You are on page 1of 44

WRDC

Pakistan’s Dilemma

Industrialize or Perish (a primer)

Suleman N. Khan (28 March 2008)

Convener, Water Resource Development
Council & Conference on “Water Reservoirs
in the National Economy” held 09 Feb 1998
Fellow, Institution of Electrical & Electronic
Engineers of Pakistan (IEEEP)
Email: solosoft@cyber.net.pk

1
Contents

Pg No.
1) Preamble 1

2) A Note 3

3) Part I : The Facts are that ……………. 5

4) Part II : The short and medium term solutions 30

5) Part III : Conclusion……………………… 39

6) Appendices:

 Mr. S.S. Kirmani’s fax of 4 Feb 98
 PM’s Office Directive 24 Oct 98
 Press Release “HUBCO Summary” of 29 Nov 99
 WAPDA letter of 26 June 04
 Letters of Lt. Gen Dr. G.S Butt to the President
a) 02 June 04
b) 09 July 04
c) 18 Nov 04

• WRDC circular letter 001 of 15 March 08 may also be read at
Web Address www.wrdc.com.pk

2
Extract from David E. Lilienthal’s article, ANOTHER ‘KOREA” IN THE MAKING? as sent by Mr.
Eugene R. Black, President IBRD with his letter of 06 Sep. 1951 to Prime Minister Liaqat Ali Khan of
Pakistan:

Quote:

“Why the flow of the Punjab’s lifeblood was so carelessly
handled in the partition no one seems to know. Pakistan includes
some of the most productive food-growing lands in the world in
western Punjab (the Kipling country) and the Sind. But without
water for irrigation this would be desert. 20,000,000 acres
would dry up in a week, tens of millions would starve. No army,
with bombs and shellfire, could devastate a land as thoroughly as
Pakistan could be devastated by the simple expedient of India’s
permanently shutting off the sources of water that keep the fields
and the people of Pakistan alive”……….

“The partition gave the major part of the irrigated lands of the
Punjab and sind to Pakistan; but the headwaters of some of
largest irrigation canals that feed Pakistan where left with India
or Kashmir. All the rivers upon which Pakistan depends for life
originate in India or Kashmir. Two thirds of the entire water
supply originates in Kashmir where the snow-fed Indus rises”.
Unquote

3
Industrialize or Perish (a primer)

Preamble: A sinner like myself can be sometimes motivated to speak out against tyranny and serious
blunders by compatriots. It was in Feb 94 when Mr. Mustafa Khar the newly appointed Federal Minister
for Water & Power of the PPP government made his maiden appearance to preside at a seminar in the
WAPDA Auditorium. The occasion was the presentation of the new Private Power Policy draft; its
highlights & objectives. My class fellow from UET Lahore, the late Mr. Tanvir Azhar was conducting.
Tanvir was indeed a brilliant electrical engineer & mathematician. He had rapidly risen to the level of
General Manger in Nespak. The Energy Czar of the PPP government Mr. Shahid Hassan Khan had
nominated Tanvir as the first Director General of the Private Power & Infrastructure Board (PPIB)
Islamabad. Tanvir’s book ‘Quest for Power” was an excellent treatise of his mathematical skills and his
power system control & data acquisition work at Nespak for the WAPDA network. One had been aware
of the basic recommendations of the TASK FORCE on Energy (Jan 94). My serious concern was that any
new power policy which is uncapped will destabilize WAPDA eventually the national economy &
ultimately damage the Federation. One was also aware that OECD Helsinki Accord of August 1992 was
the pretext for radical changes in financing of public sector infrastructure including power systems and
had brought along my article ‘Statement on Electric Power’. In the recess Tanvir read it. He said
“Suleman this is a meaty article but we have decided that WAPDA has to be dismantled and privatized.
The new Power Policy to be announced next month (March 94) will be inviting Independent Power
Producers (IPPs) and the ban on WAPDA constructing new thermal power stations will remain”. I
grumbled that the Hub Power Agreement of August 92 has been made even more unsustainable after
PPP’s new government appointed Mr. Shahid Hassan Khan its Energy Adviser. The Hub project was now
being blessed with its progeny before the impact of its Power Purchase Agreement (PPA) is assessed. The
oil import lobby was clearly winning. Tanvir, God bless his soul, was commercially naïve.

We learnt that Pakistan was adopting the California model of IPPs but with radical changes i.e it was
being made unsustainably generous. The California model inflicted great damage to the economy of
California within the 90’s decade. Some of us observed that the 1994 Private Power Policy was an evil on
the scale of the Agartala Conspiracy which had resulted in East Pakistan’s separation from Pakistan. We
formed a small group of rebels who were writing & speaking at every forum & venue. Uetians of my era
looked at Prof. Malik M. Anwar as an icon of wisdom & patriotism. He had left Lahore in the mid 70’s to
pursue his doctoral studies at MIT. The advice of this sage from Boston was “the new East India
Company has arrived”. In Nov 1996 I circulated an essay “Industrialize or Perish”. It covered all aspects
of the economy i.e Industrialization, Technology, Irrigation system and the Energy mix. Friends asked me
to compile it as a detailed study, basically in a book form. I set about this task ten years late and hope to
complete it within 2008. The desperate economic situation that has engulfed Pakistan in 2007 compelled
me to urgently create a condensed form which is presented here. Hopefully you will agree with Edward
Burke “The only thing for evil to triumph is for good men to do nothing”. I salute the wisdom of my
guides; late Engr. Dr. Alfred Gerber who educated me on the potential of the Pak economy and late Engr.
Dr. Ghulam Safdar Butt (Lt. Gen. Rtd) who made the international conference of 9 Feb 98 possible and
was an inspiration till his passing away in early 2006. I also salute the courage of several patriots
including Mr. Hidayatullah whose conscience reportedly resulted in his exit as auditor of Hub Power Co.
Mr. Aziz Qureshi an ex-banker who was the moving spirit in WAPDA’s short –lived legal challenge to
Hub Power Co’s indiscretions allegedly committed in their first 2 years of operations (1996-98). Mr.
Salahuddin Rifai former G.M WAPDA / NTDC who ensured economic despatch without fear & favour.
The rogues can also be identified. Above all the Indian factor emerges very strongly.
It was on 09 Feb 98 that our nascent NGO (Water Resource Development Council) convened a conference on
“Water Reservoirs in the National Economy” at Islamabad. The morning session was presided by the Prime
Minister and during the full days discussion all major aspects of our predominantly irrigated agriculture,
4
hydro energy potential and related aspects were addressed. The legendary S.S Kirmani Sahib was unable to
attend but his kind fax message was read out. Three months later he was summoned by the Creator . His
message remains most relevant. The guest from Turkey Mr. Aker made an inspiring analysis of the Greater
Anatolian Project (GAP). An enlightening talk was given by Dr. Peter Grein of Switzerland on desilting of
reservoirs and his experiences in China. Our NGO was privileged to have presented late Maj. Gen. (Rtd)
Fazle Raziq, late Lt. Gen (Rtd) Dr. Ghulam Safdar Butt & Engr. Hissamuddin Bangash. The guest speaker
Engr. Khalid Mohtadullah (Member Water, WAPDA) had discussed the benefits of reservoir construction and
explained the details of the IBIS (Indus Basin Irrigation System). There was a prolific technical session in the
afternoon presided by eminent irrigation engineer of Sindh Mr. Elahi Buskh Soomro, then Speaker of the
National Assembly. The expected pit-falls in the building of Diamer -Bhasha and the near impossible status of
Katzarah/Yago/Skardu on humanitarian and ecological grounds were also deliberated by several experts. A
resolution was unanimously approved by the delegates for the construction of atleast one reservoir on the
Indus without further loss of time. Everyone agreed that some 16 years had already been lost as 10 years after
Tarbela (1974) a new reservoir’s construction should have started and would have been available by 1990. In
financial terms a staggering wastage of around USD 200Bn equivalent between 1990 and 2007 due to non-
availability of a second reservoir on the Indus that could have kept our economic growth far ahead of our
population increase. A near hopeless sociological situation as experienced today would have been averted.
The arbitrary private thermal power policy of 1994 based primarily on imported oil after imposing a ban on
increased public sector generation was a national tragedy. Let us now discuss the rising menace of India’s
Northern Canal Project. What this USD 200Bn + project means for the future of our children. The real
implications of Baghliar Dam, Kishinganga Barrage and the infrastructure on the Wullar Lake. Being in the
peace mode we should surely advocate a peaceful accord. There has to be a consensus internally and
thereafter a recognition by the world community of our historical apprehension that Kashmir is a water
related issue. Since 1947 we have failed to surmount the Indian factor. India must respect in letter and spirit
the tenets of the “Indus Waters Treaty 1960”. It is sacrosanct. Tragically the Indians are now guilty of
laying the groundwork for genocide of our nation through the ongoing theft of Pakistan waters.
The sustainable solutions of the energy, industrial, agricultural and social crises are presented in outline. Why
did PM Shaukat Aziz again block WAPDA in 2005/06 from building 2000MW of thermal power based on
combined cycle P.S (gas fired) after allowing their construction in 2004? Above all why he was hostile to
construction of hydro-electric (hydel) power stations on fast-track basis. MoUs were signed with top PRC
corps in the presence of the President He blocked and cynically derailed hydel run-of-the-river projects
(primarily in the public sector) during the period 2003/04/05. He also argued that loans from EXIM China
above 5% pa are not acceptable. This was the period this banker turned emperor could not appreciate the large
macro-economic picture. He actually scuttled US 2 cent hydel projects (zero fuel pass through costs) on the
untenable basis of supplier credit interest rates being 5.5% pa against his demand of 5% pa (or lower). The
NPV of the hydel projects he blocked are many multiples superior to the private oil based projects he
supported. On 7 Jan 04 as Finance Minister presiding over an ECNEC/ECC he declared “let us stop this
culture of Mouization”. Most took it as a reference to Chairman Mao” This smooth talking banker acting as
an economist ensured that Pakistan is held hostage to the oil lobby. A fatal embrace after the escalation of oil
prices. Mr. Aziz forgot that in May 2000 he had gone to Beijing, cap-in-hand, for a roll-over of USD500 mn
which was the bulk of Pakistan’s Forex Reserves. Why did HUBCO an IPP capable of 1292MW produce
around 300MW during the critical weeks of Dec 07 and Jan 08? They may have been within the parameters of
their agreement but was this act fair to Pakistan? Why Mr. Ghait Pharon was allowed to control the rate of
bitumen due to his takeover of the National Refinery? He already controlled Attock Oil Refinery. Why did Mr.
Shaukat Aziz snub the Textile sector when they asked for a life sustaining subsidy? Why did national plans
such as the 1994 National Power Plan go into cold storage? I should not be raising these queries because after
all Mr. Shaukat Aziz had arbitrarily withdrawn WAPDA’s legal suit against HUBCO in 2000 inspite of serious
violations listed in the WAPDA case. Also Mr. Shaukat Aziz unleashed Mr. Shakeel Durrani on
Pakistan and turned a blind eye when he was blocking critical hydropower projects as CS NWFP and later as
Chairman Pak Railways attacked his own predecessors on their purchase of Chinese DE locomotives. Can the
nation forget that in year 2000 the Chinese people were the only friends willing to finance our
infrastructure development and even rolled over the critical Forex reserves with the State Bank?
Long live Pakistan.
5
Industrialize or Perish (a primer)

A NOTE: Why Pakistan’s economy could not become self-sustaining
The Statement of Dr. Salman Shah, former Adviser to the PM on Finance and Revenue as
reported on 30 July 07 to the effect that private companies will build and operate mega dams has
jolted many of us out of our stupor. Such a model does not exist anywhere. A developing country
with an agrarian economy cannot even dream of handing over its irrigation water to the private
sector. It is clear that the mistakes committed since 1980’s in the sector of Utilities is reaching the
pits. There is a Chinese saying “when a Utility is in profit the nation is in loss”. Tragically we
had created a USD two billion financial black hole in our economy by the year 2004, thanks to
the unsustainable private thermal generation which was uncapped and based on imported oil. The
Independent Power Producers (IPPs) were inducted under the 1994 Power Policy. The devil is in
the detail. WAPDA/GoP has to pay the fuel cost differential as a pass-thru component.

The hibernating HUBCO Agreement of Aug 1992 (negotiated since 1985) was made functional
by unfair concessions through amendments upto 1994. HUBCO was the “experiment” the
genesis of which were laid in 1985 on the advice of IMF. It was finally negotiated with a British
Group (National Power) who brought in several partners including the Saudi Sheikh Ali Reza of
Xenel. To accommodate this 1292MW conventional HFO (furnace oil) fired steam power station,
WAPDA had scrapped plans for the 1000MW imported coal project to be financed by Canada
and froze the extension of Jamshoro thermal P.S. for which the Japanese Govt had offered to
accept payment in Pak Rupees. Mr. Jam Yousaf Federal Minister of Water & Power gifted a 7 km
of beach near Karachi city. A tax free island in Baluchistan. The area gifted is larger than Hong
Kong. For just a 1292 MW power station! The World Bank had estimated USD 0.8 mn/MW but
later allowed USD 1.2mn/MW. This was the period when Bangladesh was purchasing steam
power stations with gas fired boilers at USD 350,000/MW. Thank you Mr. Ibrahim Elwan. Today
15 of the 19 originally sanctioned IPPs under the 94 Private Power Policy are established. This
means about 60% of the total thermal installed capacity and more than 40% of Pakistan’s
generating capacity is in private hands (effectively foreign hands).

In contrast both China and India never appreciated this IMF/World Bank concept and did not
allow more than 5% of IPP power in their national grids. Even then they later discarded a few of
the projects while in Pakistan we see that IPPs have throttled the public sector. Surely the OECD
Helsinki Accord of 1992 discouraging bilateral financing was not a signal for new imperialism
through IPPs? There were some unsung heroes within WAPDA’s hierarchy. The clean and
brilliant member Power Mr. Javed Akhtar was squeezed out in May 1994 just some five months
before his retirement. His successor Mr. Saeed A. Niazi also a clean person was pursued to his
post operative hospital bed for signatures on the HUBCO amendments. A mere formality as
WAPDA could not refuse. It is not a co-incidence that the IPPs have found an opportunity to
provide over 66% of Pakistan’s electric power taking advantage of the low hydel generation
cycle. This is unsustainable and the dire predictions made in 1994-99 period by several of us
have been unfortunately accurate. Mass industrialization is now impossible. This is the age of
aluminum but we cannot have an aluminum smelter since it is not viable with expensive electric
power. Similarly we are excluded from several basic industrial infrastructure. The developing
world’s most expensive power is now perforce being supplied to domestic users (over 60%) then
to industry (around 28%) and agriculture (around 10%). The IPPs propaganda machine is so
effective that even sensible people are heard expressing their gratitude for the great contribution
of IPPs, oblivious that imported fuel based IPPs are playing havoc with our economy. Where in
the world do investors get a blank cheque for their capital cost repayments & pass-thru increase

6
in fuel prices, all indexed to U.S CPI, as allowed in the 1994 Thermal IPP policy? Projects that
were granted without competition for a minimum guaranteed profit over a thirty years period
found ways to increase their IRR’s through several routes. The capital costs of the projects
(including HUBCO) being a direct liability of the GoP. Who could resist over invoicing if some
one else has to pay the bill? Yes there was to be no taxation on the income of IPPs although they
are Pakistani companies. The US 6.5¢ tariff is a bluff as furnace oil is pegged at a rate (Rs
2350/ton) which is around 6% of today’s rates. The difference payable by GoP/WAPDA. Since
2006 we see rental power also being contracted. Imported oil cannot bring prosperity. The fuel
would be provided free (pass-thru) to the IPP operating the rental power station. How can anyone
justify the actions of former Prime Minister Shaukat Aziz to disallow WAPDA/Genco from
placing the order for 500MW Chichoki Mallian P.S. in 2007. The rates received in late 2006 were
competitive. The technology & high thermal efficiency of the gas fired combined cycle P.S was
inline with worldwide trends. He also shot-down the second 500MW power station allowed for
Nandipur. Both thermal projects in the public sector were approved by GoP under a one time
waiver in 2004/05 in view of the impending power crisis. A 1000 MW of additional public sector
power would have made a difference especially in the perception of IPP’s stranglehold. This was
precisely what Mr. Shaukat Aziz could not allow. Today the new round of Fast Track IPPs based
on thermal energy are negotiating & re-negotiating with GoP/PPIB. Some have been doing it for
nearly three years taking max advantage of the shortages & load-shedding. All this while the
public sector is kept blocked since 1988. HUBCO set the precedents.

When the GNP of a nation does not rise in tandem with its GDP (due to excessive outflows of
profits and dividends) we have economic and social upheavals. The British Imperial masters had
increased India’s GDP. After a while they had become a liability inspite of a benign rule.
Secondly we all know that economic inequities lead to political and social upheavals.
Historically FDI has often been misdirected and used as a tool of exploitation. In Pakistan’s case
we are no longer having a self sustainable economy primarily due to our tragically flawed
policy in the three crucial areas i.e civilian engineering industry, sustenance of our irrigation
assets and last but not the least our treacherous energy policy. Clearly, FDI is not always
healthy for the recipient. FDI should be accepted on a rational & selective basis. The
Economist of 2 Feb 08 reports that finally India has now eased limits on FDI in six industries
only. These include commodity exchanges, credit information firms, oil refining, titanium mining
and parts of aviation concerning only cargo planes & services including relevant pilot training.

