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DAWN - Editorial; January 22, 2006

January 22, 2006

Attracting foreign investment

ONE of the aims of Prime Minister Shaukat Aziz’s current visit to the US is to seek American investment in Pakistan. On Friday, he opened trading at the New York Stock Exchange by the traditional ringing of the bell, while at another function hosted a day earlier by an international trade law firm, the prime minister asked American businessmen to invest in his country. While he spoke of the measures his government had taken to increase Pakistan’s “attractiveness to foreign investors”, one expects the prime minister to be aware of the hurdles in the way. These are not necessarily of an economic nature alone — high energy tariffs and poor infrastructure, for instance. A greater reason for the lack of foreign investment is political.

Terrorism is a much-abused term; it often loses meaning when it is politicized. But whatever you call it, there is plenty of violence that would discourage many potential investors from coming to Pakistan. In the nation’s biggest city, things have improved a great deal compared to what it was in the eighties and nineties when ethnic strife, wheel-jam strikes, violence on campuses and bank robberies on a large scale had turned life in Karachi into a nightmare. The result was that not only was no fresh investment taking place, capital was moving away from Karachi to other cities and even other countries. Over the years there has been considerable improvement in the situation in Karachi, but we can still recall last May and the May before last when acts of terrorism at places of worship, followed by arson, destroyed the city’s peace. Now we can see a foreign firm buying the Karachi Electric Supply Corporation, and there is a mushroom growth of eating houses with a foreign franchise. On a national level, the Pakistan Telecommunication Company has been privatized, and there is some increase in portfolio investment. However, investment in the energy sector is well below the expected level.

Since January last year, the situation in Balochistan has been unstable. While the confrontation between the paramilitary forces and the militants in January-February was defused, the situation is far from satisfactory. Even if we assume the government to be truthful when it says that no military crackdown is going on, rocket attacks on gas pipelines and power pylons, bomb blasts and the sabotage of railway tracks are routine happenings. This is in addition to the murder of foreign engineers some time back. In the Federally Administered Tribal Areas, normal life has been disrupted because of clashes between foreign militants and security forces, while sectarian troubles rock the Northern Areas from time to time. In fact, this is one reason why foreign tourists are not coming, even though Pakistan’s northern region has some of the world’s most breathtaking scenery. And in Punjab, such a harmless event as an international mixed marathon faces threats from religious bigots.

Economic incentives do attract foreign investment, but if we want it to come in a big way, the government must first improve law and order. There is a scramble for oil and gas deposits in the Caspian Sea area and elsewhere in Central Asia, but no foreign energy firm will venture into Balochistan because of the political trouble and the acute law and order situation. Countries like Egypt, Morocco and Turkey are earning billions of dollars through tourism alone, but conditions of lawlessness in tourism-rich areas and disturbed conditions elsewhere militate against foreign investment.

These police excesses

ACCORDING to the data collected by Madadgar, a rights group, and as reported in a section of the press, Punjab police again topped the list of torture, illegal detentions and custodial killings carried out in 2005. Sindh police, with a score of 436 cases of abuse as against their Punjab counterparts’ 848, came second in this hall-of-shame contest. Crimes-in-custody committed against citizens by law enforcement personnel included deaths, body mutilation, rape, sodomy, stripping, torture and illegal detention, with the last mentioned reported as often as 750 times — again, most of it in Punjab. The report went on to reveal that in a total of 1,356 cases of police abuse, 202 of the victims were women, 77 were juvenile boys and 22 were girls. This is not only shocking, but it also defies explanation as to how the state can turn a blind eye to the plight of the people at the hands of those duty-bound to protect them. One says this because only a handful of the police officers accused of custodial crimes were proceeded against on complaints lodged by citizens aided by rights groups, while the vast majority of offending officials were not even questioned for their inhuman conduct, as reported.

Torture and other forms of police persecution may be known occurrences in many developing countries, but unlike in Pakistan, wronged citizens elsewhere in democratic countries have an effective legal recourse: the law is allowed to take its logical course and offending officers are brought to book in a swift manner. The degeneration seen in the police department is part of the bigger problem that this country has been suffering from in the post-independence years, namely, the erosion of state institutions. The revised Police (reform) Act of 2002 has not made a dent in the way the police have continued to abuse their authority or are themselves being misused by those wielding political power over them. The state of affairs is not conducive to furthering the goals of civil society, and calls for immediate implementation of the reforms proposed in the revised Police Act, including the formation of public safety commissions at the district level.

