Pakistan: Perfect example of putting cart before the horse

It may not be possible for me to recap the history of ‘energy crises’ in Pakistan spread over 75 years in a few hundred words. Since the country is dependent on funds extended by the multilateral lenders, the country has remained a ‘Guinea Pig’. 

The donors have done all sorts of experimentation. I am refraining from talking about other policies imposed on Pakistan and confine my narrative to just one issue ‘Energy Stigma’.

It is known to all and sundry that Pakistan is capable of producing 50,000MW hydel energy. However, during the last 75 years the aggregate installed dependable capacity has remained below 10,000MW. It may be recalled that at one stage multilateral lenders refused to provide funds to WAPDA for the construction of dams/hydel power plants.

Pakistan’s energy dynamics were completely ruined in nineties when multilateral lenders started playing ‘deregulation, liberalization and privatization’ mantra. Under this theme the first Independent Power Plant (IPP) was initiated under the banner of The Hub Power Company based on furnace oil in the private sector. 

Then the floodgates were opened and all sorts of plants were established using a variety of fuels, including natural gas.

The managers of energy sector in the government as well as lenders knew very well the factors responsible for the technical bankruptcy of WAPDA: rampant theft of electricity and poor recovery. However, distribution of electricity remained the sole prerogative of state owned distribution companies. At that time I had termed the policy of creations of power plants in the private sector “Putting cart before the horse”.

It is on record that dozens of power plants have been established in Pakistan but all the distribution companies are still operating in the public sector. Track record of these entities is pathetic because of electricity theft and non-recovery of outstanding dues. These entities have also failed in revamping their infrastructure which is highly depleted and incapable of handling additional load.

It is also known to all that thermal power plants are not cost effective and cost of generation was bound to increase with the hike in crude oil prices, mainly due to geopolitics. However, no credible efforts were made to increase indigenous production of oil and gas as well as refining capacity.

Then the ruling junta started playing imported LNG mantra. Nobody objected on this ‘make shift arrangement’. However, groups having ‘vested interest’ made this a prime source of energy. After the imposition of economic sanction on Russia, LNG prices rose to historic level. Since Pakistan has no ‘long term’ agreements with suppliers now it is buying gas at the most expensive cost in the spot market.

To cover up its inefficiency to procure LNG, the government has resorted to load shedding of electricity. Some analysts go to the extent of saying that the Government of Pakistan (GoP) does not have foreign exchange for the import of energy. To save the face it is talking about high price and non-availability.

I can bet that local refineries have the surplus capacity to produce furnace oil and almost all the thermal power plants operating in the country are dual-fired (capable of use furnace oil as well as gas). That means if LNG is not available plants can be run on furnace oil.

Iran: Neighborhood policy neutralizes impact of US sanctions

A year into his administration, Iranian President Ayatollah Seyed Ebrahim Raisi succeeded in diversifying Iran’s foreign policy options through the nascent neighborhood policy he set out last year.

When he assumed office last year in August, Ayatollah Raisi made it clear that he had a new agenda for Iran’s foreign policy. He outlined his foreign policy goals within what came to be known as the Neighborhood Policy, which rests on fostering mainly economic relations with neighboring countries and non-Western powers. 

The new policy orientation soon yielded results, leading to Iran’s membership in the Shanghai Cooperation Organization (SCO) in the first weeks of Raisi’s presidency. Since then, the President traveled to many countries in a bid to advance his foreign policy goals. This included visits to Russia, Turkmenistan, Tajikistan, Oman, and Qatar, to name a few. 

A senior Iranian lawmaker has said that the neighborhood policy of Raisi played in a major role in Iran’s efforts to neutralize US sanctions. The lawmaker, Javad Karimi Quddousi, who is a member of the Iranian parliament’s National Security and Foreign Policy Committee, said the Raisi presidency marked a shift in Iranian foreign policy.