In Dec 1998 in the office of the COAS I had presented my essay “Pakistan’s Strategic Federal
Assets”. In my long meeting I had exhorted all present in his office that WAPDA must be kept
intact inline with its charter of 1958. I repeated this analysis in 1999 during the second marathon
meeting with him and several of his military colleagues. On his desire there was a well attended
seminar at GHQ in April 1999 which was coordinated by Lt. Gen Jahangir Nasrullah (Engineer-
in-Chief). My team had included some elders of the Feb 98 Water Conference including late Lt.
Gen (Rtd) Dr. G.S. Butt, Engr. Hisamuddin Bangash and Dr. H. Grein of Switzerland an
academic associated with ETH, Laussane. No one can object to WAPDA’s modernization. It is
modeled on the TVA which is America’s most successful civilian project. The willful destruction
of its balance sheet is a national calamity. It was only six years ago when the Indian Army COAS
reportedly declared and translated verbatim “Every proposal in opposition to Kalabagh Dam is
like a new nail in the coffin of Pakistan’s defence capability”. In the same period a three member
Indian delegation to an Islamabad conference declared that Indus Waters Treaty is superfluous!

Does the nation realize that thanks to global warming & crop failures worldwide wheat prices have
increased 300% in the last five years? In a few years there will be no sellers of wheat. The three 2004
letters of late Lt. Gen (Rtd) Dr. Butt to President Musharraf are in appendix.

7
Industrialize or Perish (a primer)
PART I: The facts are that:
1) The TVA model was used to create WAPDA in 1958 : President FD Roosevelt
when faced with the aftermath of the 1929 market collapse had to highlight & exploit
USA’s unutilized potential under the “New Deal”. He correctly decided that seven
contiguous States had the water resources and the land. The TVA was launched and
an institute was created in Mississippi where the best available talent amongst
military and civil engineers was brought together. A series of 26 dams and associated
irrigation channels as well as flood control structures in addition to malaria control &
fertilizer production were included in the program. The project stimulated the entire
US economy and the benefits that ensued were so great that the USA was ready to
face Hitler’s war machine. TVA remains a priceless jewel of the US economy.

The historical letter of 6 Sep 1951 written by Mr. Eugene R. Black the President of
IBRD (World Bank) to PM Liaquat Ali Khan and its enclosed 10 page article; Another
“KOREA” in the Making? by Mr. David E. Lilienthal as published in Collier’s on 4
August 1951 is the starting point of the up-gradation of the IBIS. It starts the dialogue
to address the core issue of water distribution between India & Pakistan. A statesmen
like initiative with President Truman’s blessings. Mr. Lilienthal displays great altruistic
sentiments. One of his classical observations “The partition gave the major part of the
irrigated lands of the Punjab and Sind to Pakistan; but the headwaters of some of the
largest irrigation canals that feed Pakistan were left with India or Kashmir. All the
rivers upon which Pakistan depends for life originate in India or Kashmir. Two thirds
of the entire water supply originates in Kashmir where the snow-fed Indus rises”.
Finally in 1958 President Eisenhower gifted the TVA model in the form of WAPDA.

The largest asset base of Pakistan’s economy i.e. the Indus Basin Irrigation System
(IBIS) was now having a reservoir building organization to provide the water resources.
The IBIS can remain an efficient machine as long as it has necessary water. WAPDA
was a timely gift from the Eisenhower administration. On 19 Sep 1960, the “Indus
Waters Treaty” was signed by Pakistan and India, with the World Bank acting as a
facilitator & guarantor. The signatories were Indian PM Mr. Jawaharlal Nehru and Pak
President FM Ayub Khan. The very basics of the treaty’s terms were that India would
be allowed the exclusive use of the waters of the three eastern rivers, Ravi, Beas and
Sutlej while Pakistan was given till eternity the three western rivers; the Indus, Jhelum
and Chenab. It was expected to utilize the available marvels of the IBIS known as
“link-canals” to keep alive the Ravi & Sutlej in its territory. New reservoirs were now
needed. India was allowed run-of-the-river generation of Hydro-Electric Power on the
western rivers. The use of low-level gated structures was not permitted. An exception
was made for Chenab command areas and Pakistan conceded that additional irrigation
water could be taken sequentially for irrigation in Indian controlled Jammu & Kashmir
from 0.6mn acres in 1960 to 1.3mn acres. The water quantity being undefined. Today
India is taking unfair advantage of this concession by Pakistan.

Mangla dam on the Jhelum river was quickly constructed. Preparation for constructing
the world’s largest earth filled dam (Tarbela) on the Indus were accelerated. The World
Bank was committed to finance one dam on the Indus and to help improve and enhance
the utilization of the existing man made irrigation system inherited in 1947. School
8
children in Europe were reading about the coming green revolution in Pakistan. The
core issue was to keep WAPDA vibrant but we failed to follow through after Tarbela
dam was completed in 1974. The Indian factor cannot be ignored. The Chashma Jhelum
link canal was also added in early 1970’s but no further reservoirs have been added.
The link canals are therefore underutilized. The productivity of the largest asset base i.e
IBIS depends on the support it can receive from the second largest asset base
(WAPDA). A weakened, water-short IBIS is now unleashing cataclysmic tendencies
starting with social disorder and will lead to total anarchy. The IBIS is a very large
machine and can only remain prolific with the help of needed large reservoirs to sustain
Pakistan’s economy. In any case small dams cannot be built on large rivers.

2) Irrigated Agriculture will remain the back bone of Pakistan’s economy: It also
provides the raw material for the textiles which is Pakistan’s main industrial sector. It
accounts for atleast 90% of its agriculture production. It is based on our largest asset
the efficient IBIS. An asset in excess of USD 400 Bn (at today’s replacement value).
This irrigation machine is water short since the early 1990’s. The nation cannot
maximize the agriculture output from the 42ma irrigated area. This does not include
12ma barani i.e. rainfed areas. Shortages mean that we cannot bring under cultivation
the 21ma lying fallow. Not only additional acreage could be added but the additional
water would permit triple and quadruple cropping patterns. Before year 2000 the
water availability per capita went below 1 AF per year which is tragic as it means the
nation is now water starved. The prolific IBIS machine is water short. The future is
bleak.

No new dams have been built since Tarbela (1974). In fact the cumulative reservoir
capacity of Pakistan has been reducing since 1974 from 16 MAF to 12 MAF. The
population of Pakistan has since doubled. The IBIS includes 3 main storage reservoirs,
20 barrages, 12 Inter River Link Canals, 43 Canal Commands, over 15,000 public
tubewells and around 500,000 private tubewells. Some 120,000 watercourses & a huge
surface and sub-surface drainage system. It may be appreciated that one MAF is the
quantum of water if a stream was constantly flowing at a rate of 1381 cusecs for one
year. Larger than one cubic km of water content. Agrarian economies should aim at a
strategic one year’s surface flow in their reservoirs. India will soon achieve 40%.
Pakistan has not even been able to maintain a ten percent (10%) reservoir capacity
assuming a 140 MAF annual flow. The nation that has great strategic hydro resources in
the Himalayan & Karakorum glaciers is heading surely towards famine conditions as it
fails to store more water and replace the reservoir capacity already lost. Some political
elements continue to ignore the basic fact that it is floodwaters during monsoon
months that will be stored & utilized during the remaining ten months.

Today the Indus water Treaty (IWT) has become controversial & divisive in Pakistan.
Pakistan’s military & political leaderships had not shown the resolve after the breakup
of Pakistan in 1971 to force the truth on the Nation. Today Indians have the audacity to
announce that the IWT is redundant. While the Indian factor motivates internal
opposition (specifically from regional politicians) to new dams on the Indus she quotes
international law on rights of the upper riparian when the lower riparian fails to fully
utilize sweet water flows for a 30 years period. India ignores that the IWT is sacrosanct
& till eternity. Our leadership has not understood the value of water.

Pakistan never exceeded 13% storage capacity. We assume an annual surface flow of the
Indus and its associated rivers to be 145MAF. India has surface flows of around 750MAF
on an annual basis. Their cumulative storage capacity by 2003 is 245MAF and growing

9
fast. They had therefore achieved more than 32% storage capacity. The world average is
40% storage capacity of surface flows. An ideal situation would be storage capacity
close to 100% so that maximum carry over capacity is available for years of drought.
The table below will further clarify this point.

AVERAGE ANNUAL FLOW & STORAGE CAPACITY
OF DAMS OF SOME MAJOR RIVER BASINS

Average Storage
River annual flow No. of capacity % age
S. No. Basin (MAF) Dams (MAF) storage

1 Nile 38 1 132.00 347
2 India
(Total) 750 4,636 245 32.6
3 Indus and
other rivers 145 3 13.64 9
4 World 20,000 - 8,000 40

Source: Medium Term Development Framework for water sector (Group report)
World Register of Dams 2003-ICOLD (Mr. Amjad Agha, Nov. 2005)

3) The 1991 Water Accord permits about 22 MAF new storages: Half of this would
be replacement of capacity lost. It assumes that 38 MAF of monsoon flood waters on
average flow into the Arabian Sea every year. It was a “prosperity document” for all
four provinces but has been willfully made controversial. Punjab made major
sacrifices in agreeing to take far less than its due share from the new resources. The
Accord eliminated the concept of “Historical Withdrawals” of Indus waters. Logically
it had to cater to the new geographical realities eg: Sind was much larger before
partition. By year 2010 atleast 11 MAF new surface storage was required of which
half was to be replacement storage as the existing reservoirs continue to receive
sand, silt & sediment at the rate of 165 mn tons per year in the Indus River alone.
Without new storages, the Accord would have hardly any value and use. The status
quo option is one of looming famine conditions also for the children of Sind.

Reservoir Sedimentation and Storage Loss in MAF
Reservoir Gross Storage Capacity Storage Loss by year 2004 Loss By year 2013
Tarbela 11.62 (1974) 3.26 (28%) 4.31
Chasma 0.87 (1971) 0.39 (45%) Negligible
Mangla 5.88 (1967) 1.29 (22%) 1.71
Total 18.37 MAF 4.94 (27%) (gross) 6.50 MAF (gross)
Live / usable storage is approx 15% less 3.95 (25%) (live) 5.45 MAF (live)
Courtesy Mr. Amjad Agha publication Nov 2005

Sind farmers were receiving in 1991 almost double the canal water compared to
Punjab. For every cropped acre, Sind received 3.80 ft of canal water against 2.18 ft for
Punjab. Sind canals have water allowances vastly larger than Punjab canals, leading to
large wastages and heavy water logging. Punjab has more than double the cropped

10
areas compared to Sind while the canal supplies are only marginally or 20% higher.
Punjab was producing 75% of Pakistan wheat, 75% of its cotton and 45% of its rice
while Sind produces 15% of its wheat, 20% of its cotton and 45% of its rice. Punjab has
a far higher productivity per unit of canal water due to a conservative use by its
farmers. Naturally they have to also utilize expensive tubewell pumping of precious
aquifers. New water reservoirs allocation as per 91 Accord; Sind 37%, the populous
Punjab province also 37%, NWFP 14% & Baluchistan 12%. How can NWFP be
supplied its 14% share of new reservoirs? KBD's location has max water flow and
allows gravity flow to the west bank. It is indispensable for survival.

Sind with its saline & brackish underground water depends only on surface sweet water
supplies and cannot have aquifer pumping as in Punjab. Sind therefore needs canal &
distributory brick lining, as it cannot afford seepage due to its saline aquifer. Punjab
does not urgently need brick lining of its water courses. Its canal seepage is partly
recovered with the precious aquifer resources but underground water quality is
becoming an issue in parts of Punjab. The high cost of lining in an inhibitor.

Sind objections are that there is not enough water in the Indus basin and WAPDA may
not create further reservoirs on the Indus main stem. This is a very tragic position since
ISO 14000 studies carried out by the World Bank in 1987 prove that 35MAF flow
downstream of Kotri is not necessary for the mangroves & marine life. This had made
the 1991 Water Accord possible between the four provinces. Sind was the biggest
beneficiary as it would receive 37% share of all new reservoirs, the same as populous
Punjab. Incidentally KBD would only store 6MAF while Daimer Basha would store
around 5MAF. This would make flows in the Indus main stem more regulated during
all 12 months instead of unregulated high flow during the monsoon months and very
low flows during the winter and spring months. Basically the people of Sind have been
given the unfortunate impression by a small group of Sindhi nationalists that Punjab
will steal their share of Indus waters. The people of Punjab who understand irrigation
are of the opinion that the feudals of Sind are basically interested in flooding a swath
about 14 km wide of riverine (katcha area) on both sides of the Indus river. Basically it
is irrigation of 0.7 million acres by moisture (sub-irrigation through salaba or flooding).
This is a great waste of resources and not in the long-term interest of the gentle people
of Sind. The wadera feudals have to be convinced first or ignored!

NWFP objections are based on the 1929 flooding of Nowshera valley. This historical
flood occurred when the Swat, Kabul and Indus rivers were in extreme high flow due to
non-stop rainfall in their catchment areas. There were no means of telecommunication
and no telemetry/automatic stations to give an advance warning to the authorities to
expect a flood at Nowshera due to the back pressure from the constricted Attock gorge.
British bombers were flown from England and they had to fly reconnaissance missions
before they discovered that nonstop rain and total absence of telecommunications has
caused this situation. Today there are multiple arrangements for over 2 weeks advance
warning of a coming flood. The availability of a dam permits immediate draw-down of
the reservoir to take the flood shock. Dams are flood control devices and do not induce
floods. Only KBD allows gravity flow to the right bank and would permit the 14%
share to NWFP under the 1991 Water Accord. The natural drainages of Peshawar,
Kohat and Nowshera valleys will not be affected by KBD. Water finds its own level.
Even with the original KBD design a repeat of 1929 floods is not possible. Similarly
the maximum level of KBD reservoir during the flood season will be 915ft above sea
level. The lowest point in the Peshawar, Kohat and Nowshera valleys is Pabbi 962ft.

11
There is no known scientific reason (including capillary action) for water logging to
happen. Neither can natural drainages of the NWFP valleys be affected due to KBD.

Bhasha Dam was unfortunately made the focus of attention by former Chairman
WAPDA in July 2001 during the launch of “WAPDA Vision 2025”. This was an error
of judgment as our conference of 09 Feb 98 based on rational data had concluded that
Bhasha is above all a debris-check dam for enhancement of Tarbela Dam’s useful life.
Conceived as a roller compacted concrete gravity dam about 232m above riverbed and
about 281m above bedrock it dwarfs even the Grand Coulee. No doubt it will add
around 5MAF reservoir capacity and cheap hydropower during its short life span but its
construction is a monumental task, which could involve upto 15 years. Several major
constraints in building Bhasha are well known. The KKH from Thakot upto site (over
200 km) has to be strengthened/widened. This is an arduous task. There are absolutely
no construction materials at dam site (only granite). The upstream KKH around 100 km
has to be rebuilt at a higher alignment (about 900 ft higher). There are strong lifting
pressures due to soil conditions of the riverbed. After all we are attempting to construct
the highest ever (nearly 270m) Roller Compacted Concrete (RCC) dam in the world.
Higher than Hoover Dam! No rock or earth filled base. The dam’s downstream terrain
has a climb elevation of 1:7, which is excessive for operation of heavy construction
machines. Finally it is an active seismic zone of the Karakorums where the Indian and
Central Asian plates meet. The ongoing design is theoretically beyond today’s
knowledge of dam building technology. Let us keep in mind the Pattan earthquake of
the 70’s and the October 2005 earthquake. If this dam breaks it will leave nothing in its
path upto Sukkur. Late Lt. Gen. Dr. G. S. Butt’s three letters of 2004 to the President of
Pakistan bear testimony to the great challenge of building Diamer Bhasha.