CBR’s strange stance

THE Central Board of Revenue’s decision to levy import duties and other taxes on a consignment of steel corrugated sheets imported from India by the Edhi Foundation for use in building shelters for earthquake survivors is shocking. According to the Foundation, one consignment has been lying at the Karachi port since Jan 13 while another has been held up since Jan 18. The Foundation had imported over 1,500 tons of the steel sheets and wants to use them to build shelters for earthquake survivors upcountry. A request made to the CBR for a duty exemption was turned down on the ground that it was the government’s “considered policy not to grant any new special exemption”. This only serves to reinforce the widely-held public perception that much of the government bureaucracy is not only apathetic to matters of overriding importance as alleviating the suffering of the quake victims but positively unhelpful when it comes to dealing with private organizations which want to do their bit to relieve distress.

The refusal by the CBR seems incomprehensible given the fact that recent reports suggest that thousands of earthquake survivors remain in urgent need of proper shelter for protection against the winter. Surely, being part of the ministry of finance and an important government organization, the CBR would have known that many of the tents initially provided to the survivors were not winterized (some were made of thin canvas). The CBR’s action is most insensitive and indicates that it is more interested in collecting duty and achieving its revenue collection targets than in saving lives. One wonders whether it is going to wait for people to die of the severe cold in the quake-affected areas and then release the steel shipment. The government should immediately order the CBR to release the steel shipment and also ensure that this abhorrent act is not repeated.

Gas as Russia’s political tool

RECENT freezing weather conditions in Russia are sending shivers down the spines of many European policymakers as governments across the continent become increasingly aware of Europe’s dependency on Russian gas supplies.

EU officials are worried not just about the security implications of Europe’s excessive reliance on Russian gas but many also fear Moscow may make a pattern of using energy as a tool for foreign policy. As they step up their search for security of energy supplies, many governments in the bloc are already under public fire for forgetting human rights concerns in their enthusiastic courting of Russian President Vladimir Putin.

Russia and its looming presence as Europe’s dominant producer and supplier of natural gas has been the top news story in most European countries ever since the start of the year when a dispute between Russia’s state-run monopoly Gazprom and Ukraine over natural gas prices prompted serious reductions in energy supplies to vast parts of the continent. More recently, as Gazprom struggles to cope with increasing energy demand at home prompted by unusually harsh winter conditions, gas deliveries to several states, including Austria, Finland, Hungary, Slovakia, Italy and the Czech republic as well as Romania, Serbia and Bosnia have been cut by up to 20 per cent.

Reports say that Austria and Hungary are dipping into their reserves to cope with the latest situation amid growingly strident calls by many European Union governments that the bloc must take tougher action to secure alternative gas supplies and start cutting back on its excessive — 25 per cent — reliance on Russian natural gas.

Dependency among new EU member states, such as Poland and Hungary, is over 60 per cent in a reflection of the Cold War legacy of Russian pipelines running through Belarus and Ukraine.

Hungary has called for a meeting of seven Central and East European energy ministers next week to discuss ways of reducing the region’s dependence on Russian gas. Hungarian economy minister Janos Koka has said the meeting to be held in Budapest will agree on joint proposals to reshape the EU’s energy strategy to make eastern states less vulnerable to sudden cuts in Russian gas deliveries. Proposals drawn up at the meeting will be sent to the EU’s energy chief Andris Piebalgs.

While the latest incidents have highlighted energy-hungry Europe’s dependence on foreign oil and gas, pressure for a new EU energy policy has been growing for several months. British Prime Minister Tony Blair called for such a common EU energy strategy last year, and Austria, which holds the bloc’s rotating presidency, has said it will put the issue at the top of its list during its six-month tenure which started in January.

An EU summit in March will focus on the bloc’s energy supplies amid fears that EU access to badly-needed oil and gas resources is under threat because of a rising global demand for energy. A G8 summit in St Petersburg in July will also centre on global energy concerns.

A recent EU report on energy supply security warned that “due to the growing energy import dependency of other main consumer regions such as the US, China, India and other Asian countries, energy relations will become increasingly politicized.”

“Energy security will become a more integral part of foreign and security policymaking. Competition among consumer countries for energy supplies is likely to become more intense than in the previous two decades,” the report said, adding: “The changed circumstance will necessarily have an impact on international economic and political relations in the world.”