According to the lawmaker, one reason that why the US sanctions had negative impact on Iran’s economy was that the previous government failed to prioritize enhancing economic relations with neighboring countries and focused its time and energy on boosting Iran’s relations with Europe, which has been seeking to sow divisions among Muslim states. 

“Sanctions were also effective in cases where our relations with neighboring countries were strained in the previous government. When I asked Saif (Valiullah Saif, the former governor of the Central Bank) to make bilateral agreements for the exchange of national currencies between other countries, his answer was that this issue was not realized. While diplomacy and many trips between countries are for the realization of this goal,” he told Iran’s state news agency IRNA. 

Qoddousi added, “The 13th government created a unique and unprecedented transformation in foreign relations with neighboring countries in the shortest time. Membership in unions such as Shanghai [SCO], Eurasia, (and possibly) BRICS, etc., signing important agreements with countries in the region and the world in various fields are among the successful goals of the 13th government that have been achieved.”

The Raisi administration is continuing the neighborhood policy. On Monday, President Raisi received Azerbaijani Foreign Minister Jeyhun Bayramov, who also met his Iranian counterpart Hossein Amir Abdollahian. The visit came amid diplomatic efforts to upgrade relations between Tehran and Baku. 

It also came against a backdrop of broader diplomatic efforts by Iran in the region to improve ties with regional heavyweights such as Turkey and Saudi Arabia. Amir Abdollahian recently paid a visit to Turkey where he met Turkish President Recep Tayyip Erdogan and Foreign Minister Mevlut Cavusoglu.

In parallel, Iran and Saudi Arabia seem to be on the verge of restoring ties as a result of mediatory efforts by Iraqi Prime Minister Mustafa al-Kadhimi. The Iraqi premier visited Iran and Saudi Arabia in the past week. According to Arab press reports, Iran and Saudi Arabia could soon announce the restoration of diplomatic ties in a meeting in Baghdad. 

 

 

Taliban seek international recognition

It must be highly disappointing for Taliban that their government has neither been recognized by Muslim countries as well as non-Muslim countries. The pretext is most whimsical, education for girls.

The dichotomy of super powers is the universal truth, in the recent half century they have killed millions of people in proxy wars, used all sorts of lethal weapons and committed worst war crimes. If the heads of the states ordering killing of people can’t be trialed for war crime, why is Taliban government being punished for not providing education to girls?

One may not be wrong in inferring the conclusion that the world super powers have joined United States in punishing Taliban for defeating the self-proclaimed super power.

A Taliban-run gathering of thousands of male religious and ethnic leaders ended on Saturday by asking foreign governments to formally recognize their administration, but made no signals of changes on international demands such as the opening of girls' high schools.

The Afghan economy has plunged into crisis as Western governments have withdrawn funding and strictly enforced sanctions, saying the Taliban government needs to change course on human rights, especially those of women.

"We ask regional and international countries, especially Islamic countries … to recognize the Islamic Emirate of Afghanistan ... release all sanctions, unfreeze (central bank) funds and support in development of Afghanistan," the gathering's participants said in a statement, using the group's name for their government, which has not been formally recognized by any country.

The group's reclusive leader joined the three-day gathering of more than 4,000 men on Friday, and delivered a speech in which he congratulated the participants on the Taliban's victory and underlined the country's independence.

The Taliban went back on an announcement that all schools would open in March, leaving many girls who had turned up at their high schools in tears and drawing criticism from Western governments.

In speeches broadcast on state-run television, a small number of participants brought up girls' and women's education. The Taliban's deputy leader and Interior Minister, Sirajuddin Haqqani, said the world had demanded inclusive government and education and these issues would take time.

But the group's supreme leader, Haibatullah Akhundzada, who is normally based in the southern city of Kandahar and rarely appears in public, said foreigners should not give orders.

The gathering's final statement said defence of the Islamic Emirate was obligatory and that the Islamic State militant group, which has said it was behind several attacks in the country, was illegal.