4) Appointment in 2004 of Mr. A.N.G. Abbasi as head of the so called “technical
committee” reportedly on the advice of Senator Mr. Nisar Memon:
A tragedy. He is known for his rabid anti-dam views and we remember the unfortunate
situation he had created earlier as Sind provincial minister. Both ANG Abbasi & Mr.
Nisar Memon had written a controversial Water Committee paper in 2000. In 2005 he
delayed his report compelling the other 7 members to submit their report independently
of him in May 2005 while he took several months longer. He however ensured that
Bhasha take precedence over Kala Bagh Dam (KBD) and recommended it to be a
“carryover dam” without canals. Bhasha can have no canals for NWFP and Punjab.
KBD is a never silting dam with 6.1 MAF live storage. Although smaller than Tarbela
its location is near perfect. Maximum flow of the Indus river occurs at KBD site as
glacier waters and monsoon waters converge. KBD has to be operated in conjunction
with its bigger brother Tarbela and smaller brother Bhasha for best results. Dams in
cascade allow “release-hold” sequence whereby the same water quantity is used
repeatedly for power generation and the required irrigation releases are from optimum
locations. Are we going to remain at around 20 million tons wheat production forever?
In March 98 Mr. Gupta of the World Bank visited me in the company of Dr. G.S. Butt
and Mr. Khalid Mohtadullah (then member Water, WAPDA) and related the saga of
KBD’s very extensive studies. It was reassuring to learn that ISO-14000 studies were
also done in 1987, which removed doubts about any negative environmental impact.
The propaganda about sea-water intrusion, destruction of mangrove forests in the Indus
delta as well as impact on fisheries have all been thoroughly investigated. KBD is
indispensable for Pakistan’s economy. The 4 April 97 letter of World Bank President
Mr. James Wolfensohn recommends KBD as part of the least cost solution and a project
which could add significantly to Pakistan’s irrigation potential. The brethren of the
NWFP have to finally appreciate that the extra-ordinary 1929 flooding of Nowshera
12
was caused by an absence of a dam such as KBD. Instruments & communication
systems would have allowed a “draw down” before danger levels were breached. Dams
help to control floods and do not induce them. The nation has not appreciated the role
of water reservoirs in the national economy. Some are playing politics and blocking
projects for sweet water storage under the tragic slogan of provincialism. WAPDA
which used to give rupee loans to the GoP in the 1970’s was burdened with excessive
electrification by successive governments but was denied after 1974 the indispensable
multipurpose reservoirs. The Hydel policy 95 (a ministerial decision) and the National
Drainage Policy 1997 have been bad precedents. Severe imbalance of irrigation &
drainage has particularly created more water logging & destruction of irrigated
agriculture. The ominous Indian factor is clearly visible since 1947. Remember
Ferozepur Headworks! Do we comprehend? The Indians understand it very well.

5) It becomes important for us to calculate the financial impact of 1 MAF of additional
reservoir capacity in the IBIS : I am convinced it is now around USD two billion per
annum on the nation’s GDP. KBD construction should have commenced in 1983/84 and
completed in 1989/90. Therefore in the seventeen years that KBD could have been
available, the loss to the national economy due to the 7MAF KBD alone has been over
USD 200 Bn. Infact, the non-implementation of the 91 Accord means that after year 2000
we lose cumulatively around USD 44 Bn per year. It is simple to check this thesis.
Remove Tarbela (9 MAF reservoir & power generation) from the scene and Pakistan’s
economy will shrink by 15% to 20% at today’s GDP level, besides other implications.
Remember the 1991 Accord allowed 22 MAF additional storages, half of which are to
replace the lost capacity of existing reservoirs.

6) The entire developing world is building dams. Indian activity is suspect: China has
completed several thousands in recent years (total now around 22,000) including the
Three Gorges Dam. The USA built 5500 dams and does not need more. It can afford to
decommission some. India has undertaken 650 dam projects (over 4000 exist) including
the controversial NIRMADA after the Indian Supreme Court decreed it. India has
launched in 2006 the USD 200 Bn Northern Reservoirs Linking project whereby in ten
years all reservoirs from East Punjab to Bengal would be interlinked. It is the world
largest ongoing irrigation project. This astounding project based on the Prabhu Task
Force Report is also known as the river linking project. A network of link canals to
connect all the rivers of India; Mahanadi to Godavari, Krishna to Godavari, Brahmaputra
to Ganga, Narmada to Tapi, Cauvery to Vaigai. The task force included Mr. C D Thatte
who is also the Secy Gen of the International Commission on Irrigation and Drainage
(ICID). The ICID is an Indian think tank (NGO) established around 1950 by PM
Jawaharlal Nehru. Today ICID advises the World Bank and other multi-laterals on
irrigation projects; appraisals & feasibilities of projects the world over!

It is our considered view that the dozens of barrages & dams under final stages of
construction in Indian occupied Jammu & Kashmir (some surreptitiously) with their
low level gates (classified as silt excluders) are for the ominous purpose of water theft.
The developed world does not need more reservoirs. They can talk of decommissioning
of dams as their population shrinks. Please appreciate one of the most effective think-
tanks on water policy for the multi-laterals is the ICID (International Commission for
Irrigation & Drainage) which has its HQ in New Delhi. No doubt India’s Jawaharlal
Nehru was a wise leader for his nation. Now the Indian influence on our regional
politicians has gone too far. The responsibility for interference in our irrigation system
development since 1947 would have to be shared by the Indian leadership, just as their

13
open involvement in East Pakistan’s separation. This time the charge is water theft
leading to a genocide of the Pakistani nation.

7) So-called lack of consensus on large reservoirs resulted in some “quick fix” private
thermal stations after 1994. Why is this nation addicted to imported oil?: The now
discredited CALIFORNIA model of private generation being discussed by IMF & World
Bank since 1988 was applied to block the public sector effectively from setting up new
thermal & hydel projects. HUBCO preceded it. The 1994 Power Policy invited the IPPs
and the public sector was instructed to abandon its own plans for new thermal power
stations. Only two thermal stations in the public sector were permitted to complete their
expansion. Strangely the bureaucracy continued to ignore Pakistan’s 40,000 MW
hydro energy potential. If the multi-purpose reservoir projects had been blocked by a
few provincial politicians the-run-of-the-river hydroelectric projects especially the high
head tunnel projects in the north should have been accelerated. WAPDA’s balance
sheet as a direct result of expensive power from IPPs started to become very weak.
WAPDA was now buying thermal power, in some cases at 300% of its own thermal
generation costs. Every few months some new or old ill-conceived proposal is thrown up
to confuse and derail internal debate. One of the most preposterous hydro schemes is so
called 35MAF Dam in Katzara also known as Skardu Dam. Friends with knowledge of
the Northern areas believe that this mega Dam can only be imagined at a site near
Kachura some 18 km downstream of Skardu. Mr. A N G Abbasi, Chairman Technical
Committee on Dams has also given preference to this Dam site. Further proof that Mr.
Abbasi does not wish Pakistan well. Firstly he expects to store the entire annual flow at
this nascent point. Naturally there can be no canals in the Karakorums. Secondly this
Dam site is anti civilization as it would inundate / submerge the entire level soft soil area
of Skardu and Shigar making the area uninhabitable. The peoples of Skardu and Shigar
valley would have to be relocated. Even Skardu Airport would be under 1000 ft of water.
In short the entire Balti civilization would be uprooted and their lands submerged. No
one would finance such a project. Only a mad man would permit such a project.

WAPDA as predicted is now unable to undertake major projects on its own balance
sheet. A major handicap for the sustenance of the IBIS. The hydro based TVA model
has been mutilated. Pakistan has become a water short country. Fresh rounds of thermal
IPPs are now being permitted, creating a mortally dangerous situation. The tariffs are
unsustainable for the economy. Competition with public sector is not even discussed;
such is our anxiety for FDI. The final blow would come with privatization of dams.

8) Food Autarky: The IGC (International Grain Council) gave its first caution in August
1997 when China’s wheat production fell from 127mn tons to 104mn tons, the year
earlier. Fortunately the wheat production of the year 1997 / 98 did not fall from the total
586mn tons level of the previous year. That year only 94mn tons were available for
world trade in wheat but the total stocks held were an adequate 103mn tons. Thanks to
global warming, crop failures, drought and changes in crop patterns in Australia,
Canada & USA and partly due to the use of crops for producing ethanol and biodiesel
we see a severe crisis developing. The IGC estimate for 2005 shows that the peak in
wheat production has been crossed and it was now downhill. Please note that the world
wheat production in 2005/06 was 620mn tons but it declined to 590mn tons in 2006/07.
The consumption is estimated at 610mn tons. A shortfall of 20mn tons which is a
serious depletion of world stocks! Prices for this reason have risen three times in last 5
years. Prices doubled to USD 400 per ton in Jan 2008 from USD 208 in January 2007.
The price situation with Coarse Grains such as maize, millet & sorghum is not critical
as our farmers have improved their yields.

14
9) The HUBCO IPP project was finally commenced in 1994 together with more than
one dozen other IPPs based on imported thermal energy: The major fuel to be
imported was furnace oil. Truly an expensive and dirty solution. A 1292 MW
conventional steam turbine power house based on dirty RFO/HFO (furnace oil) is not to
pay any taxes for the 30 years duration of its agreement. Its debt is repayable by the GoP.
Through the 1993 and 1994 amendments of its original August 1992 agreement, managed
an increase of its reference tariff from 1.36/KWh to Rs. 2.42 /KWh (November 1993) and
Rs. 2.81/KWh (November 1994). The reference tariff adjusted on January 1998 reached
Rs. 4.34/KWh. The manner in which the amendments to the agreement were managed in
Nov 93 within 15 months of the signing of the main agreement is brazen and cruel to the
host country. HUBCO took nearly 760% advantage in its equity pay back to help Hubco
sponsors to recover their project equity in minimum time making this agreement perhaps
the most one-sided major commercial contract in the second half of the 20th century. Just
within 13 months of coming into commercial production, an amount equivalent to USD
380 mn had been paid back by WAPDA through tariff, which is more than the total
project equity of USD 373 mn (some sources say this figure is below USD 340m). The
project has turned out to be one of the most expensive in the world charging the capacity
purchase price amount double of other IPPs. Its imported oil kWh unit costs reached US
11 cents by late 1997. In its 2nd ten year period its kWh is costing around US 20 cents
thanks to the 2007 oil shock.

Tariff means the sum of Energy Price (EP) and Capacity Price (CP). The EP includes
the direct fuel cost and the variable O&M cost. The CP includes the escalable
component (fixed O&M cost, insurance cost, admin cost and return on equity/profit
etc). The CP also includes the non escalable component which is simply the debt
servicing. It is also an over-invoiced project. The similar Chinese supplied
Muzaffargarh steam station was installed in less that USD 0.5 mn per MW and Hubco
should not have exceeded USD 0.8 mn per MW. Instead HUBCO declared USD 1.2 mn
per MW which even latest higher efficiency Combined Cycle projects do not cost.
WAPDA never received the Reference Financial Model (RFM); on which the Reference
Tariff of the 1992 agreement, was calculated; and the various assumptions used in that
model. WAPDA’s financial auditor’s team could not analyze the basis of various
assumptions as well as financial calculations, to arrive at a justified Base Reference
Tariff of 1992. Hubco never provided full details of Project Equity Cost; supported by
actual invoices of Plant & Machinery, Cost of Construction, Cost of Land etc. HUBCO
never produced, the “ORIGINAL” Agreement deed regarding Amendment # 2 of
September 1994. By April 97 major financial and operational irregularities were
detected. No wonder several beneficiaries live in luxury abroad.

We note that the financial close did not take place by the promised date of Feb 1993 but
in fact occurs in Jan 1995, a delay of nearly 24 months. During this period HUBCO
found the political climate conducive to extract further benefits outside the parameters
of the 1992 Agreement. The controversial Amendment # 2 was granted. They were
able to change the debt equity ratio to improve the costs which were payable to NP
under a disproportionate formula as well as a new financial closing date for calculating
the reference tariff. It is no surprise that in response to later inquiries the attachments of
Amendment # 2 (concerning the dubious assumptions) only few pages could be
collected from the trustee when a request was made for an authenticated copy. HUBCO
was guaranteed generation outage compensation beyond reason. They were allowed the
scheduled outage of 1 month per generating unit per year. In addition for every gen.
unit another 800 hours of forced outage allowance (i.e. 33 days /machine). Beyond
these outages if there is a shut-down HUBCO may still receive 75% of the Capacity
15
Price (CP) upto about 2 months. No wonder one of their gen. units is normally not
working. This is more concession than for other IPPs and far more than what
Bangladesh allowed. In this period (late 1994) HUBCO made tremendous financial
gains which took the project IRR much higher than 18%. The project costs of around
US$ 1.5 Bn (payable by WAPDA/GoP) is far more than the cost of equivalent 1292
MW steam/conventional projects worldwide. The reference tariff has lacunae clearly to
the benefit of HUBCO/NP including exchange rate differentials at every stage of the
repayment. Strangely the relationship of HUBCO/NP and WAPDA/GoP is of a
fiduciary nature wherein HUBCO is responsible to render full accounts for the payment
charged to and collected from WAPDA. The 1994 Energy Task force under Mr. Razzak
Dawood failed to give an upper limit for IPP participation.

10) HUBCO is Pakistan’s largest private company. Did anybody ever think of the
consequences under this agreement if the Pak Rupee was to collapse against the USD.
Pakistan has intractable long term financial contracts with all IPPs under the 1994
Pakistan Power Policy. With these private thermal projects the hydel:thermal ratio of
70:30 which was considered viable for the economy was disturbed. It has become
lopsided (30:70) and worsening. Hydropower inherently suffers periodic lows due to
excessive variation in river surface flows. Ideally 100% hydel power would be perfect
but some thermal energy in the mix is unavoidable due to the surface flow variations.
Through an avalanche of pro-IPP propaganda every detractor was sidelined. Try to
discuss the IPP menace and you will receive cynical silence.

11) Excess power capacity is also dangerous for a nation's weak economy: However
excess private power (IPP) capacity is suicidal for the economy and the Federation. The
Private Power Policy '94 was an unrealistic and defective policy and furthermore its
implementation was callous and brutal. National utilities have been financially crippled
with cold-blooded precision. Mr. Shahid Hassan Khan and his friends had committed
serious economic blunders in the planning and implementation of this policy. Without
realizing the implications for the national economy they encouraged a stampede of
investors with an incompetent one-sided private power policy and ended up by issuing
letters of support (LOS) for 27 Thermal Power Stations primarily on imported energy. No
upper ceiling was considered inspite of several cautions. Today we see the crippling
financial consequences due to a tariff related to imported energy. The twin menace of
official corruption and low efficiency cannot be blamed for the sudden collapse of both
national power Utilities. The privatization of basic Utilities is not sustainable. Tariffs can
never be effectively reduced and the repatriation of dividends and profits has not allowed
the growth of GNP in tandem with GDP. The hundreds of closed industrial projects will
increase in population. In 2007 there was a USD 4.4 Bn black hole in power utility
finances, impacting on the national Economy.

Sadly in the last two years we see shortage of electric power develop in the country.
Electricity deficit during March 08 was approx 2500MW in a total Generation capacity
of 20,000MW (WAPDA, KESC, IPPs, Captive power and PAEC). Regretfully the mix
has been made lopsided. Instead of the hydel: Thermal ratio of 70:30 outlined by the
national planners it is thanks to our addiction for oil now around 33:67. The thermal
includes Nuclear energy generated by PAEC. Regretfully generation based on coal is
negligible. Our 184 Bn tons of brown coal (lignite) reserves at Thar being still
discussed 40 years after the first serious report established its huge potential.

High tariffs in turn impede industrialization. A double whammy. Can we deny that
Pakistan’s credit rating by Moody’s or Standards & Poors had fallen to the lowest level

16
between July 1996 and Sep 2001. It was at the level of Chad & Niger Republics. The
atomic tests of May 98 were only a factor. The main cause was the suicidal water &
energy decisions between 1983 and 1994. Construction of Kalabagh Dam should have
commenced in 1983-84. Education & infrastructure were already neglected areas since
1971. In May 2000 the Pakistan finance delegation to Beijing under Finance Minister
Shaukat Aziz participated in the fifteenth Inter-ministerial Conference and basically
received the roll-over of the USD 500 mn of PRC funds which constituted the bulk of
the Pak foreign currency reserves! Bankruptcy loomed before 11 Sep 01 and the start of
the “war on terror”. Dollars flowed in as aid, loans were rescheduled or converted to
grants etc. Private capital also returned home. The relief is not permanent. In 2007
Pakistan’s energy import bill for 17.5 mn tons of petroleum products including
HFO/RFO crossed USD 11 Bn and the budget deficit will cross USD 14 Bn!

12) Comments of international experts as recorded on 8/9 Dec 97 at the “Workshop on
New round of IPPs” arranged by the Ministry of Water & Power Islamabad: The
second session's main speaker Dr. Tom Jardine a hydel consultant commented that
Pakistan has substantial hydel resources. He also believed that worldwide fossil fuel
burning would soon be penalized. This would be an important inhibitor for thermal
IPPOs. He believed that clean renewable indigenous energy (hydel) is the long term
solution for Pakistan. He agreed that BOT hydel model is not easily covered under ICB
and therefore pre-qualification would be very critical. He agreed that there has been in
the UK a 9% fall in tariff over preceding eight years. In the same session Madame
Janet Tay (President JT Consultants, Singapore) an ADB consultant made a
statement that worldwide and especially USA experience shows that average hydel
tariffs are US 2.5 cents versus US 4.5 cents for thermal. Although hydel is 50% higher
in investment, it is still cheaper due to low O&M. In UK there is a fossil fuel tax. Her
comments were in response to the astounding opening remarks of Secretary, Ministry of
Water & Power Mr. Javed Burki that thermal P.S. are part of the least cost solution. Mr.
Tom West, consultant PPIB spoke impressively. His speech covered three points:

• The share of a entrepreneur, a single company, a group of companies should be
restricted to 10% of a power system otherwise it exerts monopolistic control. He
believed this step was necessary to ensure that a state monopoly may not be
converted into a private cartel or an oligopoly.