The EU’s dependence on foreign energy sources is increasing as its own supplies run out. The Commission forecasts import dependence could grow to 70 per cent of general energy consumption by 2030 and 90 per cent for certain fuels like oil. Twenty-five per cent of the EU’s gas supplies come from Russia, and 80 per cent of those snake through pipelines in Ukraine, highlighting the EU’s vulnerability to disputes between the two, and the importance of an EU voice in such a crisis.

But forging a common EU strategy on energy is not going to be easy. EU governments have long resisted Commission attempts to wrest away control of energy policies from national capitals.

However, the current environment has seen a spurt of initiatives to boost the development of environmentally friendly energy sources like solar and wind power — and a re-opening of a debate on nuclear energy. With North Sea oil sources depleting and gas getting expensive, “renewables” like biofuels or hydropower are seen as crucial to establishing more homegrown energy supplies.

The focus is also on promoting energy efficiency and governments are also coming under pressure to open up their national electricity and gas markets to more competition.

Significantly, some policymakers are calling for a review of Europe’s distaste for using nuclear energy. The issue remains an emotive one for many Europeans although France shifted to nuclear energy after the oil shocks of the 1970s. Currently, three-quarters of its electrical power comes from nuclear plants. In Britain, there is ongoing debate over whether to develop a new set of nuclear plants. Without such plants, and with its energy supplies from the North Sea running dry, Britain is expected to rely on Russian gas to supply 70 per cent of its power by 2020, say reports.

The issue of nuclear power is most contentious in Germany. Under a 2001 deal by the former coalition parties in power, the Social Democrats and the Greens, Germany had planned to shut down all 19 of its nuclear reactors by 2020. Now, with conservatives at the helm of government, particularly the Bavarian Christian Social Union (CSU), this plan may get reexamined. “In the long term, there is no alternative to nuclear power,” CSU leader Markus Soeder recently told NTV. The Social Democratic Party (SPD), meanwhile, has sought to shift 20 per cent of Germany’s energy output toward renewable resources by 2020.

However, as Austrian Economics Minister Martin Bartenstein pointed out recently, Russian natural gas will remain the “backbone” of European gas supplies for decades to come.

A multi-billion euro pipeline between Russia and Germany being beneath the Baltic Sea is expected to be completed by 2010 when it will start pumping billions of cubic metres of natural gas from western Siberia to Germany and the rest of Europe. To some extent, the EU’s fears of becoming over dependent on Russia are ironic. For the past few decades, the EU has sought to wean itself off energy supplies in volatile regions like the Middle East, seeing Russia as a more stable alternative. That perception has changed, however, after Russia’s recent energy row with Ukraine.

Critics say Europe’s growing reliance on Russia as its principal supplier of energy has had a strong impact on EU foreign policy. Because of its energy dependency, Europe has been hesitant to criticize Russia for human rights abuses, warn some analysts.

They point out that European leaders, for example, have voiced only muted complaints about the Kremlin’s heavy-handed tactics in the Caucasus, where rebels have waged an off-and-on insurgency since the mid-1990s. Europe has also been noticeably quiet on President Putin’s recent crackdown against independent media and non-governmental organizations.

As they explore access to alternative gas supplies, several options are under consideration. One proposal floated by the Hungarian minister of economy, Koka is the possibility of constructing a new gas pipeline on the Adriatic coast — where tankers would offload liquid gas from the Middle East and North Africa.

Austrian minister Bartenstein said recently that three sets of measures could be expedited to diversify supplies in the long run, including a quick start to the Nabucco pipeline which will give Europe access to the large gas fields in the Caspian region and the Middle East. The pipeline is due for completion in 2020 and will go from Iran to Austria via Turkey, Bulgaria, Romania and Hungary.

The Austrian minister also called for a five-fold increase in the use of Liquefied Natural Gas (LNG) that can be transported by ship to regions where a pipeline connection is not feasible.

“There are projects to establish new terminals or expand the existing ones in some countries,” Bartenstein said. He indicated that these were expected to increase the EU’s capacity up to 160bn m3 per year by 2010, up from 60bn m3 at the current capacity.

Finally, he called for increased transparency of hydrocarbon markets to reduce the high volatility of prices. In the short run, Bartenstein said the EU should consider building up enough gas stocks to make up for two months worth of possible shortages.

In addition, Bartenstein said Austria would seek to “strengthen the diversification of the EU’s energy provision through an increasing use or renewables”. He said Austria would aim to “triple the use of biomass by 2010” as an alternative source of energy. However, in a sign of tough EU debates ahead, he indicated that the use of nuclear energy is “not an option.”