Perilous Peace

By Amir Zia
The News On Sunday
October 31, 2010

Violence in Karachi stems from massive economic stakes rather than ideological or political grounds.

They are supposedly partners in the ruling Sindh coalition, but distrust and revulsion to one another run deep in their rank and file. Since the Pakistan People’s Party (PPP), the Muttahida Qaumi Movement (MQM) and the Awami National Party (ANP) joined hands to run the show in this ethnically divided and polarised province after the 2008 elections, their zealots are locked in a low-intensity bloody conflict to gain an upper hand in its capital, Karachi.

It is a turf-war and a battle for supremacy that has been raging for the past several decades. And with each passing year, it has intensified because the state institutions miserably failed to lay down and enforce rules of the game.

The bloody contradiction among the key and marginal political players stems from the massive economic stakes that fuels violence, crime and terrorism in the country’s industrial hub and largest city rather than ideological or political grounds.

The result: Karachi continues to bleed. Non-stop political assassinations, kidnappings and torture of political rivals, mass murders of civilians and destruction of private and public property keep the cauldron of Karachi on the boil all the time.

The recent spurt of violence, which gained momentum in the run up to PS-94 by-elections, killing more than 75 people just in four days — October 16-20 — has again underlined the gravity and complexity of the situation. The climax of this latest bout of bloodshed came when gunmen riding motorcycles sprayed bullets on shopkeepers in Kabari Market, located in the volatile Shershah neighbourhood, killing 13 civilians and wounding many more.

These killings not just sparked more violence, but further strained ties among the coalition partners, who managed to put a gloss to their widening rift and tussle with an announcement that both the PPP and the MQM continue to work for peace in the city where more than 1,100 people have been killed so far this year.

But the target of achieving peace is easier said than done.

"Peace can only be achieved if the ruling parties agree to walk the talk," a senior police officer, requesting anonymity, tells TNS. "The latest bloodletting is not just the simple issue of bye-elections. There are many factors and players involved. It is a far bigger and complex problem… the fire can be ignited on any pretext."

And indeed that has been the pattern of violence in Karachi. An operation against encroachers, a road accident, an ill-fated love affair between a married Baloch woman and an Urdu-speaking man, as it happened earlier this year, or a bigger political question can plunge the city into violence and chaos. The irony is that followers of not just key parties, but also smaller ones have their share in the bloodletting.

Faisal Subzwari, a senior MQM leader and a provincial minister, told TNS that several MQM activists were murdered in the run-up to the PS-94 by-elections. The seat fell vacant following the murder of MQM’s Sindh Assembly member Raza Haider, who was gunned down in August allegedly by militants of a banned sectarian group.

The ANP pitted its candidate in this constituency, considered a MQM stronghold for the past several elections. But later, the ANP boycotted the polls, accusing the MQM of using strong-arm tactics.

Subzwari, however, said ANP’s goal was just to create an impression that it remains a major stakeholder in Karachi. "In 2008 elections, ANP secured barely 960 votes against our candidate’s more than 80,000. It was never a serious contest as we again secured this seat hands down."

But the victory came at a heavy price because of the violence ahead and after the by-elections in which all the three coalition partners say that they lost loyalists along with scores of ordinary citizens.

Jamil Somroo, a senior PPP leader and an advisor to the Sindh Chief Minister, told TNS that his party did not field a candidate against the MQM in line with President Asif Zardari’s policy of reconciliation. "We believe that it was the time to show graciousness… MQM’s MPA was murdered. It was the aggrieved party. We also requested the ANP to withdraw candidate in MQM’s favour."

However, not all the PPP leaders want to be that gracious with the MQM. Abdul Qadir Patel, PPP’s Member National Assembly, claims that statistics of killings show that the non-Urdu speaking people, including Baloch and Pakhtoons, lost more lives. "This does not mean that the PPP does not have Urdu-speaking people in its ranks," he was quick to add.

For the ANP, its tussle with the MQM emerges from the fact that this urban-based party remains intolerant to accept any other new rising force in the city.