• Tariff should be back end loaded instead of front end loaded as per the '94 power
policy. This was a very valid point and much appreciated.

• He stated that the tariffs below US 3 cents quoted in Egypt and Bangladesh for gas-
fired power station had a major relevance for Pakistan.

Note: There Figures from 1997 compare favourably with statistics of 2005 collected by a MIT
(USA) research group. They report that generation with gas fired P.S (on 40yrs basis) @ US 4.1¢;
coal-fired @4.2¢; Nuclear Thermal P.S @6.7¢ but is dramatically reducing as construction costs
become cheaper. Worldwatch UK reported that large hydels @3 to4¢; wind power @ 4 to 6¢;
offshore wind farms @ 6 to 10¢; solar pv @20 to 40¢. In UK the energy mix is coal 35%, gas 35%,
nuclear 21%, oil 3.5%, renewables 3.5%, hydro 1.75%, biodiesel 0.25%. Incidentally by 2005 the
USA had achieved 3% share of Biofuels, Germany had achieved 5% and Brazil 25%. The UK target
being 5% by 2010.

13) Historical Legacies : Today we observe that expensive energy discourages mass
industrialization or any credible investment in basic sectors. Together with poor
17
technological training of our manpower we have created a dangerous combination. Let
us analyze our technological / industrial legacy. The truth is that the Europeans
introduced Indians to the first modern industrial revolution. Muslim Mughal India
inspite of its martial traditions had neglected the great traditions of early Muslim
Scholars in mathematics, general sciences and medicine. The occasional recourse to
Persian architectural and building techniques did not herald a technological revolution.
Europe had already started coming out of the dark ages and had commenced using steel
foundries together with molds & metal dies. The Muslims of North West India were
barely crawling out of the bronze age when a modern day imperial power overwhelmed
them and took control within a short period of history. One is acutely aware that Turk,
Egyptian and Mesopotamian universities in the Islamic world were functioning in
isolation but Indian technical institutes were altogether non-existent. The first modern
university in the Indian Sub-continent was established in 1857 at Calcutta, and
developed technical schools. Later, the Aligarh Anglo Oriental Muslim College was
established in 1875 exclusively for young Muslim men. It went on to become the
Aligarh Muslim University in 1920. The Zakir Hussain Institute of Engineering and
Technology was established under this University in 1938. Earlier in 1921 was founded
the Dacca University of East Bengal, and soon had a technical institute. Access for
Bengali Muslim men was easier. It is a historical fact that the world’s first university
was established in Takshila in 700 B.C. More than 10,500 students from all over the
world studied more than sixty subjects. The University of Nalanda built in the fourth
century was one of the greatest achievements of ancient India in the field of education.
This was the pre-Islamic era. Let us not forget that India was one of the richest
countries in the world till the arrival of the British in the early seventeenth century. In
fact, Christopher Columbus was attracted to India’s wealth and was looking for a route
to lead him to it when America was discovered by accident. Tradition and family skills
were the vocational training pools of Mughal India. Having just lost their American
colonies; later to be called the USA, the British forces came into Muslim India like an
unstoppable tornado.They found, besides a milieu of cultures, religious and ethnic
groups, two distinct communities who had seen their days of glory and were now in a
state of retrogression and decay i.e: Hindus & Muslims.Their contemporary state of
industrial technology had regretfully a negligible connection with the Pre-British
colonial rule. The steel age arrived late in India.
The early East India incursions in a Westerly direction beyond Madras and Calcutta
were “easy pickings” for an organized and disciplined force. The period of
consolidation followed. Thereafter a quelling of the so-called “mutiny of the natives”
in 1857 was swift, and in hindsight, most reassuring for the imperial forces. It was now
time to re-educate “the natives”, and create the new eastern base for Her Majesty’s “Pax
Britannica”. The Indian Muslims were a talented and intelligent people but they lacked
modern-day skills. The first University of British India (admitting Muslim students) at
Aligarh was established in 1875. The road network started around 1540- 1545 by
Afghan King, Sher Shah Suri, was enlarged. The plains of the Punjab required
scientific irrigation methods so the waters of the Indus Basin could be put to better use.
Aquaducts using gravity were known to the ancient Indian. Pumping and basic
hydraulics were improved after the arrival of the Fresh addressers and expeditionary
forces. Not only were the hardy natives of the Punjab found suitable for agriculture, but
their skills in metal work and carpentry convinced their new Imperial Masters that the
industrial engineering and forge/foundry techniques of Liverpool, Northampton and
Newcastle could be supplanted here. Soon enough, the bulk of the textile
manufacturing processes of Manchester and Bradford were duplicated in the Lahore
and Amritsar belts of West Punjab (now Pakistan) and Indian East Punjab.

18
The Hindu community was less resentful of the British conquest of Muslim India and
assimilated quicker within this new culture of Europeanization. As a result, their per-
capita share of the steel mills, machine tools and foundries was greater. In general,
British India including the highly rated Industrial belt of what is now Pakistani Punjab
became the springboard for the Pax Britannica Eastward Export Drive. Machine tools,
diesel engines and irrigation pumps were by 1900 competing with newly emerging
industrial Japan in the markets of South Asia and South East Asia. These markets
included Burma, Ceylon, former Malaya and Indo-China. Feudalism in British India
remained a deterrence for industrial development. It limited the levels of education
except in the very closed urban areas.

The Second Industrial Revolution & Beyond (Pakistan Specific)

The second industrial revolution (in Muslim India) arrived some 50 years before the
creation of Pakistan in 1947. The steam drives of marine vessels and railway
locomotives were being serviced at Karachi and Lahore. The magnificent North
Western Railway network (NWR) starting from Karachi to Peshawar via Multan,
Lahore and Rawalpindi had side tracks to Quetta, Kundian (Mianwali) and Lyallpur
(now Faisalabad). The British rulers developed all means of transport basically to
secure their volatile Western borders with Afghanistan & Czarist Russia. It brought
with it the convenience of the first and even second industrial revolutions, since
medium speed diesel engines were also deployed. The Internal Combustion engines of
automobiles, buses and trucks were now in extensive use. Also, an airline industry was
launched after the second World War, essentially managed by aviators from the military.
Regretfully, the Government did not think it necessary to introduce the manufacture of
medium speed and high speed Diesel engines or petrol engines- the kind that power
automobiles and road vehicles. Abdullahpur (Lyallpur) was home to an important
10MW Deutz Diesel power house, while Karachi, Multan and Rawalpindi had Diesel &
Steam Turbine driven power stations. Half a dozen hydropower plants were created as
an off shoot to the great irrigation system created in the Indus Basin. However, no
efforts were made to induct/upgrade manufacturing skills in these “sensitive” spheres of
energy converting machines inline with the neglect of internal combustion engines,
electric generators manufacturing and dedicated metallurgical/ alloy labs. Whereas the
first Engineering College in what is now Pakistan was established around 1925 at
Lahore (Mclagan College) there was no major attempt to upgrade manufacturing skills
after World War I. The service sector was developed. The Tata’s and Birla’s expertise
in steel making was inherited exclusively by India at partition of the subcontinent in
1947. Private initiative in the Pakistani Punjab was based on levels of skill in
metallurgy existing at the turn of the century based on skills of the first industrial
revolution. This obsolete capability was doomed to die out in the export markets and
within 25 years after partition even the locals were wary of these primitive and archaic
machines. After the creation of Pakistan, the Military and Aviation Industries during the
1960’s and early 70’s, managed to master the maintenance aspects quite proficiently.
However negligible import substitution was attempted through in-house workshops
basically due to the lack of volumes and attitude of the bureaucracy. This attitude of the
civilian bureaucracy has been endemic. The shackles of the feudal mind-set remains a
major hurdle towards industrialization. Pakistan remains a society dominated by the
feudal culture although the urban centers are now superficially liberal & modern.

The Textile spinning and weaving institutes also made a brave effort in the 1950’s &
60’s to learn the craft and maintain the imported machines. A power distribution
19
Industry was created with indigenous manufacturing of power & lighting cable, meters,
fans, lamps and accessories. Separately medium voltage distribution transformers &
basic switchgear was assembled / manufactured. However indigenous design capability
was very limited. Tragically, the era of the transistor which ushered in the electronic
age, the age of analog computers and, of course, the arrival of digital computers in the
late 60’s, was completely missed out on. The end of the second global industrial
revolution in the 1960’s and early 70’s saw worldwide great advances in electronics,
material, sciences and metallurgical processes. Pakistan totally missed out on this
aspect of the second industrial revolution and was therefore ill equipped for the third
global industrial revolution. The revolution that brought automation of industrial
processes and manufacturing in the world to a level of great efficiency, speed and
accuracy. Technology incubators would be needed to catch-up. We don’t realize it.

14) Global warming. Great Floods are predicted. Grain Output worldwide is falling: Let
us understand that worldwide over 6 Bn tons of CO2 is emitted every year into the
atmosphere. The greenhouse effect caused by an invisible blanket has resulted in an
average 0.7oC rise. Glacier melt has increased exponentially around the world since 50
years. The Polar caps began to shrink dramatically as well. Our sweet water supply is
70% fed by the mighty glaciers. Without several new reservoirs we are not prepared for
extra-ordinary flooding & non-seasonal flows expected over the next 25/30 years. Sweet
water once lost by the glaciers is not recoverable. As a result of this modern menace
nearly 50% of glacier retreat has already occurred (around 33% loss of surface area).
Switzerland tried to cover the alpine glaciers with plastic fabric, unsuccessfully.

15) India’s genocidal war through water theft: The foregoing analysis confirms that we
are since 1947 being subjected to a life & death struggle by India, the upper riparian.
India’s war has been surreptitious. The role of the Americans at the incipient sages of
the nascent dispute has been humane and statesmen-like. The brilliant article of Mr.
David E. Lilienthal as reported on 4 Aug 1951 having the title “ANOTHER KOREA IN
THE MAKING” was attached to the letter sent by IBRD (World Bank) president Mr.
Eugene R. Black on 6 Sep 1951 to the Prime Minister Mr. Liaqat Ali Khan. The IBRD
initiative was benign and timely. The subsequent events leading upto the signing of the
19 Sep 1960 Indus Waters Treaty at Karachi between P.M Mr. Jawaharlal Nehru &
President Ayub Khan are well recorded in Mr. Bashir A. Malik’s book Indus Waters
Treaty in Retrospect. The IBRD acted as Facilitator and Guarantor for the Treaty.
However the Indian mindset & machinations were beyond the comprehension of people
acting as honest & concerned brokers in this deadly water game. The Indian effort has
been so comprehensive and total that it can only be described as war for water which is
leading to a genocidal phase for the loser. Regretfully Pakistan is at the receiving end.
An army of fifth columnists now stalk the nation opposing every effort to build the life-
sustaining reservoirs on the Indus river. Who is motivating & financing this vicious and
dangerous enterprise against the people of Pakistan? Do we care to know?

16) The mix of incompetence, institutional greed and nation’s lost opportunities:
Scientific thought & discipline are not in style here. The Poverty cycle could not be
broken here especially due to the fact that the political leadership was generally looking
for short-term gains. The bureaucrats are part of the problem. For every efficient and
patriotic bureaucrat there is some one who is working on a personal agenda. We could
deliberate on why it took 30 years to have a steel mill. Why this steel mill is based on
imported iron ore, when the Germans had demonstrated that Kala Bagh ore together
with a mix of Pakistan’s coke could have been made functional. The family, dominating
steel trade, responsible for this national tragedy is known to most of us who have

20
studied Pakistan’s development history. The failure to build multi-purpose dam projects
on the Indus main stem after 1974 (Tarbela) is perhaps the biggest economic
catastrophe in our history. Let us look at some recent examples where impulsive &
arbitrary decisions resulted in major setbacks to the nation. The rogues are still active.

In Dec 2001 during the second visit of President Musharraf to PRC several MOUs were
signed for run of the river power projects with various PRC engineering & construction
companies on a turnkey (EPC) basis. WAPDA had invited reknowned PRC corps to
assist Pakistan to take a leap forward within the objectives of the VISION-2025
program launched in July 2001. The invitations were sent in Nov 2001 inviting PRC
groups to agree to sign hydropower MOUs in the presence of the President of Pakistan
who was to make a state visit in third week of Dec 01. Within the MOU draft each PRC
supplier/contractor received a reference price for the EPC (turnkey) project for which
suppliers credit would be arranged by the individual supplier/contractor. Therefore
WAPDA solicited and invited partners. The author of this hydel campaign, known as
WAPDA VISION-2025 and launched in July 2001 was Lt. General (Retd) Rao Zulfiqar
Khan a clean, hardworking Chairman of WAPDA since late 1998. His quirk being that
he was somewhat distrustful of contractors of all shades. The PRC groups showed
exemplary cooperation. Only one MOU for the 96MW low head Jinnah Hydel on the
Jinnah Barrage became a contract with M/s. Dongfang in Nov 2003. It is under
construction. The final cost allowed USD128 m+. The PRC Exim credit at reduced 5%
interest p.a. The P.S. has a high plant factor as it utilizes part of the main Indus flow.
Clearly Dongfang was favoured by both sides.

Three other Hydropower MOUs were signed in presence of the President. With M/s.
Sinohydro Group for Golen Gol 106MW (Upper Chitral), CMEC Group for several low
head canal based P.S. in Punjab (totaling around 80MW) & with CGGC/Gezhouba
Group for Keyal Khwar 130MW (Kohistan). A small but significant initiative to start
exploiting the 40,000 MW hydropower potential which our nation had identified.
Indeed future generations will be unable to understand why we could not find a
quicker way to use this hydel potential, known to us since 1960’s.

Second MOU was for Golen Gol. Sinohydro the largest hydropower construction group
of PRC approached WAPDA’s management in mid 2002 after realizing that their MOU
includes around 125 km of 132 kV transmission line (over a very harsh terrain) for
which they would require another USD27 m above the MOU price of around USD90m
EPC. It is clarified that EPC is the technical description of a “turnkey contract” where
prices are fixed during the period of the contract and therefore escalation is not
provided for. Yes 85% foreign currency financing was to be brought from PRC Exim
Bank on a standard commercial 12/15 years format. Sinohydro was refused the
legitimate extra money requested for the 132kV transmission line and WAPDA
cancelled the MOU. A national tragedy to be soon repeated on the Gomal Zam Dam
project in bloody Waziristan. WAPDA lost friends in the most critical development
sector and therefore it was a national tragedy. Vision – 2025 did not start well.

The third was CMECs MOU. This corp realized that the MOU value was grossly under
priced. Again WAPDA’s bureaucrats saw this as a trick for price enhancement and
rejected their request. The fourth & last group was also under price pressure. CGGC /
Gezhouba group were motivated to stay in the arena as WAPDA kept telling them that
the mega tunneling project Neelum-Jhelum 969MW would be their reward if they
would agree to work on the tentative price level of their respective MOU. CGGC being
effectively the second largest hydropower construction group of PRC was incidentally

21
the lead contractor of the Three Gorges Dam, the worlds largest hydro project
(completed in 2005). They agreed to work within the MOU tentative price and even
agreed to complete the unfinished feasibility. This engineering task they were able to
complete with their own resources in 10 months, around Oct 02. Their trial began.

The genesis of problems for Keyal Khwar Hydropower Project (HPP) the 4 th hydel
MOU began with the NWFP SHYDO organization resolution. In violation of the 1995
Hydel policy, the Power Generation policy 2002 as well as the 1973 Constitution of
Pakistan they refused to recognize the 130MW Keyal Khwar HPP as WAPDA / GoP
domain. A sovereign MOU having been signed on 24 Dec 01 with a PRC Group in the
presence of the President of Pakistan. The NWFP SHYDO Board under Chairmanship
of CS, NWFP Mr. Shakeel Durrani suddenly decided in Jan 03 to construct from its
own resources the Keyal Khwar HPP. The MMA government of NWFP supported the
CS, inspite of the fact that Chairman WAPDA had an agreement with Governor NWFP
on 28 May 02. Minutes recorded under SO (Dev)/6-S/20025667-81 dated 05 June 02.
NWFP did not withdraw its letter of Jan 03 to the Planning Commission Islamabad. On
27 Sep 03 the ACS, NWFP asked for adjournment of this agenda point at the first
ECNEC meeting during discussion of Keyal Khwar’s PC-I application. This was a
blatant violation of the Constitution of Pakistan which permits power generation by
provinces if they can self utilize the power. Keyal Khwar HPP is a remotely located
peaking plant and therefore can only be integrated with a large Utility network. Self
utilization requires “Base Load Plants” with a high plant utilization factor as near as
possible to the load centers to avoid high transmission costs. Also under the Power
Policy of 2002 the Provinces/AJK have jurisdiction on projects upto or below 50MW.
Therefore even if WAPDA had not signed a sovereign MOU with a PRC group in Dec
01, the provincial authorities of NWFP could not demand to execute this remote
130MW project. The CS NWFP was determined to have a confrontation when he
initiated the SHYDO decision. The dispute started by CS NWFP Mr. Shakeel Durrani
in Jan 2003 subsequently disturbed the project schedule by over eight months and later
led to the illogical ECNEC decision (in Jan 04) ostensibly due to interest rates.