It said it would not interfere with neighbouring countries and they should not interfere in Afghanistan.

 

United States not keen in reviving Iran nuclear deal

The chances of reviving the 2015 Iran nuclear deal are worse after indirect United States-Iranian talks in Doha that ended without progress, a senior US official told Reuters.

"The prospects for a deal after Doha are worse than they were before Doha and they will be getting worse by the day," said the official on condition of anonymity.

"You could describe Doha at best as treading water, at worst as moving backwards. But at this point treading water is for all practical purposes moving backwards," he added.

The official would not go into the details of the Doha talks, during which European Union officials shuttled between the two sides trying to revive the 2015 Joint Comprehensive Plan of Action (JCPOA) agreement under which Iran had limited its nuclear program in return for relief from economic sanctions.

Then US President Donald Trump reneged on the agreement in 2018 and restored harsh US sanctions on Iran, prompting Tehran to start violating its nuclear restrictions about a year later.

"Their vague demands, reopening of settled issues, and requests clearly unrelated to the JCPOA all suggests to us ... that the real discussion that has to take place is (not) between Iran and the US to resolve remaining differences. It is between Iran and Iran to resolve the fundamental question about whether they are interested in a mutual return to the JCPOA," the senior US official said.

"At this point, we are not sure if they (the Iranians) know what more they want. They didn’t come to Doha with many specifics," he added. "Most of what they raised they either knew - or should have known - was outside the scope of the JCPOA and thus completely unsellable to us and to the Europeans, or were issues that had been thoroughly debated and resolved in Vienna and that we were clearly not going to reopen."

Speaking at the UN Security Council, US, British and French diplomats all placed the onus on Iran for the failure to revive the agreement after more than a year of negotiations.

Iran, however, characterized the Doha talks as positive and blamed the United States for failing to provide guarantees that a new US administration would not again abandon the deal as Trump had done.

"Iran has demanded verifiable and objective guarantees from the US that JCPOA will not be torpedoed again, that the US will not violate its obligations again, and that sanctions will not be re-imposed under other pretexts or designations," Iran's UN Ambassador Majid Takht Ravanchi told the council.

The senior US official said Washington had made clear since the talks began in April 2021 that it could not give Iran legal guarantees that a future US administration would stick to the deal.

"We said there is no legal way we can bind a future administration, and so we looked for other ways to give some form of comfort to Iran and … we - along with all of the other P5+1 (nations) and the EU coordinator - thought that file had been closed," the senior US official added.

Iran struck the original deal with Britain, China, France, Russia, the United States and Germany, a group called the P5+1.

The senior US official disputed Tehran's argument that Washington was to blame for the lack of progress, saying the United States had responded positively to proposed EU changes to the draft text of an agreement reached during wider talks in March while Iran had failed to respond to those proposals.

If the deal is not revived, he said "the Iranian leadership would need to explain why it turned its back on the benefits of the deal for the sake of issues that wouldn't make a positive difference in the life of a single ordinary Iranian."

The US official did not detail those issues. Restoring the deal would allow Iran to legally export its oil - the life blood of its economy.

Americans Seeking Establishing Greater Israel

According to a report there are growing signs that support Israel has morphed into a religious extremist position. The far-right American voters within the Texas Republican Party have approved a platform that will make it illegal to create a Palestinian State in territories controlled by the apartheid state.

The platform, approved by 5,100 delegates in Houston, supports the "prohibition of a Palestinian State within the historical borders of Israel, as it would jeopardize Israel's security and it would force Israel to give up land that God gave to the Jewish people as referenced in Genesis."

Going beyond all previous anti-Palestinian positions ever adopted by an American party, the GOP platform approved the creation of what is often referred to as "Greater Israel," which will see Israel expand ethno-nationalist Jewish domination to every inch of Historic Palestine.