"In the last elections, we won two provincial seats. Now they fear that we would get four in the next elections," Ameen Khattak, ANP’s provincial general secretary, tells TNS. "We say that peace cannot be achieved by mere statements… let’s have dialogue and list issues. In Karachi, Pakhtoons struggle for getting education and employment."

While indeed the list of grievances, not just from the ANP, but also the MQM and the PPP, remains a long one, reflecting the myriad social, political, economic, infrastructure and development issues of this mega-city, a senior police official says that all the major parties in one way or the other contribute to the prevailing lawlessness.

"The issue of criminalisation of politics remains unaddressed," said the police official. "This is the core problem. Land encroachers, drug peddlers, assassins — all operate under the cover of this political party or that. "The Kabari Market killings were also carried out by criminals because of the rift over extortion money," he claimed.

MQM officials blame the militants of ANP and pro-PPP Peace (Amn) Committee of Lyari for working hand-in-hand to disturb the peace of the city.

The Peace Committee comprises followers of Rehman Dakait, who was killed in a controversial police encounter in 2009. Rehman had tried to enter politics and build a support-base through social work. His followers, now led by one of his relative, Uzair Baloch, even keep some of the key PPP stalwarts, including Nabeel Gabol, from entering their constituency. Police say that the Peace Committee activists had their fair share in the October killings.

Subzwari said that in the past politicians used to patronise criminals. "But in Lyari, it is the criminals, who patronise politicians."

PPP’s Patel admitted that some hot-heads within the PPP ranks and the Peace Committee think that they can expand base by imitating the MQM and its ‘gun-culture’. "We see more violence now because there are forces which now challenge the MQM."

Subzwari said that peace suits his party. "MQM and the city benefit from peace in terms of increased economic activity and development."

"There are hidden hands within the establishment and the government which have not changed their mindset. They fan violence. Yes, the top PPP leadership can be for reconciliation, but as far as Karachi is concerned, hawks within the PPP seem to prevail."

As Karachi remains on tenterhooks fearing a new bout of violence, the uneasy Sindh coalition has survived for now. And even if this uneasy partnership survives, will it change the fortunes of Karachi, resolve its protracted issues and bring a sustainable peace here?