On 07 Jan 04 for the second time Keyal Khwar 130MW high head MOU project
reached ECNEC and was rejected inspite of the contractor CGGC having agreed with
WAPDA’s demand for the original MOU cost of USD 100m (EPC / fixed price). He
had completed additionally the engineering feasibility from his on resources. CGGC
had not been able to arrange for the Exim Loan interest rate to be reduced below 5.5%.
Keyal Khwar HPP was a US 2.17 ¢ per Kwh power generating project. Such a low
generating costs inspite of short time peaking capability. No one in ECNEC including
WAPDA engineers had the acumen to speak-up. How could the NPV be poor if a US
2.17 ¢ project has a slightly higher interest rate loan? This project with a 700m + head
was to be basically a “peaking project” i.e. operating about 6 hrs in 24 hrs. The
generators being driven by two pelton turbines each receiving 11 cumecs of water flow
from the small storage yet produce nearly half billion units of power per year. It was to
be close to the three similar projects being constructed by WAPDA nearby (Duber
Khwar 130MW, Khan Khwar 72MW and Allai Khwar 120MW). Khwar is a Pashto
word for nullah and here these are tributaries feeding the Indus. The delay caused by
the NWFP’s intense objection definitely had weakened WAPDA’s resolve besides
delaying the approvals. The year 2003 /04 saw a lower interest rate scenario and
resulted in the Finance Ministry making this comical objection to the project in the
second ECNEC meeting of 07 Jan 04. Inspite of an excellent feasibility with an energy
tariff of US 2.17 cents (with financial costs) it was rejected after reaching ECNEC. A
great technology demonstrator was delayed and Vision-2025 crippled. Mr. Shaukat Aziz
22
and some of his financial wizards began to show quixotic tendencies during this period
(2003-2006). Clearly the inflow of financial aid, grants & renegotiations post 9/11 had
given them a false feeling of euphoria & well being. There was a brief period when he
had declared that no loans above 5% p.a. will be acceptable. He even set about to
terminate loans in the pipeline above 5% p.a.

Clearly the CS, NWFP Mr. Shakeel Durrani had challenged the Federal Power
Ministry’s jurisdiction. NWFP was not willing to respect its own minutes of June 02.
Keyal Khwar after construction by WAPDA was to become an asset of NWFP
providing the social and economic benefits to Kohistan. It was to be a pioneering
project able to serve as a high head technology demonstrator to unlock the huge hydel
potential of the Indus-Kohistan region. In late 2004 after the ECNEC decision to ignore
the PRC MOU the NWFP Authorities gave up their claim to construct Keyal Khwar
HPP. Not only 4 years of low cost high head hydel generation were lost but an
opportunity to purchase a hydel project at USD 0.75m per installed MW is
irretrievably lost. The EPC / fixed price level unheard of in 30 years. The PRC
contractor was never compensated for the feasibility studies. The German KFW
Authorities quickly offered to finance the project and preparations for tendering are
afoot. Cost of the project will now be nearly double. WAPDA and the nation has lost
incredibly but who cares?

17) Sad events at Pak Railways : Coincidentally this example also concerns Mr. Shakeel
Durrani when he served his first term as Federal Secretary Ministry of Railways &
Chairman Railway Board from Oct 04 to March 07. He quickly convinced himself that
the Rohri to Lahore Modern Signaling Project was wrongly awarded to CMC a PRC
Corp. and withdrew unilaterally the LOI without any formal enquiry. He refused to
accept that there had been four rounds of tendering between Aug 01 and March 03. He
ignored the fact that the Railway Board had approved it. CDWP had recommended the
project on 24th Jan 04 and finance ministry had approved the revised commercial
package / loan in early July 2004. He took an arbitrary decision and had the audacity to
send a diabolical & false memo to the President in Oct 05 when the CMC local rep
wrote a memorandum to the President that Pak Railway’s unilateral withdrawal of the
Modern Signaling LOI was the cause of the triple train collision on 13 July 05 at
Ghotki/Sarhad station in Sindh. Perhaps the worst train accident in railway history. Mr.
Durrani’s memo is based on a draft/unsigned estimate of a competitor. In tandem he fed
false technical information to the Planning Commission and succeeded to stall the
formal approval of the PC-1 by ECNEC so that the formal contract may not be signed.
CMC had been awarded the LOI on 03 July 03 by the full Railway Board tender
committee. An “Agreement for Award of Contract” was signed in the Great Hall of
the People on 03 Nov 03 in the presence of the Honorable Presidents of both
countries. A culmination of the Railway Modernization and Rehabilitation Plan
agreed during President Musharraf’s first State visit to PRC in January 2000. The
Rohri-Lahore PC-I was withdrawn in 2005/6 on Mr. Durrani’s instructions from the
Planning Commission and divided into 4 smaller sections. New tender costs received in
2007 for 2 sections Lodhran-Khanewal-Lahore (435 km, 31 double line stations) show
a shocking escalation of the project. Around 270% above CMC’s agreed rates of 2003.

The key technology offered by apparent lowest bidder BT (Bombardier) in 2007 is
identical to what was offered by CMC in 2003. BT was infact a nominated sub
contractor in the CMC tender / LOI / pre-contract Agreement. CMC refused to
participate in the 2007 tenders. The comparisons in cost of the CMC Agreement duly
recommended by CDWP on 24 Jan 2004 and the 2007 tender prices show a price

23
difference of effectively 270% or more above the CMC Agreement’s price level of 03
Nov 2003. The CMC scope of work had covered + 810 KM, 65 double line stations.
The total cost with BT interlocking for stations and 250 locomotives equipped for main
line auto-block signalling was USD 110.8 mn. Tenders in 2007 cover 435 Km, 31
double line Stations and 160 locomotives equipped for auto-block signalling at a cost of
USD 137mn. Again the nation suffered due to a bureaucrat’s arbitrary style & his
apparent mistrust of China. Was he following instructions to discourage Mouization!
Mr. Durrani’s historic remarks to the PAC (& AG) investigation on the PRC supplied
diesel electric locomotives, were a great shame as he attacked his predecessors without
realizing these locomotives were encountering minor teething problems (floor cracks &
ventilation issues). He now threw out a great opportunity since 1947 to modernize the
mainline signaling between Rohri to Lahore at a cost which was less than 50% of world
prices. The Diesel Electric locomotives he criticized so blatantly were purchased at a
fraction of international prices. The Economic crimes committed by Mr. Durrani have
perhaps no precedent in bureaucratic annals. Was it greed or incompetence or
megalomania? Subsequent advice by Fed Minister Sheikh Rashid Ahmad to “let the
decision be taken on new tenders” is a shameful cover up. The man who proposed in
Sep 06 the bullet train between Lahore to Rawalpindi and even advertised for its
Expression of Interest cannot be declared innocent of the criminal negligence with the
CMC Modern Signalling Agreement signed in the Great Hall at Beijing.

18) Market ethics & practices: The ethics & practices of the Pak market are also
seriously flawed. Perhaps it is the only market in the world where fakes & sub-standard
products are produced or imported with impunity. In most cases the buyer is aware that
he is purchasing poor quality. There is no institutional control. Both public & private
sectors are unable & unwilling to speak-up. Low prices are encouraged at the cost of
quality & safety. The # 2 Syndrome is an all pervasive and disruptive mindset. Easy
money is the mantra. Are the institutions including the PEC willing to change these
practices? Let us prepare an electric fire manual and educate people to avoid the fires
caused by poor wiring and fake protection equipment. Genuine 99.9% electrolytic
copper, good earthing practices & leakage current control being critical.

The market credit system within the trading community especially in the engineering &
materials area is scandalous. Just as predators like alligators & sharks stalk their prey in
water the merchants & stockists await the naïve & fresh blood. It is a vicious dog eat
dog story that has destroyed lives & businesses. I estimate that more than 50% of
returning expatriates fall prey to these predators. It dampens entrepreneurship and
market goodwill. The market place which has an abundance of “fly by night” traders
and quick money artists will never be a happy land. The media ignores this malady.

The situation of the steel re-rolling industry is probably the most disheartening. Based
on scrap melting it can only compete through electricity theft. The load shedding of
winter 2007 / 08 has made this industry absolutely untenable. Prices have doubled.
Since the partial collapse of our ship breaking industry near Karachi on the Mekran
coast line we are dependent on imported steel scrap primarily shredded ISRI 211. We
have already a very low consumption of steel per capita. In India during 2004 they
utilized 35mn tons per year. This was around 30kg per capita. The Indians have a target
of 200mn tons by 2020. Assuming that their population remains static this would be an
increase of nearly six times in 16 years. China used 300mn tons in 2004. Therefore
China already achieved 300kg per capita. Pakistan has per capita utilization below
India. During a lecture in Dec 98 at the GHQ after Army’s takeover of WAPDA, I had
advised the COAS that please consider electricity theft as a GoP subsidy and eliminate

24
this evil in steps. Attempts to stop it overnight will bring chaos in the market. Give
them a year to clean-up. As an example; the max axle load of trucks if enforced will
result in very few trucks on Pak roads. Bad habits take a little time to change.

19) The health, pollution & sanitation issues: First requirement of civilization is clean
water and effective sanitation. We pay lip service. We keep our house clean and throw
the garbage on the street. The belief that running water is clean even if it is sewage or
industrial effluents, is very dangerous. A Unicef report states that worldwide; safe
drinking water & sanitation are basic to human survival, dignity & productivity. Lack
of these fundamentals is one of the main underlying causes of malnutrition, disease and
death in children. Over 1 Bn people including millions of children lack access to safe
drinking water. More than 2 Bn people lack access to sanitation. Pakistan is amongst
the worst in Asia. Hepatitis is rampant. TB is re-emerging.

Pollution is the other menace resulting from auto & unchecked exhaust. Particulate
matter (PM) should not be more than 70 micro grams/cum. PM is a complex mixture of
extremely small particles & liquid droplets. It could include nitrates & sulphates,
organic chemicals, metals & soil /dust particles. Also acceptable Nox standard is 40 but
in city centers including Lahore it is around 100. Nox is the generic term for a group of
highly reactive gases all of which contain nitrogen & oxygen. It is primarily a result of
fuel being burnt at high temperatures. High arsenic content in ground water is very
harmful and caused by unchecked effluents. We all understand that PM, Nox & Arsenic
are responsible for severe health problems and countless mortalities.

In Pakistan’s 50,000 + villages, 1,000 + towns and major cities we find that pools of
stagnant & dirty water create millions of colonies for mosquitoes (& flies). Union
councils, town committees & municipalities have stopped trying to eliminate this
menace. Again Indians and Chinese are doing better at fighting malaria because in the
villages all three nations lack drainage infrastructure. In India they may not be able to
prevent the malaria parasite but are developing health centers to destroy it within 24
hours of infection to avoid complications. The Chinese whose generally cool weather is
helpful use new malaria parasite killers such as Atamisanan plant.

Prenatal care and gynae centers in villages and rural areas are non-existent. Trauma
centers for accident victims & other injuries are only available in few hospitals within
the large cities. The mountainous regions of Pakistan are also suffering from all the
above shortcomings as the rural areas of the plains. Where there is no piped water the
water-borne ailments such as diarrhea are rampant killers.
It may be appreciated that President F. D. Roosevelt under the ”new Deal of 1932” had
invested heavily for malaria control in the swampy areas of the TVA seven states
region. To facilitate and encourage the settlers, extensive malaria & disease prevention
was considered as important as water resources & fertilizer production.
20) PPIB (Private power & Infrastructure Board Islamabad): Since its creation in the
early 90’s this organization has been used firstly as a project office of the Federal
Ministry and as a convenient bypass of WAPDA. The official objective being very
noble i.e: to provide a one-window facility to Investors from the Private sector. The
manner it has been used is open to debate. It has also been exceedingly popular with
Federal Minister Mr. Aftab Sherpao in the period 2002-2004. Later his successor Mr.
Liaqat Ali Jatoi has also found it a convenient organization. To everybody’s surprise
they have offered two rounds of hydel IPPs in the last 3 years. Several investors came
forward for projects in the 50MW to 700 MW range. The sovereign site risk guarantees

25
as demanded by the investors will never be possible for the PPIB to offer. There is a
geological site risk and a hydro flow site risk factor. PPIB due to obvious political
reasons will avoid the hydro flow site risk. This is a dilemma and I do not visualize any
serious headway unless the hydel sponsor does not want site guarantees. The most
illogical hydel project which PPIB recently tried to attempt was the 960MW Tarbela 4 th
Extension in 2006 / 07. Only a bandit could have attempted such a private project on
Pakistan’s only mega dam on the Indus main stem. Who will decide the water sharing
between the public sector and private sector power houses? Dams may not have two
power houses. There are several safety issues as well. No wonder that a clean man like
Mr. Khalid Rehman resigned in 2007 the M.Ds Post at PPIB. The decks were kept
clean for arrival of the man who has the blessings of the Presidency.
21) Nepotism: Attrition of human resource has for long been a major drag on Pakistan’s
development. It is part of the worldwide brain drain phenomena where developing
countries continuously lose their educated youth to the developed world. Economic
factors are normally predominant in this decision to migrate. However nepotism, lack
of justice & lack of job opportunities for the educated are also major factors for
disappointment of our middle class youth and also the elite. I rank nepotism as the most
unacceptable form of behavior. Yes we have a feudalistic culture but some methods
used at different levels of Government can only be described as immoral & cynical.
Here below is an example of nepotism by the head of state.
Mr. Fayyaz Elahi, former WAPDA Xen Mechanical (Coal Power Station Directorate)
under GM Thermal is a charming personality. His credentials are however based on the
worst kind of nepotism and intrigue. He is from Burhan (District Attock) and passed his
Higher Secondary (F.Sc) in second division. Through official influence of then in
service Lt. Gen Jahan Dad Khan, a friend of Mr. Fayyaz Elahi’s father Major (Rtd)
Mehboob Elahi he became a Pak Army engineering cadet also known as DN (Defence
nominee). According to unofficial information Mr. Elahi obtained his B.Sc. Mechanical
Engg. degree in second division in approximately 7 years instead of the scheduled 4
years. However he did not serve the Army for a single day in uniform. Uncle Lt. Gen
Jahan Dad Khan arranged for his release on compassionate grounds.
Mr. Fayyaz Elahi while a student married Miss. Raheela, who is a first cousin sister of
President Musharraf. The remarkable fact about Mr. Fayyaz Elahi is that after a very
short spell of service in WAPDA Faisalabad Thermal Power Station he arranged in
1977 through uncle JD Khan for his transfer to Head Office Lahore. He managed to
spend the next twelve years on appointments within WAPDA Head Office Lahore.
Having a good command of the English language he was selected for training in USA
with a group of major coal thermal power consultants. In this period he befriended Mr.
MK Malik Joyya, the proprietor of M/s. Ravi Motors, M/s. Emkay Corp, M/s. Joyya
Enterprises. Mr. Joyya a childhood friend of Dr. Mehboob ul Haq had been introduced
in 1985 to WAPDA business as well as some major PRC corporations. Mr. MK Malik
Joyya received orders in 1986 for Chinese units 3x210MW for Jamshoro P.S. and in
1987 for 150MW Lakhra Lignite coal P.S., this time for Dongfang China. All orders
were received by Mr. Malik Joyya on exclusive negotiation or single tender basis
thanks to the patronage of Finance Minister Dr. Mehboob ul Haq. Mr. Fayyaz Elahi was
WAPDA Xen Head Office Coal Power Stations responsible for coordination of
negotiations between Dongfang Corp and WAPDA during 1987. This lignite coal fired
unit has never become fully operational. The main problem being poor design of lignite
handling systems & combustion control.