After decades of ethnic cleansing, artificial re-drawing of borders and population control based on who is and is not Jewish, Israel has managed to wrestle total control of the territory from the West of River Jordan to the Mediterranean Sea. Currently, as many as 12 million people reside in Historic Palestine, but full rights are granted by the occupation state to Jews only.

The remaining six million non-Jews are subjected to various forms of racial discrimination, depending on their place of residence. While non-Jews are denied full equality with Jews wherever they live, the 1.8 million Palestinian citizens of Israel, for example, have more rights than Palestinians in every other zone of Israeli control.

Though they face various forms of racial discrimination, Palestinians in occupied East Jerusalem are granted relatively better status than Palestinians in the West Bank and Gaza, where the native population has been caged into an "open air prison".

Also, a racist policy enshrined in Israeli law denies some six million Palestinian refugees the right to return to the territory from which they were expelled only a few decades ago. The same law, however, permits every Jew across the world to "return" and settle in any part of Palestine, despite not having any direct connection to the land, other than Biblical claims mentioned in the Genesis.

Such practices, including the racial fragmentation of Palestine into zones of control where half the population enjoys full rights of citizenship denied to the non-Jewish half, every major human rights group has labelled Israel an apartheid state.

As of 2019, 138 of the 193 UN member states have recognized the State of Palestine. Moreover, every UN member, including the US and European countries, are ostensibly committed to the creation of a fully sovereign Palestinian State.

Nevertheless, every major Israeli party explicitly rejects the international consensus and now have found strong support for their radical position from the Texas Republican party in foreclosing any chance of a Palestinian State from ever being established.

Though party platforms do not necessarily translate into government policy, critics cite the former US President Donald Trump and the support enjoyed by Israel amongst powerful Evangelical Christians as well as fringe elements in US society, to argue that the most extreme and rejectionist views about the apartheid state have become normalized in US politics.

Amongst the other policies adopted by the pro-Israel Texas constituency is a proposal to hold a referendum on seceding from the US; a rejection of Joe Biden's presidency; calls for the repeal of the 1965 Voting Rights Act, which guaranteed Black voters representation.

 

Iran ramps up neighborhood diplomacy

Iranian President Ayatollah Seyed Ebrahim Raisi gave a new boost to his administration’s policy of cementing ties with neighbors as part of new foreign policy agenda of the country. 

President Raisi had a busy weekend in terms of holding meetings with foreign leaders. He left Tehran on Wednesday for Ashgabat to attend an important regional summit held in Turkmenistan’s capital.

He met with a number of foreign leaders on the sidelines of the 6th summit of the Caspian Sea littoral states, which provided him with a unique opportunity to advance his “neighborhood policy”. It marked a new orientation in Iran’s foreign policy which is aimed at strengthening ties with neighbors. 

President Raisi visited Turkmenistan with a clear goal in mind to further advancing the neighborhood policy. In his meeting with the Chairman of the People's Council of Turkmenistan, Gurbanguly Berdimuhamedow, Raisi said his administration “has a special program in the field of foreign policy to develop neighborly relations, and Iran-Turkmenistan relations are expanding rapidly based on extensive cooperation and mutual trust.”

He reiterated this in his meeting with Turkmen President Serdar Berdimuhamedow, saying that his administration “attaches a special priority to develop relations and cooperation with neighbors”.
President Raisi pointed out that the relations between Tehran and Ashgabat are expanding rapidly based on the development of neighborly relations and on the basis of mutual trust and extensive cooperation.

Raisi also addressed the Caspian Sea summit, where he underlined Iran’s sincerity in its quest for building better relations with its neighbors. He described this as a strategy of Iran.

“The interaction of the Islamic Republic of Iran with its friends and neighbors is original, and this interaction and cooperation not only will lead to economic prosperity and increase the welfare of our nations, but also strengthen regional peace and stability and solve the problems of the Caspian Sea zone merely through its coastal countries. This major strategy of the Islamic Republic of Iran will continue, regardless of international developments,” Raisi said. 