Karachi: A Volcano All Set To Explode

Amir Zia
The News
October 29, 2010

The recent spurt of violence in Karachi, which killed more than 75 people in just four days was not the first episode of politically-motivated mayhem in recent years or months. Such killings have been occurring with bewildering regularity. So far this year, more than 1,100 people have been killed in what is being labelled in journalistic jargon as "target killings" and this number continues to rise. In 2009, more than 800 people were killed mostly in hit-and-run attacks. A vast majority of these murders were brushed under the official carpet without the slightest whimper in the corridors of power. But then there are days, when the city receives a bumper-dose of bodies in one go as it happened at the Kabari Market on October 19 where gunmen shot dead more than a dozen civilians – mostly shopkeepers – in cold blood.
What followed after this usual, cyclic bout of violence also remains a routine – a media frenzy, melodramatic posturing by the mainstream political parties, a blame-game, a barrage of statements by politicians expressing anger and anguish and, of course, the official announcements that peace will be restored and those responsible taken to task. There were demands, reports and rumours of Karachi being handed over to the army, the imposition of curfew and a campaign to clear the city of unlicensed weapons.
Doesn't it all sound familiar? The president, the prime minister, the interior minister, official this and official that – all had something to say and promises to make. Then, reports appeared that curfew and the army were not being seen as options, but yes, action to recover illegal weapons and selective operations against the bad guys remained on the cards. The coalition partners, who appeared edgy and estranged after the Kabari Market incident, apparently managed to iron out differences and announced to work together for peace in the city. This too also sounds familiar. We have been witness to many such announcements in the recent past. Given this government's record, its ineffectiveness, indifference and lack of will, is it difficult to predict what would the fate be of all these high-sounding announcements?
The promises of change are unlikely to change anything under the polluted grey sky of Karachi. The mega-city appears like a volcano all set to explode given its myriad unresolved ethnic and political contradictions and tensions as well as critical social, infrastructure and development issues. It is not just innate cynicism or pessimism. The writing is on the wall. But those in power prefer not to read it.
The failure of the state to establish rule of law and resolve contradictions among its various ethnic, political, economic and other interest groups or keep them at a manageable level – is bound to worsen the situation. In fact, bringing sustainable peace in Karachi does not appear on the government's agenda. It prefers to bank on short-term, firefighting solutions and political wheelings and dealings whenever violence escalates. With all the major political parties, including those in the ruling coalition, harbouring criminals in their ranks, politics of expediency appears the key reason behind the government's inaction. Yes, crime and politics now feed off each other in Karachi. Politics has been criminalised and criminals easily politicise crimes. This harsh fact is both publicly and privately acknowledged by many senior police officers.
It is an open secret that zealots of major political parties are involved in most killings, which carry shades of ethnic, sectarian or religious rivalry. Militants belonging to the Muttahida Qaumi Movement(MQM), the Awami National Party(ANP), the pro-Pakistan Peoples' Party(PPP) Amn Committee of Lyari and rival factions of the Mohajir Qaumi Movement are primarily responsible for the continued bloodletting in Pakistan's largest city and industrial hub. The sectarian and religious organisations and Sindhi nationalist groups also remain marginal players in this game of death.
One doesn't find any heroes in this bloody conflict, championing the cause of peace and the people. It is villains pitted against villains, while civilians, especially belonging to the lower income groups, remain the ultimate victims. It is a tussle among political parties – all working to establish or sustain their hegemony over the city or parts of it. This has resulted in an unending turf-war in which land encroachers, drug mafias, transporters and all sorts of legal and illegal interest groups are pitching in their bit by waving the flag of this political party or that.
The conflict carries strong ethnic undertones, which means that this low-key violence has all the potential to explode into something far graver. And there is enough at stake, which encourages political parties and their militants to keep upping the ante. Karachi, not just contributes more than 60 per cent of all the revenues to the national exchequer in terms of direct, indirect taxes and duties, but also sustains political parties, militant groups and mafias, all of whom have huge economic stakes in the city.
In a nutshell, criminalisation of politics remains the top issue, which is responsible for the present plight of the city and for affecting every walk of life in it. And this issue becomes more complex and grave because state institutions do not have the capacity and the will to establish supremacy of the law.
For it is not enough to say that the top leadership of every political party should take steps to get rid of criminals in their ranks. Yes, this is also important, but more important is the fact that state institutions do their job in a fair, efficient and responsible manner.
State institutions, including the police, the paramilitary rangers and other law enforcing institutions, should not function by compromising and conceding power. They should enforce the law – starting from traffic rules that are flouted all the time in Karachi, to dealing with bigger law-breakers. And the elected government should empower, help and facilitate these institutions rather than playing dirty for its narrow vested-interests by allowing land encroachers and drug peddlers to exist and thrive.
Politicising the police and law enforcing institutions remains the biggest obstacle in establishing the rule of the law. So is the issue of quick and speedy dispensation of justice through courts where cases keep dragging on and in a majority of instances the accused remains unpunished because of loopholes in investigations and lack of witnesses.
The situation in Karachi calls for action and not empty verbosity from government stalwarts. The government should act to establish the writ of the state before it is too late. In the current situation, even harsh laws would be better than the present lawlessness prevailing across Pakistan in general and Karachi in particular.

The Politics of Expediency

By Amir Zia
Newsline, August 2010

Karachi, the country’s commercial hub and its largest city, continues to remain on the edge. The tall buildings, glittering commercial plazas, plush offices, wide roads, new bridges and affluent neighbourhoods are only a veneer hiding the coarseness and perils of this port city where lawlessness, violence and crime reign supreme. This teeming city of an estimated 16 million people boils over with political strife, ethnic rivalries, sectarian tussles and religious extremism. The inter-party and intra-party turf wars are not the only factors responsible for the bloodletting on Karachi’s streets. The feuding gangs of criminals and land-grabbers are also involved in the killing spree. No wonder then that there has again been an alarming surge in what the police and media describe as targeted killings. Around 150political assassinations have taken place from January to July, 2010.