Mr. Fayyaz Elahi was transferred in late 1988 to Faisalabad P.S. He immediately took
long leave after few months of absence and joined M/s. Ravi Motors / Emkay Corp. as
26
project coordinator of Lakhra Lignite Coal P.S. under construction by Dongfang. In this
period he was able to secure Canadian Immigration. He returned to WAPDA service
after about 18 months. Through contacts of Mr. Malik Joyya he succeeded around 1990
to be transferred on secondment as Deputy Secretary, Federal Ministry of Water &
Power Islamabad. On the sudden passing away of Mr. Tanvir Azhar, Director General
of Private Power & Infrastructure Board (PPIB) in Jan 95, Mr. Fayyaz Elahi began to
manoeuvre for this high profile job. While PPIB was under the Federal Ministry of
Water & Power the job requirement was post graduation and relevant experience. Mr.
Elahi lacked both qualifications but due to the great influence of Mr. Malik Joyya over
President Leghari he was able to secure this job. Before the fall of Mohtarma Benazir
Bhutto’s second government in Nov 96 Mr. Fayyaz Elahi escaped to Canada reportedly
via Thailand with a large sum in cash. He had earlier boasted to his friends that some
investors in PPIB unable to achieve “financial close” had forfeited their performance
bonds. Mr. Elahi had proposed a way to arrange refunds under mutual arrangement. It is
not known if anyone benefited but Mr. Elahi received some huge advances from project
sponsors. The PPP Government was pursuing him when Lt. Gen Pervez Musharraf,
Corps Commander of Mangla Garrison assisted him to leave Pakistan by being able to
convince President Farooq Khan Leghari of Mr. Elahi’s victimization by the political
Government. President Leghari as Minister of Water & Power in the first PPP
Government had been involved initially for Mr. Fayyaz Elhai’s transfer from WAPDA
to post of Dy Secy at the Ministry. Clearly Mr. Elahi had not resigned his PPIB job nor
handed over under the required procedure. Since the takeover of Gen Musharraf in Oct
99 Mr. Fayyaz Elahi has been coveting this job. Otherwise as an associate of Mr. Malik
Joyya he remained fully involved within Pakistan during the military rule. Mr. Fayyaz
Elahi returned as M.D PPIB in early 2008. Clearly his two major qualifications. Firstly
being a longtime friend of Mr. Malik Joyya and secondly the fact that Mrs. Raheela
Fayyaz Elahi is first cousin of President Pervez Musharraf.

Mr. Fayyaz Elahi has actively helped Mr. Malik Joyya in negotiating without tenders
the PEPCO contract for Nandipur 425MW+ combined cycle P.S. based on GE Gas
Turbines to be supplied by Dongfang. Mr. Elahi is also a PEPCO Board Member, by
virtue of his PPIB job. A happy coincidence for both friends. Mr. Elahi is now
endeavoring to place a similar 525MW order on Dongfang for CKM site. Mr. Fayyaz
Elahi and Mr. MK Malik Joyya are old friends and PPIB is the best platform for playing
games. We would all clap and say hip hip hurrah if PPIB would not have the reputation
of being the nation’s dirty tricks company, created & used to destroy the national
institution; WAPDA leading to ever greater financial haemorrhage.
22) Educate, understand your assets/endowments & strengthen national institutions:
This is only possible when the elite and the educated are able to educate the youth and the
nation about the ground realities. Through honest leadership devoid of nepotism it is
possible to demand sacrifices and cooperation of the people. In the 21st century good
work is not enough. Excellence is required at all levels. Is our leadership prepared? Is our
middle class & youth prepared? Our labour class is definitely not educated!
The first causality of a breakdown are that the national development debate process
breaks down. In Pakistan all major projects have become controversial after 1971. Big
projects can become controversial due to the clash of interests but a balance & harmony
has to be created. Just look at the manner in which we have sidelined the engineers. The
generalist has decided that he will take all the decisions. It is like a group of priests who
decide to takeover all the operation theaters in all hospitals of Pakistan. Their logic is
that if the patient dies during an operation they are responsible for correct deliverance
of the soul, therefore they may takeover while the patient is still possessing it.
27
Unfortunately medicine and meta physics have to be kept isolated. The generalists has a
right to question the plans if the returns do not match the expense but he may not
transgress in the technocrats planning, project execution and operational domains. This
was reasonably under control in the pre 1971 era, although some major decisions were
take against the engineers’ advise. Now we see how the provincial politicians &
bureaucrats are browbeating the engineers & ignoring recommendations on irrigation &
energy projects. Over 28 years of hydel development has been lost. How will we catch
up? The issue is whether the national leaders will allow knowledge-based planning.
The affairs of WAPDA are a good example to analyze. The privatization process of
WAPDA should have ensured that the transmission wing, NTDC remains independent
of the Gencos & Discos. It should never be privatized. Who will relieve the bottlenecks
in the transmission system? Its extension & control is a continuous process. It must
remain integrated under one organization (WAPDA / PEPCO). WAPDA was a dynamic
organization where politicians & bureaucracy could not interfere. WAPDA could
always find the commercial capital. It had reliability. Therefore NTDC must stay inside
WAPDA / PEPCO. Wings of PPIB have to be clipped so that WAPDA / PEPCO may
restart its new thermal projects. The transmission system is critical but not a value
added activity. Some 80% of the costs of WAPDA / PEPCO are generation related.
Only 20% are the transmission system costs. Therefore transmission losses even if high
are not responsible for expensive power tariffs.

23) A tragedy averted: The engineering profession has not been treated as an autonomous
activity since 1980’s. National Planning had become so weak and privatization slogan
so endemic that on 22 March 95 an attempt was made to have an international tender of
more than USD 1 Bn in less than 8 days (opening date 30 March 95) for the
privatization of the 4th, 500kV circuit Jamshoro to Lahore via Rahimyar Khan (east
bank). If the French had not protested the sole bidder National Grid (a sister coy of
National Power) would have been today owner of NTDC’s largest asset and NTDC
would be paying rental. The burden on the nation would have been unbearable. It may
be appreciated that 500kV also known as Extra High Voltage (super grid) is the
backbone of the Pakistan transmission system. Two complete 500kV north to south
circuits exist from Jamshoro to Gatti (Faisalabad). In the south, Jamshoro is connected
to HUBCO on the Mekran coast. In the north, Gatti is connected to Tarbela Dam. The
3rd 500kV circuit Jamshoro is nearly completed and its route also falls essentially on the
east bank of the Indus, then via Multan to Gatti. Also a spur via Sahiwal to Lahore. To
have given parts of the unfinished 3rd 500kV circuit (including sub-stations) and the
complete 4th 500kV circuit to NGC, UK under a BOM concept would have been
extremely cruel to the people of Pakistan. This is not a value added activity and NTDC
/ WAPDA would never have recovered financially from this infrastructural mishap.
24) A symphony of facts concerning irrigation & power sectors:
Let us remember that barely 3% of the world water resources are sweet and potable.
From these about one-third are accessible or exploitable as rest are underground or in
glaciers and icebergs. It was in 1997 that a comprehensive assessment of fresh water
resources of the world was prepared. The U.N. and the Stockholm Environmental
Institute noted with great concern the following features of the un-folding situation. By
2025 two thirds of the world population will live in those countries in which the efforts
to achieve economic growth and social progress will be hindered, given the
continuation of the current water usage and management policies. The water use has
grown at more than twice the rate of the population increase during the 20th century. In
1995, 20% of the world population did not have access to safe drinking water and 50%

28
lacked proper sanitation. At any given time approx half of the people in the developing
world are suffering from sickness associated with unclean water. Please note:

i) WAPDA has become the chain of the federation by harnessing the resources of the
Indus basin irrigation waters. It represents around 20% of the national asset base of
Pakistan and is effectively the backbone of the economy. Its privatization is not
acceptable. It has been a welfare utility based on the most successful TVA model of
USA. Its distribution assets must revert to the provinces under the 1973
Constitution. Let the provinces decide the fate of the Discos (Distribution coys) so
that the federation is not damaged. WAPDA’s balance sheet has been made weak by
the thermal IPPs and privatization lobby. Can it build large multi-purpose projects
needed for survival of Pakistan’s irrigated agriculture? The food black-hole around
USD 2 bn and the energy black-hole primarily due to thermal IPPs (around USD 4
bn pa) would be ever expanding. Secondly WAPDA is the largest sustainer of the
local engineering industry and generally low cost energy is the second pillar of
industrialization. WAPDA’s situation has already affected 25000 technicians, the
most serious human resource crisis since the Bangladesh debacle. The best have left
the country.

ii) WAPDA is to raise Mangla Dam height by 45ft and hopes an additional 3 MAF
would be available for irrigation. Studies have shown that this premise is not
correct. Except during abnormal floods this additional water would not be available.
The studies show that during six years in ten the raised dam would not fill, yet we
plan to spend US$900 mn (Rs. 60 billion) or more when the advantage would occur
every 30 years.

iii) Breaking the poverty cycle has been the goal now for 50 years. The engineers as a
group are agitating for use of our plentiful indigenous resources. The Kalabagh
Dam (KBD) for example could generate 14000 GWh (14 billion units) per year.
Through irrigation benefits Kalabagh could pay back its entire cost in one year.
Besides Kalabagh would be a replacement reservoir to Tarbela and both would
work more efficiently in cascade. Does any politician have a solution if there is
liquefaction of sediment delta (standing few km north of Tarbela Dam) due to
seismic activity?

iv) Worst fears of engineers, legal experts, economists, workers organizations and
university professors had come true with a two page executive order dated 24 Oct
98 signed by Muhammad Saeed Mehdi, Principal Secretary to the Prime Minister
under the heading of “Restructuring, Reforms and Privatization of WAPDA”. It was
the complete takeover of WAPDA power assets without blinking an eyelid. PEPCO
may not be free to do whatever it pleases including liquidation of WAPDA assets.

v) Please remember WAPDA had surpluses before 1995 and would periodically give
loans to the GoP and self-finance the local component. WAPDA could not become
financially more dynamic as it had to finance a callous rural electric network
expansion for 28 years. The “influentials” and regional subsidies denuded WAPDA
and not the usual corruption by its low paid line staff. The utility function of power
distribution, billing and collection was never intended to be part of the WAPDA
charter.

vi) WAPDA has indeed become the chain of the federation because it supplies the
bulk the irrigation water to the provincial irrigation departments and has developed
an equally successful national High Voltage grid system which receives power from
29
its dam based hydel power stations in the north and its thermal power stations in the
central and southern locations. By harnessing the resources of mother Indus,
WAPDA has become the chain of the federation. The ideal Hydel-Thermal energy
ratio of 70:30 has to be pursued. Our salvation is indigenous energy both hydro and
lignite-coal.

25) Symphony of facts concerning the industrial, energy & technology outlook: Our
Industrialization efforts have been stalled and unless our engineering industry is
modernized and there is low cost power there will be only consumer goods related push
button industrialization. The engineering industry can independently contribute upto
40% of export earnings. It is the first pillar for a sustainable industrialization of
Pakistan. Engineers need the platforms under a “new deal” so that they attempt
technology transfer as part of a major Technology Management plan covering material-
sciences, IT & telecom areas within the concept of technology zones. Software
engineering is now the most prolific technological tool for the 4 th industrial
revolution & modernization of Pakistan. Software/IT exports have to cross the
USD1Bn mark. Revival of traditional machine tool industry included. Some specifics:

i) Basic industries were never pursued under a coordinated plan. Infact Mr. Shaukat
Aziz was basically pursuing three economic goals. Firstly attracting FDI without
realizing that basic utilities are social networks of a government and profiteering in
these areas of water and electricity is criminal in a developing economy. The
investor will create conditions for a net outflow of capital. Private initiative in the
fuel cycle however cannot be avoided. He extended the privatization & break-up of
WAPDA assets to include the privatization of dams/reservoirs. There are some areas
where even the local investor should not be welcome. Secondly instead of
establishing basic industries he decided to liquidate the few existing ones under a
privatization regime. The Pakistan steel mills being a major example. He succeeded
to privatize the major chemical fertilizer factories in the public sector. The correct
course would have been an invitation to the private sector to compete by settings up
new industries instead of privatizing profitable basic industries. Thirdly he preferred
to keep the nation’s reserves in vaults, bonds & securities instead of giving a
dynamic programme for uplift of agriculture and agro-based industry in tandem
with a rejuvenated engineering industry.

ii) An industrial policy based on value addition was never our national goal since
1947. The opposite happened in India. Since Oct 1999 Mr. Shaukat Aziz & his
advisors did not even attempt to understand it. On 8 Jan 07 Mr. Shaukat Aziz while
inaugurating a Daewoo bus assembly plant at Karachi (Afzal Motors Ltd.) proudly
declared that “this plant is part of our vision to make Pakistan a hub of global
engineering products and global engineering industry”. Clearly someone forgot to
inform him that Daewoo Bus company of S.Korea is owned by the Tata Group of
India since several years. Also that Pakistan had started “progressive manufacture”
and assembly of many different vehicles; cars, buses & trucks since the 1950’s.
They always degenerated into outdated assembly lines because they did not create
R & D sections or understook manufacture of critical components & assemblies
such as engine primemovers & transmission systems. The entrepreneurs invariably
blamed bureaucratic dis-concern. The Japanese assembly plants after 1980 for
different cars & buses have been successful for the local market only. Technology
transfer remains highly controlled.

30
iii) The role of new technologies & the planning Dilemma. Whatever happened to the
governments Integrated Energy Plan? In October 2004 PM Shaukat Aziz had
directed the Ministry of Water & Power & Planning Commission. As always it was
not followed through. Let us fall back on the existing National Power Plan of the
mid 1980’s later updated with Canadian assistance (CIDA) after 1990. By 1994 a
National Power Plan project (NPP) was completed covering expansion plans upto
2015 (both generation & transmission studies). Some other parallel studies
including 1) A Secondary Transmission System Review 2) System Improvements 3)
Thermal Siting Criteria. This National Plan was overshadowed by the PPP
government’s Energy Policy of 1994 which opened the door for the induction of the
private sector thermal generation based on imported fuels. HUBCO was already
approved but they were seeking amendments which were now facilitated. Let us
fall back on the NPP of 1994 and together with the Hydro VISION-2025 plan for
the next decade and beyond.

It is time to see how we could fall back on the indigenous energy resources:

a) The hydro resources allow over 8000MW high head projects on a fast-track basis.
WAPDA has identified four projects in the NWFP, worth $874mn as estimated by GTZ
Germany. Design of Bunji 5,000 MW HPP is at an advance stage. Both the Northern
Areas & NWFP have excellent run of the river sites. The high head list is extensive.

b) Solar pv systems are soon to achieve USD 1 per peak watt. Massive solar farms would
permit direct DC feed and with help of inverters AC would be created. Domestic &
commercial pv systems using batteries and inverters (similar UPS) are also coming
down in price (about USD 1.5/ peak watt). Prices of solar thermal collectors of the
double concentric design are now below USD 50 per sqm. They must be used to do
preheating of boiler water in industry. Hot water could be also available at 60/65 oC for
use in Absorption cooling & air-conditioning systems as well as homes.

c) Wind power tariffs are proving problematic but Pakistan must be introduced to this
technology. The true lift off would come when Pakistan would manufacture its own
wind power infrastructure, similar to the Indians Suzlon group. The Gharo Keti-Bander
wind corridor has great potential.

d) I discuss coal in context of the new clean coal technologies. In sympathy with oil
price rise the “black steaming coal” prices crossed USD 91 in Jan 08. It was around
USD 75 in Oct 07. The cement industry imports around 2.5mn tons / year.
Unfortunately the local black coal has high sulphur content (around 6%) while
imported black coal is around 1%. The saving compared to imported Furnace Oil is
over 60%. Indeed the local supply of black coal is limited. The Thar brown coal
(Lignite) reserves are estimated at 184 Bn tons. They are low on sulphur and a process
to use Thar lignite becomes critical for the economy. Due to high inflammability the
power plants location would have to be at mine-mouth. Alternately SNG (synthetic
natural Gas) production from Thar lignite could one day sustainably cross 10BCFD
allowing export of fertilizer and huge generation of power. SNG is methane gas
produced from lignite. The process is well known (Lurgi-sasol). It is the best utilization
of Thar lignite as SNG/Gas transmission is more efficient than electricity transmission.
SNG /Gas can be a feedstock for fertilizer factories. The future belongs to clean coal
technologies, hydrogen fuel cells, nuclear power & renewables (hydro, solar, wind)

31
iv) Labour: Dignity of labour is dismal & outright inhuman. Whenever the labour element
has reacted the industry was closed. Most of NWFP, Baluchistan and rural Sind are
without industries. A sea change is required on both sides.

v) Pharma: a basic industry that was targeted to achieve USD 150mn export by 2007.
Unfortunately this did not happen because basic R+D and formulations (generic) are
not covered by Pakistan industry.

vi) Great minds Great Deeds, Great Capability. Let’s take WAPDA’s greatest engineers as
an example. We had Mr. Syed Salar Kirmani, CE of the Indus Basin Project in 1950’s
and 1960’s. Mr. Shams-ul-Mulk, WAPDA Chairman in mid 1990’s, Mr. Khalid
Mohtadullah, Member Water in the late 1990’s. Several other great men were part of
the water wing of WAPDA. In the power wing we saw legends such as Mr. Inayat Ullah
Khan, Mr. Ch. Masud-ur-Rehman, Mr. Ch. Javed Akhtar and Mr. Saeed Akhtar Niazi,
They were assisted by dozens of competent men. Great deeds were witnessed. WAPDA
was delivering. It had great capability. Its erosion started in 1994. In early 2004 the
situation become desperate. Mr. Aftab Sherpao appointed Mr. Muhammad Anwar
Khalid as member Power WAPDA. They say it was an open auction not a selection on
merit. All engineers must hang their heads in shame. Some of us refused to shake his
hand, enter his office or even attend meetings where he was present. He had a favourite
multi-national and a way was always found to award them contracts. WAPDA had been
violated. The nation had been betrayed.