This policy was initiated a year ago when President Raisi assumed office in August 2021. Back then he expressed his administration’s strong desire for fostering cooperation with neighboring countries. The Raisi administration has made great strides. In the early days of his administration, Raisi succeeded in ironing out Iran’s membership in the Shanghai Cooperation Organization (SCO). Interestingly, the SCO membership was achieved during a summit in Dushanbe, Tajikistan. 

Iran is now eyeing a similar membership in the BRICS group of emerging countries which includes Russia, China, Brazil, India, and South Africa. President Raisi was invited by China to address the recent BRICS summit. Russia and China have voiced support for Iran’s membership in the group. 

The Raisi administration is pursuing regional diplomacy simultaneously with its efforts to hammer out a deal with the West over reviving the 2015 nuclear deal. The latest round of talks in this regard was held in Doha, Qatar, on Tuesday and Wednesday. 

Pakistan: Excessive taxing is disastrous for economy

Today I have found Asad Ali Shah* one of the supporters of my propagations. I have picked up the following text from one of his posts at LinkedIn. He has talked why excessive tax in the name of super tax and poverty alleviation tax on corporate entities is disastrous for Pakistan’s economy:

1) Pakistan already has highest tax rates in the world, imposition of additional taxes will increase the rates in range of 39 – 49 percent (specified sectors and banks). Add workers welfare fund (2%), and workers profit participation fund (5% on industrial entities) and dividend 15% ‑ tax rate on shareholders goes up in range of 55 to 65 percent;

2) In most countries, corporate tax rates are significantly lower than individual rates- as large scale value addition, productivity and innovation happens in corporate sector. Further, most countries have been competing to reduce tax rates to attract investment and multinationals to locate their head quarters/operations in their country. For instance tax rates for Corporates in a developed economy like UK is 19%, while tax rates for high income individuals are 40% and 45%. Similar trend prevails in most economies. Therefore, all economies promote corporate entities- in land of pure, Pakistan does exactly the opposite.

3) Considering very large portion of Pakistan’s economy is informal, imposing excessive tax on few corporate entities that are in formal sector and transparently report higher profits tantamount to punishing them for honesty. It will naturally prove counterproductive and will promote tax evasion. As saying goes, "No good deed goes unpunished".

4) Biggest cause of Pakistan's bankruptcy is huge cost and inefficiency of public sector- the Government of Pakistan spends 22% of GDP vs. 15% in Bangladesh. Much of such spending is wasted- payments of salaries to much larger number of people than required and other costs against which service delivery remains substandard. Even the so called development expenditure (aggregating Rs2.3 trillion for federal PSDP and provincial ADPs in current budget) is poorly spent on projects that do not generate adequate economic benefits. Most projects are initiated based on political considerations without adequate economic justification; poorly executed resulting in huge cost over runs and inordinate delays. It would have been far better, if such development spending was cut by 50% for reducing fiscal deficit rather than imposing such exorbitant taxes on private sector corporates.

5) All over the world, it is through private sector that countries produce goods and services at lower cost for their citizens and become competitive to generate exports. Bulk of employment is also created in private sector. All of this happens when the governments have small role ‑ promoting efficiently and regulating private sector through competitive and adequate fiscal and monetary policies.

Unfortunately, in Pakistan the keep governments have kept growing the public sector through excessive taxation on a very small formal sector that is shrinking with time.

It is unfortunate that in Pakistan economic and social indicators continue to get worse; but the governments keep on going back to IMF every 3 years, but unwilling to learn.

*Asad Ali Shah is a Fellow Chartered Accountant, engaged in management consultancy, tax, corporate and financial advisory services for over 35 years. He has been advising large national and international organizations across a range of industries and markets in the areas of strategy development, organization design, governance and Consulting. Have advises clients to help them improve their governance, strategy, operations, internal control and risk management systems. He frequently writes on macro economy, governance and matters of public interest.