Zeeshan S.
SENIOR MEMBER
- Joined
- Dec 19, 2005
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Last July, Ali Ansari, the chief executive of Engro, a Pakistani conglomerate with interests in fertilisers, energy, petrochemicals, trading and food, got on a plane for the short flight to the capital city of Islamabad from the commercial centre of Karachi.
Mr Ansari was on his way to see government officials in the hope of getting the government to honour its contract to supply liquefied natural gas to his state of the art fertiliser plant. The government had virtually ceased allocating gas to the plant, which cost $1.1bn to build and had been completed just the year before, and was designed expressly to run on gas rather than vastly more expensive imported oil. The lack of gas was creating big problems for the management of Engro, which started life as the Pakistani arm of Exxon
The energy situation in Pakistan generally is dire, even more so than in India where blackouts in the summer of 2012 left much of the country in darkness. Pakistan used to depend on cheap hydroelectric power for at least 50 per cent of its needs, but a combination of government neglect and a lack of major new dams left the country relying far too much on expensive oil from Kuwait. This put the country’s balance of payments under pressure, weakening the rupee and pushing inflation up to 8 per cent. And without adequate power, why would any business, whether foreign or local, invest in the country?
The travails of Engro are the travails of Pakistan writ large. Engro and other equally impressive local companies are the country’s best hope for growth. Yet the contrast between a world-class private sector and a dysfunctional government grows more stark by the day. There are limits to what a private sector can accomplish anywhere, but especially in this country of almost 200m people.
That is particularly the case when it comes to Pakistan’s energy policies. Energy costs in Pakistan are the most expensive in Asia, outside Japan, according to the Overseas Investors Chamber of Commerce and Industry. In part, that reflects odd government allocation policies. For example, Pakistan has 3.5m cars that run on compressed natural gas – more than the rest of the world combined – and drivers enjoy subsidised prices for the fuel. Meanwhile, manufacturers are starved of fuel, forcing them to import it, thereby raising the cost of production, using up scarce foreign exchange and contributing to the high inflation rate.
When Engro first decided to build its new fertiliser plant, the government promised the company 20 years’ worth of supplies at a subsidised price for the first 10 years. But then the government itself ran out of supplies and, despite Mr Ansari’s lobbying, only gave Engro gas for 45 days last year. When the company went to the provincial High Court and successfully argued its case, the government simply ignored the judgment.
With no way to operate its fertiliser plant, Engro, which needed Rp21bn to service the debt on its plant, then had to go to its bankers and ask for an extension on its borrowings. Islamabad only approved an allocation of precious gas to Engro after the change of government earlier this year; the plants are now once again producing fertiliser, and preserving desperately needed foreign exchange.
Engro is not the only company to suffer from the high cost and erratic supply of energy. Mian Mansha, the largest exporter of textiles in Pakistan, has been threatening for a while to move his operations to Bangladesh, because of the lack of power.
Meanwhile, many Karachi businessmen frequently make the short flight to the capital alongside Mr Ansari to beg for allocations of precious gas and other scarce energy resources.
There are at least 20 ways to tamper with a meter. It is a game of attrition
- Syed Nayyer Hussain, KESC
Executives of Karachi Electric Supply Company, the city’s utility, are among the petitioners to the government. That’s because every quarter there is supposed to be a review and adjustment of the utility’s tariff structure but often nothing happens and the company remains in limbo, according to KESC’s chief executive, Syed Nayyer Hussain. KESC is also among the many victims of theft and widespread disinclination to pay for electricity. “There are at least 20 ways to tamper with a meter,” he observes drily. “It is a game of attrition.”
Today, thanks to new tamper-proof meters and a policy of providing electricity to areas that pay bills and cutting off electricity to areas that don’t, the utility is profitable for the first time in 17 years.
Karachi, like much of the rest of the country, now has bright patches amid the darkness. But sadly that is despite the government rather than thanks to it.
Pakistan’s world-class businesses held back by energy crisis - FT.com
Mr Ansari was on his way to see government officials in the hope of getting the government to honour its contract to supply liquefied natural gas to his state of the art fertiliser plant. The government had virtually ceased allocating gas to the plant, which cost $1.1bn to build and had been completed just the year before, and was designed expressly to run on gas rather than vastly more expensive imported oil. The lack of gas was creating big problems for the management of Engro, which started life as the Pakistani arm of Exxon
The energy situation in Pakistan generally is dire, even more so than in India where blackouts in the summer of 2012 left much of the country in darkness. Pakistan used to depend on cheap hydroelectric power for at least 50 per cent of its needs, but a combination of government neglect and a lack of major new dams left the country relying far too much on expensive oil from Kuwait. This put the country’s balance of payments under pressure, weakening the rupee and pushing inflation up to 8 per cent. And without adequate power, why would any business, whether foreign or local, invest in the country?
The travails of Engro are the travails of Pakistan writ large. Engro and other equally impressive local companies are the country’s best hope for growth. Yet the contrast between a world-class private sector and a dysfunctional government grows more stark by the day. There are limits to what a private sector can accomplish anywhere, but especially in this country of almost 200m people.
That is particularly the case when it comes to Pakistan’s energy policies. Energy costs in Pakistan are the most expensive in Asia, outside Japan, according to the Overseas Investors Chamber of Commerce and Industry. In part, that reflects odd government allocation policies. For example, Pakistan has 3.5m cars that run on compressed natural gas – more than the rest of the world combined – and drivers enjoy subsidised prices for the fuel. Meanwhile, manufacturers are starved of fuel, forcing them to import it, thereby raising the cost of production, using up scarce foreign exchange and contributing to the high inflation rate.
When Engro first decided to build its new fertiliser plant, the government promised the company 20 years’ worth of supplies at a subsidised price for the first 10 years. But then the government itself ran out of supplies and, despite Mr Ansari’s lobbying, only gave Engro gas for 45 days last year. When the company went to the provincial High Court and successfully argued its case, the government simply ignored the judgment.
With no way to operate its fertiliser plant, Engro, which needed Rp21bn to service the debt on its plant, then had to go to its bankers and ask for an extension on its borrowings. Islamabad only approved an allocation of precious gas to Engro after the change of government earlier this year; the plants are now once again producing fertiliser, and preserving desperately needed foreign exchange.
Engro is not the only company to suffer from the high cost and erratic supply of energy. Mian Mansha, the largest exporter of textiles in Pakistan, has been threatening for a while to move his operations to Bangladesh, because of the lack of power.
Meanwhile, many Karachi businessmen frequently make the short flight to the capital alongside Mr Ansari to beg for allocations of precious gas and other scarce energy resources.
There are at least 20 ways to tamper with a meter. It is a game of attrition
- Syed Nayyer Hussain, KESC
Executives of Karachi Electric Supply Company, the city’s utility, are among the petitioners to the government. That’s because every quarter there is supposed to be a review and adjustment of the utility’s tariff structure but often nothing happens and the company remains in limbo, according to KESC’s chief executive, Syed Nayyer Hussain. KESC is also among the many victims of theft and widespread disinclination to pay for electricity. “There are at least 20 ways to tamper with a meter,” he observes drily. “It is a game of attrition.”
Today, thanks to new tamper-proof meters and a policy of providing electricity to areas that pay bills and cutting off electricity to areas that don’t, the utility is profitable for the first time in 17 years.
Karachi, like much of the rest of the country, now has bright patches amid the darkness. But sadly that is despite the government rather than thanks to it.
Pakistan’s world-class businesses held back by energy crisis - FT.com