26) Hubco the predator: It has now been established by WAPDA/PEPCO experts that this
1292 MW, IPP’s kWh unit cost has reached US20 cents including fuel pass thru costs.
This is a shameful waste. Assuming that a 1292 MW project generating 10 Bn kWh
units per year is wasting one cent the financial affect is atleast USD 100mn/year. This
IPP had negotiated with Government of Pakistan between 1985-1992 under World
Bank facilitation and signed an agreement but did not commence till the induction of
the 2nd PPP government in 1993. It may be remembered that HUBCO got arbitrary
amendments in 1994 which were highly controversial. Their tariff had reached US11
cents by 1997 (about one year after start-up). The boast by Mr. Shaukat Aziz that in
year 2000 great concessions were extracted from HUBCO are proved wrong and
irrelevant. There is no reason to allow HUBCO to continue with this terrible project
unless they can change their fuel to LNG or coal and renegotiate. The UNIDRIOT
principle of the UN charter allows reopening of this one-sided defective project. Let
the people of Pakistan be spared from further ruination at the hands of this predator and
mother of all IPP’s based on imported oil.

27) Administrative & Legal Reforms: It is a sad commentary that Pakistan got its 1973
Constitution some 26 years after its creation. It has been violated and manipulated by
nearly all governments since then. Respect for basic institutions including the
Republics Constitution will certainly grow as true democracy takes hold. Meantime the
nation’s economic activities continue to suffer. Great minds such as Engineer Masud
Hassan have spent a life time trying to educate us on the concept of “Administrative
Courts”. The simple thesis; the “accountability of the executive lies with the executive”.
Imam Maalik had declared that public interests are supreme. Whereas in English
common law you need a precedent. If you don’t have one you have a wrong decision.
The body has to be found otherwise a homicide cannot be proved. In an executive
administrative courts system of justice the body has to be found .It is nearly always
found. Napoleanic Law is highly regarded as it has this executive system. You always
get evidence when you apply pressure. This system works brilliantly in the Armed

32
forces through their court-martial system. In our civilian administrative system the
accountability of the executive by the executive was never tried.

28) Pakistan can be again a viable state: It has to realize the potential through water
storages built on a war – footing to augement its irrigation and power systems. At least
three KBD size new storages have to be built in the next twelve years. Another
8,000MW of cheap high head power will allow about 20,000 MW of Sasti Bijli by
2020 and help make Pakistan an Industrialized and viable state.

33
Industrialize or Perish (a primer)
PART-II The short and medium term solutions
AA) WAPDA again our economic Prime-mover ~ Roll back, Roll back, Roll back.
Revive WAPDA as per its original charter of 1958. The nine Distribution Companies
(DISCOs) may not be taken back but handed over to the provinces inline with the 1973
constitution. Both irrigation water distribution & electric power distribution are
provincial subjects. It will be a very logical step. It will stem the rot as the corruption
level and inefficiency of DISCOs is reportedly intolerable. Their privatization would be
even a bigger folly as 27 years of private distribution after 1947 proved. Let WAPDA
be the supplier of bulk water (as at present) and also bulk electric power to the
provinces. Design & Construction wings of WAPDA be kept intact as it would take
decades to duplicate them at the DISCO level. NTDC the bulk transmission company
has to be returned to WAPDA as this is a critical arm of the energy producer. Give the
goal of low-cost electric power (SASTI-BIJLI). A five years program at the most. It
would involve the renegotiation of some major IPP tariffs. Not a crime under the
UNIDRIOT international principles. The nation is finding these Agreements
unsustainable and one sided. Strongly recommend cancellation of further thermal IPP
projects if not able to meet the tariff criteria. A fall back on indigenous thermal
resources however painful. The 2007 USD four billion annual black hole in the electric
power system has to be reduced. Ceiling of 2000 MW for imported oil / HFO. Hydel
projects below US 4.5¢ immediately commenced in the public sector. Run of the river
private hydels allowed on raw sites and given fullest support with a fair tariff regime.
Public sector may work on several large hydels of cumulative 10,000 MW. There are
fast track projects (run-of-the-river) having medium to high heads where generation is
possible at less than US 3 cents. Bunji’s pre-feasibility indicates a capacity of 5000
MW. Let plant utilization factor determine its size. Its location upstream of Chilas has
to contend with the challenges of very long transmission lines & the seismic factor.
Economic dispatch be strictly monitored and only the least cost solution be favoured.

BB) No Privatization of Dams~ Wake up, Wake up, Wake up.
There is no question of allowing private control of any major Dam as advocated by Dr.
Salman Shah. The proposed fourth extension (by 960 MW) of Tarbela Dam power
generation by the private sector based on its fourth tunnel is a great cruelty against the
people of Pakistan. Firstly it is a “peaking project”; able to in a good year’ generate
only about 1900 GWh (1.9 Bn units) of electric Energy. Secondly we may not create
competition between the private & public sector for the limited quantity of water
available. Who will decide the additional quantum of water to be given to the private
power house? Thirdly and equally important is the fact that a Dam may not have two or
more power stations as it raises operating costs. This is an established fact.

This project was first conceived in an Inception Report prepared by Nespak/Chas T.
Main in May 1991. It was first proposed in 1995 for construction on suppliers credit by
Sulzer Hydro by the installation of two turbines on available tunnel No.4. The units
were to be identical to the four units on tunnel No.3 but rated higher at 480MW instead
of 432MW each. Due to safety concerns it was shelved (sediment sluicing). This
project must be kept in the Public Sector. It must involve sediment sluicing from tunnel
No.4 which could use a bifurcation to alternate between the power house generation
34
and required sluicing of sand, silt and sediment. However the 2000/2001 private sector
feasibility by ALSTOM-Neyrpic based on Sulzer Hydro’s first proposal is not realistic
and ignores the three sequential analyses of WAPDA’s top water experts between 1994
and 1999. Any extension also involves building a coffer dam (underwater dyke) for the
protection of underwater structures etc. The only Dam on the Indus River must
remain a public sector project. Can WAPDA’s present management led by a
diabolical and self-serving Chairman even understand the dynamics of change?

CC) Limit Private Power. SNG and Nuclear Energy options are also viable.
The nation is unable to rationalize the concept of handing over critical elements of
public utility services and prime assets to foreign ownership. How does anyone justify
the privatization of a capital intensive power house for a fraction of its cost. Private
Power should never have been allowed to go beyond 10% in the mix. Please remember
that any one having more than 10% share in a Utility power mix is technically a
monopoly. NP, UK through HUBCO and KAPCO alone controls nearly 30%. IPPs
could be justified using local fuel sources and supplying to critical industrial zones and
export processing zones.

Tariffs should not be indexed to USD but to PKR except for the foreign component.
Load shedding is with us as long as we are poor and without indigenous hydropower.
The concept of “energy trading” has to be understood by all kinds of energy players.
Yes agreements would have to be modified. Pakistan’s economic sustainability is at
stake. Tariff allowed to all the power projects must be reviewed with reference to the
actual project cost and current rate of return. After due diligence and with
adequate legal cover the tariffs must be revised downwards accordingly so as to
reduce the costs. A relevant example for re-negotiation of thermal tariff is India's
Dabhol power plant renegotiations of July '96. The tariff was renegotiated from US
7 Cents to US 5.4 Cents. In the rest of the world electricity prices fell 7.4% average
in one year between June '96 and June '97. Tremendous price advantage was
obtained by the Australians through coal development and deregulation of
private generators. They have the lowest tariffs. Victoria province privatized some of
i ts coal fired thermal stations. They did not sign any PPA's but allowed "open
market" tariff. Fuel was always indigenous black steaming coal. They permitted
maximum Australian 4.5 cents for coal fired stations. Due to healthy competition
the average tariff came down to Australian 2 cents. The remarkable thing is that
most Australian provinces refused to privatize public owned power stations
because they had achieved in most cases 94% availability. Each year the tariffs
were falling worldwide due to reduced capital costs. The cardinal principle for bulk
price is clearly the basis of cost "as if the investment were to be made by WAPDA
or GoP". Tariffs cannot and maynot be fixed but inline with worldwide trends
remain open to a periodic review. In 2007 fuel costs payable to IPPs by GOP /
WAPDA crossed Rs 8/Kwh. Theoretically this cost will go beyond Rs 100 /Kwh
if oil prices continue to rise.

The Hubco contract had a Reopener Clause under which the tariff could be
reviewed and revised, based on reduction of risks and actual project costs. The
Government did not enter into negotiations with HUBCO to undertake tariff
reduction on a priority basis. IPPs in USA, UK, Philippines and India are
regularly subjected to tariff review. Why not in Pakistan? Let us not forget the
statement of Mr. Bakke of AES, USA on 8 Feb '94 when he conceded on the
podium that due to competitive bidding there are projects' PPAs at less than US 3
cents in California. The factor of tariff adjustment in 2007 being the international
35
oil & gas cost increase. Other Renewable energy sources including WIND &
SOLAR are now selectively feasible for remote grid feeding. Nuclear Power
Stations for a country with its own fuel processing and handling have become
feasible. They are nominally more expensive than conventional thermal
power. Remarkably they do not aggravate global warming. Nuclear energy
would require a comprehensive fuel cycle including a reprocessing capability
as well as nuclear waste disposal. Since Pakistan has not followed the
plutonium route for its weapons programme and it should be allowed fuel
reprocessing plants. No new thermal plants based on imported energy be allowed
and we have to strive to achieve a drastically reduced ceiling of 2000 MW of
imported energy based power houses before the end of 2010. This would mean
conversion of some existing thermal stations to gas combustion through Synthetic
Natural Gas (SNG). The imported gas if having a reasonable price basis may be
considered as a stabilizing factor for our gas Utilities until reserves of SNG are
developed. To reduce system losses let us try to bring the industrial load growth close
to generating stations. Also shift the bulk of gas resources to northern power stations
first so that imported oil/HFO transportation and infrastructure stresses could be
reduced. Similarly focus on lignite coal development and mine mouth based power
stations, using the SNG clean coal gasification route. The engineering and business
community of Pakistan correctly rejected the CEPA proposal of 1994 to install two
units 660 MW each at Keti Bandar based on imported coal. Thar represents the
Eldorado of Pakistan's mineral and energy resources and used correctly with the
nation's untapped hydel potential would change the international perception of Pakistan
as a resource poor country and help raise the sovereign credit rating.

DD) Water Resources / IBIS our prolific asset ~ Understand it ! Let Sind control it?
The three 2004 letters of late Lt. Gen (Rtd) Dr. G S Butt to the President be taken as
articles of faith. They are available from the WRDC archives. This great geo-physicist
& engineer was highly skeptical of an early completion of Bhasha-Diamer. He was
born and raised in Sind where his father was an irrigation engineer at Sukkur Barrage.
It was on his advice that I proposed to PM Nawaz Sharif to re-name KBD as Sind Dam
and give its lifetime control to the Sind province. I reiterate give the control of the
Indus River as allowed under the new IRSA constitution may remain with our Sindhi
brethren. Let the lower riparian feel that the upper riparian has nothing to hide and does
not intend to steal Indus Waters. Let Sind become responsible for Pakistan’s most
valuable endowment. Punjab, NWFP & Baluchistan’s irrigation water needs may be
apportioned by Sind based on the 1991 Accord. The Federation has to be saved and
enemy propaganda has to be neutralized. Remember that Sindhis are generous by
nature, and they have already been given majority control of IRSA in recent years.

The statistics about reduced water flow are misleading. Global warming will increase
glacier melt and there will be greater surface flow for the next decades. As one of the
main architects of the KKH and as a former Chairman of WAPDA Dr. Butt understood
the ground realities. This he forcefully conveyed to the incumbent Chairman WAPDA,
its managers & consultants on 30 June 04 during a meeting which was a result of his
first letter of 2004 to the President. He was convinced that Basha-Diamer cannot be
larger than KBD due to its location. Therefore both should be started asap. A message
of the legendary late S. S. Kirmani, from the USA, was received on the eve of the
“Conference on Water Reservoirs in the National Economy”, convened at Islamabad in
Feb 1998. Syed S. Kirmani Sahib who was living in USA wrote and I quote extracts of
this fax dated 04 Feb 98:

36
“Few countries are blessed with such rich land and water resources as Pakistan. It has
also been blessed with an ideal climate for year-round cropping. Many experts point out
that Pakistan’s potential for agricultural production is greater than that of California in
the United States. The International Food Policy Research Institute’s (IFPRI’s) studies
identified Pakistan and Thailand as the only two countries in Asia that have the
potential for exporting food on a sustainable basis in the 21 century. Despite large
hydropower resources, Pakistan is depending increasingly on costly oil and coal
imports for meeting its power needs. It is time to examine the main causes for
Pakistan’s predicament. It is time to examine why Pakistan has not been able to develop
its land and water resources so effectively; why the irrigation engineers base their water
demand on historic withdrawal instead of matching water supply with crop
requirement; and why important issues, such as the amount of surplus river flows
available for storage, disposal of the Basin’s saline effluent to sea, and measures for
protecting the ecology of the Indus delta, remain unresolved for many decades. It is
also time to ask why Pakistan has not been able to exploit the great opportunities for
water resources development opened up by the 1991 Water Apportionment Accord. The
Federal ministries should have played a proactive role to build consensus, but they
remained passive and were unwilling to face the challenges of the issues. Thus,
everybody blamed everyone else for the lack of progress, and the issues became more
controversial with time. Pakistan’s aspirations for realizing the full potential of its rich
land and water resources will remain a dream if the prevailing controversies on water
issues continue. There is a need for exploring a new strategy that does not suffer from
constraints of past approaches and which provides better prospects of success”.
Unquote.

EE) PEPCO. Let it be the special group managing WAPDA
A few bureaucrats under advise of world bank created the concept of PEPCO with the
understanding that PEPCO will assist WAPDA for its restructuring. Within one year it
became a Frankenstein and the biggest civilian organization of Pakistan was to be
broken by PEPCO and made into a group of ineffective companies under the garb of
“restructuring and partial privatization”. PEPCO was implemented around Oct. 1997
apparently by Federal Secretary (Water & Power) Mr. Javed Burki. Till his retirement
in early May 98, all documents show PEPCO as a “special management company”. It
is known that Mr. Javed Burki while in office had nominated himself as the first Chief
Executive of PEPCO. Later it was through an infamous executive order of the PM
issued on 24 Oct 98 under the signatures of Mr. Saeed Mehdi that PEPCO was virtually
declared as the absolute arbitrator and liquidator of WAPDA’s assets. This order was
reversed through efforts of colleagues who advised the honorable PM of the reality. Mr.
Burki could not takeover PEPCO. Why we are so insensitive to the destruction of
WAPDA’s balance sheet? Do we not intend to build large dams required to support the
irrigation system of Pakistan? In early 1994 the author received personal assurances
from the management of UBS, Switzerland that WAPDA’s performance and balance
sheet can allow an ‘A’ credit rating independent of Pakistan’s sovereign credit rating of
that time. UBS was willing to sponsor WAPDA in Wall Street for such an exercise.
What happened after that is well recognized by all of us. Private Power Policy of 1994
based on primarily imported thermal energy was defective and unsustainable. It was
arbitrary and uncapped while the tariff too high. The damage to WAPDA’s balance
sheet is now clear. No doubt the new management of PEPCO is highly professional and
capable of reorganizing/ reviving WAPDA. Will they please speak out for a reversal of
the 2007 bifurcation?

37
FF) Hydrocarbon Energy Development. Reduce import Component.
Let us analyze the thermal energy consumption. We ofcourse do not include
hydropower or any other renewable resource. MTOE meaning “million tons of oil
equivalent”. While gas is the corner-stone of the energy mix worldwide everybody has
realized that its supply is not endless. Particularly in Pakistan a severe gas shortage for
power generation is predicted by 2010. Indeed LPG local production is also not able to
meet its rising demand. Pakistan’s energy mix of around 55 million tons of oil
equivalent (MTOE) has been analyzed in 2005 by GoP as below is compared in 2007:

Source TOE Cumulative Commercial
Share% Energy share
2 2 2007
005 007
Oil 16.32 mn 29.4 30.5 45
Gas 27.95 mn 50.4 48.5 34
LPG 0.227 mn 0.4 0.8 1
Coal 4.22 mn 7.6 8.4 5
Electricit 6.79 mn 12.2 11.8 15
y

The total thermal energy consumption (indigenous + imported) as discussed above was
predicted to rise seven fold from 55MTOE in 2005 to 360MTOE by 2030. The
requirement for power generation is expected to increase eight fold from 19,540 MW in
2005 to 162,590 MW in 2030. My personal prediction is that it will reach about 80,000
MW if Thar coal gasification becomes a reality otherwise the shortage of financing will
limit electric power production (hydel, thermal, nuclear etc.) to about 50,000 MW by
2030. In any case Pakistan is running out of useable and affordable energy for the
domestic, commercial and industrial consumers. There is bound to be large quantity of
expensive LNG imports unless a pipeline is built to bring Turkmen or Iranian gas. The
participation of private sector in the energy mix becomes exceedingly important by the
day. An estimate by the Government of Pakistan predicted in 2005 that the next 25
years would require an investment of nearly US$ 150 bn in the energy sector. The
private sector’s share was estimated at USD 100 bn.