The victims belonged to the Muttahida Qaumi Movement (MQM), the Pakistan Peoples Party (PPP), the Awami National Party (ANP), the MQM (Haqiqi), the banned Sipah-e-Sahaba Pakistan (SSP), Ahl-e-Sunnat and Al-Jamaat, Sunni Tehreek, Majlis Khatm-e-Nabuwaat, the Jamaat-e-Islami, and included Shiite activists and Sindhi nationalists. Then there were those victims who got killed on account of their professions – they included around 10 policemen, five doctors and six real-estate agents.

Police and government officials, however, maintain that not every killing in Karachi is a targeted or a politically motivated one.

“There is an element of exaggeration here,” says Jameel Ahmed Soomro, information adviser to the chief minister of Sindh. “The media often creates hype and jumps the gun… if one goes into the background of each of these killings, one would find many victims who had nothing to do with any political party, religious group or gang of criminals. They were ordinary citizens, who were at the wrong place at the wrong time.”

Waseem Ahmed, the Karachi police chief, revealed that from January 1 to July 24 there have been 878 murders in Karachi, out which 136 were identified as political murders. Newspaper records show that since July 24, there have been more than a dozen other political killings in Karachi, bringing this total to more than 150.

The complexity of the situation can be a nightmare for any government, especially one which finds its two coalition partners consistently at each other’s throat. It has to constantly perform a delicate balancing act between conflicting political interests. And if in doing this, political expediency takes precedence over everything else, then justice and the rule of the law become the first casualties.

In the quagmire of Karachi’s lawlessness, lines between friends and foes are often blurred. Earlier this year, PPP supporters were at loggerheads with workers of their coalition partner, the MQM, mainly in the city’s district south and west. The situation cooled down only after the direct intervention of President Asif Ali Zardari and MQM leader Altaf Hussain, both of whom want to see Karachi calm at any cost.

According to Soomro, who is a close confidant of Zardari, the process of destabilisation of every government starts from Karachi, therefore maintaining peace in Karachi remains the PPP’s top priority.

But the MQM-PPP rivalry – in fact the turf war between their supporters in select constituencies – has always been a small part of the bigger problem that is Karachi. Even the MQM’s bloody rivalry with its dissident factions led by Afaq Ahmed and Amir Khan, which began in the early 1990s, does not ring any alarm bells in the corridors of power, despite the fact that it has claimed thousands of lives and continues to fester even today. Similarly, religious violence, including Shia-Sunni sectarian killings, despite its regularity and ferocity, does not have the potential to transform into an unmanageable conflict. It is the Mohajir-Pathan fault line that has the real potential to upset the apple cart and develop into a full-blown ethnic conflict in a city where rival groups remain heavily armed and state institutions operate by conceding power to various interest groups.

The Urdu-speaking and Pathan communities have a long history of violence dating back to the rule of former president Ayub Khan, way back in the 1960s. However, it was the era of another military ruler General Mohammed Zia-ul-Haq, during the 1980s, which saw a sharp surge in the level of violence between them as entire neighbourhoods were attacked, looted and plundered by gunmen and hundreds of people were killed.

However to their credit, both the MQM and the ANP managed to put a cap on the ethnic conflict not only through the 1990s but also for the most part of the present decade. However, in recent years the divide between these two secular parties has widened, triggering fears of a revival of confrontation.

Ameen Khattak, a hard-core ANP worker who is now secretary general of the Sindh chapter, says that his party made history by winning two provincial assembly seats in Karachi, for the first time, in the last general elections. “This is the main reason why the MQM is not accepting us… in all those constituencies where they lost or they fear losing in future elections, they are trying to bring demographic changes by creating new clusters of neighbourhoods comprising their supporters who are Urdu-speaking.” He adds: “Even the anti-encroachment drive has been made controversial as it is targeting only Pakhtuns.”

But for the MQM, the matter is not that simple. They argue that one of the main reasons behind the recent Karachi violence is the fact that land-grabbers and criminals have penetrated the ranks of political parties, especially the ANP.

