cabinet committee on privatization has decided to invite bids for Pakistan State Oil on March 10 this year.

PSO is the largest petroleum company in Pakistan which has increased its market share from 63 to 65 per cent for all petroleum products in Pakistan. It is successfully competing with international oil majors like Shell and Caltex and the new entrant Hascombe, in total and overseas oil marketing.

Last year, PSO’s profit before tax was Rs 9.2 billion and after tax Rs 5.7 billion. It gave a dividend of Rs 26 for every share of Rs 10 in FY05. During July-December 2005, its profit was Rs 3.4 billion and it has given interim dividends of Rs 10 per share. It was cited as a firm with best practices in global corporate citizenship in a report produced by the World Economic Forum. Its size, profitability and management leave nothing to be desired.

Sui Southern Gas and Sui Northern Gas are the sole gas suppliers to fertilizer factories, industrial units, power plants, domestic users and petrol pumps converting it into CNG. Pakistan has the best gas network among all developing countries and our neighbour India, despite all the hype about its emerging economy, does not have a single city with piped gas. Both of them are profitable in billions of rupees. Pakistan’s splendid gas network has been financed from the budget of the government which is collected largely by imposing indirect taxes on the poor.

In economic terms, they are natural monopolies as they cannot be competing gas pipelines or electric cables or water pipes in one area. Economic textbooks and practice state without qualification that natural monopolies should be in the public sector.

PSO as well as the gas companies are supplying oil and gas to the private sector, public sector, the armed forces and sensitive organizations in the country. Their privatization will spark a security storm. In the 1965 war, when there were mainly foreign oil companies in Pakistan, POL supplies to the armed forces were scuttled. These are strategic energy giants whose sale to the foreigners will turn into a severe security threat for the country. It is for this reason that developing countries keep their energy giants in the public sector.

A very small oil firm UNOCAL which produces only one per cent of oil in the US (America imports 70 per cent of its oil requirements) was for sale and the highest bidder was a Chinese oil company. It created a furore in Congress and the media and there were protests all over the country.

The Chinese bidder was forced to withdraw the offer and it was bought by America’s Exxon Mobil. Pakistani policymakers, while privatizing energy units, should take their cue from the US example as some sectors cannot be sold to foreigners.

Given the current political situation especially the uncertain regional situation and the violent protests on account of the cartoon controversy, no western bidder or oil/gas multinational will make a bid for any of these three energy giants. The past experience of UBL, HBL, National Refinery and the PTCL shows that only Gulf billionaires may bid and then go back on their bid as in the case of PTCL and have the privatization minister beseeching them to buy, giving concessions and making changes in the original bid.

The bidders from the Gulf countries have neither the technological skills nor better management practices for upgrading the units which they buy in Pakistan. They are flush with cash after the rise in oil prices and are now investing in Pakistan in order to diversify their over-exposure to hostile western countries. We need to encourage them to set up new units in industry and agriculture and secure their capital for improving our infrastructure.

Selling our highly profitable energy giants to the Gulf countries is unwise. In case of PSO, the government owns only 26 per cent and 25 per cent is owned by ICP and NIT. The government has forced these organizations to sell the most lucrative units in their portfolio.

Recently Mital, an Indian steel giant, made a bid for purchasing a French steel firm Arcelor. This led to strong criticism from the highest echelons of power in France. French President Chirac termed it “unfriendly and purely financial. It is the right of the Europeans to be concerned about the employment problem and technology problem.” The French prime minister stated that “economic patriotism is the mobilization of all participants of all those concerned, their shareholders and the company bosses.” This strong reaction is likely to scuttle the deal.

The privatization minister has not been given the Senate seat by his party and he will cease to hold office on March 11. There is no reason for asking bids for Pakistan Steel Mill and PSO on March 10 as the evaluation and the approval of the bids will take place a few days after March 10. The privatization of the steel mill may be justified but the privatization of energy giants is totally misplaced. It would be utter lack of economic common sense to sell PSO and the gas companies to foreigners. The economic and strategic security reasons are too overwhelming to be ignored.

The writer is former secretary, planning.