The costing of LPG in the last few years has been a shameful theatre. This poor man’s
fuel is now a rich man’s dream. Liquefied Petroleum Gas (LPG) is the common name
given to Propane or Butane or a mixture of both. LPG is handled and stored at much
lower pressures compared to CNG; the state in which natural gas (Methane) is normally
stored. The potential market demand for LPG in Pakistan is expected to touch 6,000
tons/day by 2010. The local production would be close to 33%. Presently it is 1650
tons/day. The present market supply also includes approximately 200 tons/day via land
route or the sea route. This is negligible but the import component will now increase
dramatically in the next few years. It is clarified that LPG becomes available during
refining process as a by-product or is extracted from natural gas when it is in the
undesirable wet form. Price controls are non-existent?

Pakistan has negligible quantities of oil and could not even maintain 100,000
barrels/day of oil production. Therefore thanks to gas reserves presently estimated at 18
trillion cft and a sustainable domestic production of over 4 BCFD (Billion cu. ft / day)

38
the country is saving atleast USD 1.6 Bn/year. There is a constraint caused by
infrastructure problems. The gas lobby is convinced that if the Turkmen or Iranian gas
pipelines will not be possible then this nation is bound to copy the South African model
also successfully applied in the North Dakota USA plant and create gas from Thar
Lignite. The Synthetic Natural Gas (SNG) has 95% Methane and displays near identical
characteristics of natural gas. It can easily feed into the existing natural gas
transmission networks and also provide a direct source for LPG production. Thar coal
can produce 2 BCFD of SNG which is in fact capable of generating 10,000 MW. Mine
mouth gasification will mean negligible gas transmission losses to distant power houses
located near load centers. Excess gas/SNG can also create a surplus fertilizer
production, which is an exportable commodity. One can feel optimistic about Pakistan’s
fossil fuel/hydrocarbon reserves as Thar Lignite coal fields are estimated at 184 Bn
tons. Only the lignite reserves of USA (273 Bn tons) are greater. In thermal energy
terms this resource gives Pakistan a higher hydrocarbon potential than Saudi Arabia.
The large plants have economies of scale and production cost of SNG can also work out
to about USD 3.50 per MMBTU (Million BTU). An SNG plant for 2 BCFD as
discussed above is estimated to cost USD 3 Bn. Therefore on a national level the
indigenous lignite coal reserves can lead to self-sufficiency in gas/SNG. The SNG
concept as developed by Lurgi is not an abstract concept since Germany fought the
Second World War on this fuel arrangement. It is true that Pakistan has never utilized
more than 4 mn tons of coal per year.

Lakhra Lignite is now its vital energy challenge. India thanks to its larger more
accessible Bituminous coal reserves uses atleast 400 mn tons/year, a major economy
statistic. However the intention to allow a 1000MW power plant on Thar coal at a tariff
of US 10 ¢ per unit is an illogical and damaging thesis without an ICB. Shenhua, PRC
in 2004 refused to work on US 5.48 ¢ and demanded US 6.5 ¢ because they were
required to build the required infrastructure including piped water to site as the
underground water is not suitable.

GG) Industrialization under a “crash progamme”: low cost energy a vital input.
The privatization (read liquidation) of HMC and PMTF would be myopic. These two
heavy industries (together with the POFs) form the back bone of the strategic industrial
programme that was accelerated in early 1961. It is another story that the fruits of this
programme are still to be fully realized. The imperatives for Pakistan's
industrialization have not changed inspite of lapses of concentration by our nation. What
is additionally required is the launching of a modernization and up-gradation programme
for both these industries instead of a tragic liquidation programme which could be the
case if these marginally profitable units are privatized. Let us remember that machine
tools and other precision mechanical technologies together with a disciplined technical
workforce are prerequisites for industrialization. The modernization of both requires
“DUAL-USE” waiver from the US Administration. The original technology suppliers
(Oerlikon Buhrle Switzerland) their successors or others in Europe are not willing to
come forward without this DUAL-USE issue being settled amicably.

The so called engineering industry sector provides the structure on which stands the
entire industrial programme (the equivalent of the human skeleton in the body system).
On its own the engineering industry can be a major export earner. Countries like
Malaysia and Thailand have achieved nearly forty percent (40%) exports based on
their engineering industry including electrical & mechanical equipment, precision
machines, assempties, jigs & dies, transportation vehicles, industrial plants etc.
Therefore a modern engineering industry has a direct bearing on its entire local
39
industry while proving a major player for export. Hopefully our nation will treat this as a
"wake up call" because we have very limited time to revive our fortunes. Let us show a
little more understanding of the collective wisdom and legacy of those who contributed so
much to give us dir ection and hope. PM TF is a remar kable legac y o f
P res ident FM Ayub K han, Lt. Gen. Iftikhar Ahmed and the Swiss electrical engineer
& mathematician Dr. A. Gerber (ex Industrial Adviser to the Planning Commission). The
HMC exists today because of the above three and dozens of dedicated individuals in the
Federal Planning Commission. The HMC/HFF complex is indeed a superb and vital gift
by the Chinese people and a testimony to the wisdom of Chairman Mao Zedong and
Premier Zhou en Lei. During my endeavours to reconstruct the outlines of the original
industrial policy I have observed some great acts of cross border friendships. The progress
of Pakistan was uppermost in their actions. Above all the bureaucrats and functionaries of
State at all levels atleast understood their primary task was to facilitate not hinder progress.
This culture started to vanish after the loss of East Pakistan. The Karachi Steel Mill
(1.1mn ton/yr) and fertilizer plants (2.6 mn ton/yr) constructed by Mr. Z.A. Bhutto were
very creditable breakthroughs in the basic infrastructure. However most of his
nationalizations were impulsive & unnecessary.

The ultimate objective of such a resource utilization is a rapid industrialization based on
technology transfer through our own engineering industry. Engineering industry at
the vanguard of a potent industrialization effort; permeating into all branches of
industrial production. These two "heavies" mentioned above would form the inevitable
locomotive of such a policy. The machine tool industry is the mother-ship of all industries
and not only for the engineering industry. The HMC (and HFF) represents the apex of our
forging, machining and assembly capabilities. Profit motive cannot be always guaranteed
and therefore the public sector has to remain active. If we take away generation capability
from WAPDA and precision centres HMC or PMTF from the industrial mural we create
black holes and voids that cannot be filled by the private sector. BECO and other heavy
private steel shops could have complemented them.

In Phase-I we would need to concentrate on first the basic systems we are still
missing e.g. electric generators between 0.5 MW and 50 MW. Prime Movers for electric
generation, transport and industrial locomotion including steam drives, gas turbines,
hydro turbines and large diesel engines. Basic earth-moving machinery including
bull-dozers, excavators and loaders. Large compressors, valves and pumps for
process, utility and agricultural applications. Manufacture of basic instrumentation for
industry, transport and utilities.

In phase II a number of major industries in the area of applied electronics, lasers,
robotics, artificial intelligence, gas thermodynamics, hydrogen fuel cells, nano-technology,
advance materials and composites are the other critical areas for public sector
involvement. Each is equally important and their development must move in parallel. Let
us not ape western nations which have a private sector with a disciplined and trained
labour force. Instead we have a private sector that purchases second hand machine tools
in the FPS outdated system. Can they absorb or sustain one hundred new CNC precision
machine centers every year? No wonder we have failed to standardize our
engineering/industrial products nor create an engineering export industry.

Industrialization includes mechanization of agriculture, farms, agro-based industry.
Remember that nearly four-fifth of Pak exports are agro-based including textiles. The
ground realities in Pakistan and the time left at our disposal does not permit further
inaction. Together with a national energy policy that is predominantly based on our own

40
natural resources we need today a technology intensive industrial manpower training
programme similar to war training methods which develop the "group reflex"; instead of
years of theoretical class room work. A revolutionary industrial policy could then be
launched. It is a "do or die" situation. A budget of US$ 5 bn is estimated for Phase-I
spread over a period of five years. The civil administration in this “technology
zone” may be through a management council with managers independently
responsible for one industrial project and specific training area. The Phase-II of this
industrial programme may also be of five years. The experience of the first phase will
help the managers to determine the course and direction of the industrial workshops.
One thing is certain that for both stages the choice of equipment and processes is the
most crucial factor for success. Outlay on science and technology has to be increased
to atleast 5% of the GDP. Definitely a part of this filters into the proposed industrial
crash programme whose major funding of US$ 5 Bn in 5 years has to come from
international capital markets. Above all a close liaison of the civilian & military
engineering capability has to be maintained. It develops logically if encouraged. The
Defence Industrial managers & procurement agencies would need to ease their
registration protocols to encourage the civilian sector (public & private) which is at
present in a dismal state.

HH) Financial Scenario ~ Use your assets. Raise debt for development
The deficit in fiscal and budgetary terms is growing at an alarming speed. It has further
aggravated the crisis as we cannot produce more (and ofcourse export more). Short term
borrowing by the public and private sector institutions is not going to be helpful in the long
run. OECD-Helsinki 1992 is a watershed in the financial bazaar. The 25 rich nations
decided that the cake will be shared by many more nations of the former second world and
that concessional financing on bilateral basis was to be discouraged. The energy policy
based on imported fuel has the potential to be the single most damaging blow to our
economy in 2007. The POL import bill is around USD11Bn and growing. A vicious
upward tariff scenario that will dampen industrial development and is a sure recipe for
national bankruptcy. The IPP capacity payments are payable in foreign currency as per
implementation guarantees even when un-operational. Does the Pakistani nation have an
industrial infrastructure, which could generate USD 500mn per month in tariffs?

Does anyone expect to pay the cost of imported energy from village electrification?
Due to high tariffs the financial burden on the Pakistani nation will become unbearable
and could result in a situation where the currency rate changes every hour and inflation
becomes uncontrollable. Above all a break down in the financial balance is inevitable
which would plunge Pakistan's credit rating again to the pits. The nation would have to
selectively tap the world capital markets with its potential now upwards of five trillion
dollars in private mobile capital (the IMF's of the future). The world market
capitalization is around thirty trillion USD and growing. I have proposed in Feb 1998
the formation of a “Karakorum Glacier Fund” as part of the Pakistan Resource Capital.
The objective being initially to increase water storage by 12 MAF and in ten years
inspite of sedimentation of the existing reservoirs the IBIS would have additional 20
MAF storage. The first hydro phase could involve upto USD 25 Bn investment,
which will include the cost of strengthening of the IBIS. New reservoirs would allow
5000 MW of hydro-electric power. In addition another 10,000 MW of hydel power
from run-of-river projects. Private hydel sponsors must receive comprehensive
hydrological & geological site risk cover from the GoP.

The key to revival of both public sector and private sector institutions including
strategic heavy industry rests with their capability to indulge in good asset
41
management. The assets must reflect true market value and not historical values.
Without permission to negotiate commercial financing many large public sector
corporations in Pakistan have become terminally ill. During 1992 IMF reacted to
Pakistan's first motorway project involving commercial credits and directed public
sector organizations to use their own asset base virtually prohibiting sovereign
guarantees of the state monetary institutions. Corporations rated A or A+ are able to
issue their own corporate guarantees and instruments thereby acting as their own
bankers within generous limits. The tragic alternative would be wholesale privatization
including sale to outsiders leading to an uncontrollable cost increase of utility services
& elimination of industrial potential in the area of high technology. Destruction of our
already depleted technical manpower resource will follow.

II) Tech Frontiers:~ new sources of Energy and vocational centers of excellence.

Let us understand that in Feb 2004 the Bulk gas price in Pakistan was around USD
1.5/mm Btu or less than Rs 100/mm Btu or Rs 100 / mcft; where ‘mm’ means one
million and ‘m’ denote one thousand. This was a highly competitive price basis. Since
four years the bulk gas price is rising and will approach 77% of the international price
of oil. This is the result of having signed flawed agreements for gas field development.
Since oil is no longer cheap there will be very serious consequences. Nearly as serious
as the HUBCO and the 1994 IPP agreements. Therefore it is expected that with HFO
already at Rs 41,000 / Ton, Coal at Rs 4,000/ Ton, LPG between Rs 1,300 to Rs 1,500 /
mm Btu the price of natural gas will soon be above Rs 500 / mm Btu. Thar lignite coal
gasification/SNG route is unavoidable.

The time for renewables has arrived. The future belongs to hydropower but also to solar
power, windpower and hydrogen fuel-cells. The World Energy Report predicted in Nov
2005 that USD 17 Trillions (USD 17,000 Bn) would be required worldwide by 2030 to
meet the energy challenge. As energy demand will rise by 50% the emissions will also
unfortunately increase by a similar percentage.

The state of Pakistan’s polytechnics and vocational institutes is depressing & dismal.
Visit the Punjab Government’s Polytechnic in Lahore near the Railway station and one
understands why they are unable to train students in the industrial practices. Extremely
poor discipline in these vocational institutes is endemic. They number around four
dozen in the country and offer 3 year diploma courses. Another thousand sub-standard
vocational centers teaching different trades have been established.

There is an excellent example to emulate. A training centre proposed & initiated by Dr.
Engr. A. Gerber when the PMTF was under construction. The Pak Swiss Training
Centre (PSTC) is producing world class metal workers & die makers in Karachi. PSTC
was established in Sep 1965 with the assistance of the Swiss Government (Swiss
Contact). It is located in the premises of the PCSIR at Karachi. It has spawned the IIEE
Automation Institute, a degree awarding college in Karachi later affiliated with NED. It
was developed as a corollary to PSTC in 1985 as a result of a study by Swiss Experts.
The Ministry of Science & Technology through PCSIR is again involved. Pakistan
definitely needs a private initiative for vocational training. Capability in the country for
250,000 students every year is the bare minimum.

42
Industrialize or Perish (a primer)
PART-III CONCLUSION: Severe attrition of water reservoirs & the private thermal power
policy of 1994 have given the economy an unsustainable liability. Soon the bulk of the national
gas will also be controlled by foreign capital (an IPP like situation). It will further aggravate the
energy & power tariffs. The SASTI BIJLI slogan has to be implemented to revive major
industrialization and assist agriculture. Strategic industries such as PMTF & HMC may not be
privatized. Otherwise the private sector be given the ultimate support to strengthen the local
engineering industry. Technological milestones need to be identified. The key to revival &
rejuvenation of public & private sector institutions including strategic industry rests with their
capability to indulge in good asset management. This must include access into world capital
markets. The truth is that WAPDA, which is the “True Economic Headquarter of Pakistan”, is
mortally weak and cannot use its balance sheet any longer to construct major power projects. Its
decline was willful. While the IBIS is an asset today of atleast USD 400Bn the WAPDA hydro
assets are also estimated at USD 60 Bn. The IPP lobby led by National Power (NP) alone
controls HUBCO & KAPCO (over 3000MW). It is a dangerous monopoly that needs to be
corrected. We have not lost the war. The pendulum has swung to one extreme. Let it be brought
to center position and Pakistan’s future be secured. Let WAPDA again build its own thermal and
hydel projects as per its charter. The IPP’s role is to be finally capped to below 10% of the power
mix. The IPP’s have to compete for tariffs with the Public Sector, a model already being used in
the developed world. Privatization of Utilities be strictly forbidden. Let NTDC, the bulk power
transmission company be returned to WAPDA and the DISCOs given under provincial control
inline with the constitutional requirements. The GENCOS responsible for WAPDA’s thermal
generation (now under PEPCO) and WPPO responsible for interfacing with the IPP’s have to
develop a least cost concept and be controlled by one entity “WAPDA” inline with the 1958
charter and the 1973 constitutional provisions. PEPCO may revert to its role as a special
management company. An “inhouse management consultant” that may control this vital
organization. Above all the role of reservoirs in the national economy has to be understood if
Pakistan is to survive with dignity and a minimum level of prosperity in the comity of nations.

The expected flooding due to global warming has to be catered for. The leadership has to find a
political solution to the agitation by elements in NWFP & Sind provinces. The Indian factor has
to be identified. It is not just a battle for the hearts & minds of ill-informed brethren. It is the
battle for Pakistan’s survival. As important as any other struggle being waged today. The Indus
Waters Treaty of 1960 is sacrosanct and India must continue to respect it. Even after 30 years the
rights of the lower riparian cannot be usurped by India under any international law as the treaty
has given the three Western rivers to Pakistan till eternity. Pakistan desperately requires new
storages and the world knows it. Without this the poverty cycle cannot be broken and
uncontrollable anarchy lies ahead in this nation of 170 million souls. The role of sweet water is
central to Pakistan’s financial sustainability and survival. It is blessed with five of the seven
largest glaciers on the planet. This is the biblical truth that may not be violated.

The Quranic verses Sura XIV IBRAHIM (Verse-32) Sura XXVII NAMAL (Verse 60 & 61) and
Sura FURQAN (Verse 48 to 50) are some of the divine messages on water that may not be
ignored if we wish to remain a living nation. The Indian factor has to be understood. Several
difficult decisions will have to be taken and the self-seeking policies of Mr. Shaukat Aziz must
be permanently rejected. Industrialization through a real technology transfer will have to be

43
managed. Local energy sources will have to be the primemovers of the industrial programme.
The vultures are circling.

44