Identifier
Created
Classification
Origin
08ISLAMABAD3389
2008-10-27 12:49:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Islamabad
Cable title:  

AS PROTESTS CONTINUE GOP RESERVES DECISION TO ELIMINATE

Tags:  ECON ETRD EAID EFIN ENGY PGOV PK 
pdf how-to read a cable
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UNCLAS SECTION 01 OF 02 ISLAMABAD 003389 


SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD EAID EFIN ENGY PGOV PK
SUBJECT: AS PROTESTS CONTINUE GOP RESERVES DECISION TO ELIMINATE
ELECTRICTIY TARIFF HIKE

UNCLAS SECTION 01 OF 02 ISLAMABAD 003389


SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD EAID EFIN ENGY PGOV PK
SUBJECT: AS PROTESTS CONTINUE GOP RESERVES DECISION TO ELIMINATE
ELECTRICTIY TARIFF HIKE


1. (SBU) Summary. Faced with protests nationwide the Government of
Pakistan has reversed the recent decision to increase electricity
tariffs by 31 percent. Minister of Water and Power Raja Pervez
Ashraf stated at a news conference on October 26 that the government
stands by its decision to slash the annual subsidy from Rs 185
billion (USD 2.27 billion) to Rs 65 billion (USD 79 million),but
the implementation of the decision has been delayed for now. With
unsustainable subsidies on electricity at a time of heightened
financial distress, Adviser on Finance Shaukat Tareen, noted that
tariff increases are necessary but that the GOP would review the
percentage passed to the public. Faced with unprecedented power
blackouts of up to 20 hours per day in several cities across
Pakistan, it is not difficult to imagine why the Pakistani public is
contesting the government notion that they should pay more for less.
End Summary.


2. (SBU) As expected the Government of Pakistan's (GOP) September 9
decision to raise the domestic electricity tariff by an
unprecedented 31 percent was met with stiff resistance by the
Pakistani public. The GOP claimed that the step was necessary to
reduce the subsidy on electricity from Rs 185 billion (USD 2.27
billion) to Rs 65 billion (USD79 million) annually. The GOP decided
to pass on the burden to the public with a phase one price hike of
31 percent increase in calendar year 2008 and another planned 30
percent increase before the end of Pakistan's fiscal year in June

2009.


2. (U) When people received their monthly electricity bill for
September, which reflected the 31 percent increase, riots and
protests were held in sixteen cities across the country. Fearing a
major law and order situation the GOP announced a reversal on
October 23 and suspended collection of the increased electricity
bills. Minister for Water and Power Raja Pervez Ashraf stated at a
news conference on October 26 that the government stands by its
decision to slash the annual subsidy from Rs 185 billion to Rs 65
billion, but the implementation of the decision has been delayed for
now. The GOP has formed a committee to recalculate the percent
increase.


3. (U) At a national televised press conference, Ashraf claimed that
the previous government left Rs 400 billion (USD 4.9 billion) in
circular debt in the domestic power sector and the Pakistan Peoples
Party-led government must now pay the price. He noted the huge
circular debt had affected the supply of furnace oil and gas to
power companies and has taken a heavy toll on the generation
capacity of independent power producers (IPPs). He added that the
debt is adversely affecting the functioning of the Water and Power
Development Authority (WAPDA) and the distribution companies
nationwide since they are unable to buy fuel for their power
plants.


4. (U) Minister Ashraf noted that the recent release of Rs 60
billion (USD 0.737 billion) in outstanding payments to IPPs has
helped increase power generation nationwide. Newspapers reported
that Ashraf has issued a statement stating "I appeal to the masses
to stop the protests because the increase in tariff has not been
implemented." Ashraf further alleged that some people are fuelling
the issue for political gains. He said those who resorted to
protests and damaged public and private property were not serving
the best interests of the country.


6. (U) Faced with unsustainable subsidies on electricity at a time
of heightened financial distress, Adviser on Finance Shaukat Tareen,
ruled out a complete withdrawal of the recent increase in power
tariff on October 26. Talking to the media he said that the "tariff
increase would be there. How much and what proportion, I think this
has to be decided by the committee set up to review the hike."


7. (SBU) Comment. With the power tariff issue the GOP finds itself
between a rock and a hard place. The current 61 percent subsidy is
unsustainable and further depletes the dangerously low foreign
reserves; however faced with double digit inflation the public is
unable to absorb another significant price increase. While the GOP
has made commitments to international institutions to eliminate the

ISLAMABAD 00003389 002 OF 002


fuel subsidies, the public outcry will demand that such increases be
passed along in much smaller increments and that the public sees
more power generation as well. Faced with unprecedented power
blackouts of up to 20 hours per day in several cities across
Pakistan, it is not difficult to imagine why the Pakistani public is
contesting the government notion that they should pay more for less.
End Comment.

PATTERSON