Faisal Sabzwari, a provincial minister and senior MQM leader, maintains that political workers like Ameen Khattak are being exploited by criminals who have joined the ranks of Karachi’s ANP. “The land mafia is one of the most powerful groups in Karachi… this mafia is using the ANP to derail the anti-encroachment drive, which was launched after the recent presidential ordinance,” he remarks. “It is extremely unfortunate that the anti-encroachment drive is being given a political colour.”

The provincial government halted the drive when a police contingent came under heavy fire in Baldia Town where the city administration was trying to clear more than 170 acres of land in the cottage industry zone near Ittehad Town of encroachers on July 15. Two of the encroachers – Farid Mumtaz, 25, and Habib Noor, 27 – also died in the exchange of gunfire. After strong protests from the ANP, the Sindh government suspended the drive on July 21, underlining how difficult it has become to take simple administrative measures in a politically charged atmosphere.

Provincial adviser Jameel Ahmed Soomro maintains that thousands of acres of land in Karachi have been encroached upon, including government land, parks and playgrounds as well as land where the lease has expired but people continue with their illegal occupation.

“There was a time when land-grabbers used to construct illegal mosques and seminaries to encroach on land. Now they put up flags of political parties,” he says. “We managed to clear encroachments on 1,100 acres of land in the first few days of the drive, but subsequently had to put a limited halt on the campaign.”

He is of the view that criminals in the ranks of political parties and not political workers were involved in land-grabbing. “We have asked our ANP and MQM friends to discuss their differences in the core-committee meeting rather than in public, but this request is not being followed. We want all political parties to support the anti-encroachment drive.”

Police sources report that land-grabbers and organised gangs are armed with weapons and money. In most cases they use their ethnic affiliation as a political card, particularly in Baldia Town, Sohrab Goth, parts of Gulistan-e-Jauhar, Gulshan-e-Iqbal and several other neighbourhoods. “Some of the biggest land-grabbers in this city hail from the lawless tribal region,” reveals a police officer, requesting anonymity.

Khattak the ANP leader, however, insists that only poor Pathan labourers were being targeted in the anti-encroachment drive. “The MQM has created the entire Altaf Nagar despite a controversial city government resolution, but no action has been taken against them,” he says.

The MQM contradicts him by saying that the city government gave alternate plots to those people whose land was occupied by land-grabbers and there was nothing unlawful in this decision.

As the MQM and the ANP trade accusations, the police say that taking action against criminals and gangsters is easier said than done. “The police face a lot of difficulties in solving the cases of targeted killings,” says Waseem Ahmed, the police chief of Karachi. “One of the key problems is the criminalisation of political parties.”

Understandably, the police and civil administration often find their hands tied when it comes to taking action against any criminal or interest group. For Waseem Ahmed, “blind FIRs” (First Information Reports against unknown people) and a lack of witnesses often result in the acquittal of culprits. “Many times false cases are registered against top politicians in murder cases, which helps the real culprits go scot-free,” he says. The easy availability of illicit and licensed weapons also remains a problem for the police, who want stringent laws against this menace.

However, another senior police official, who spoke on the condition of anonymity, reveals that due to political expediency, parts of Karachi remain as lawless and crime-ridden as the northern tribal areas of Pakistan where the Taliban and Al-Qaeda militants dominate.

“There is simply no writ of the state in many areas of Karachi and the laws of the land do not apply there,” he says. “The state institutions have to concede ground when it comes to enforcing simple traffic rules because that could transform into an ethnic issue. We can’t even order that silencers be put on two-stroke rickshaws or take action against smoke-emitting vehicles, let alone cleaning the city of big crime mafia and land-grabbers,” laments the police chief.

“It is not just crime gangs and mafias which operate here with the connivance of political parties. Taliban and Al-Qaeda operatives too, are active in this city, raising funds, recuperating, reorganising and regrouping. Parts of Karachi are as good or bad as Waziristan.”

It is not just the PPP-led government that is to blame. Its predecessors also took ad hoc measures whenever Karachi spun out of control, and thus they failed to remove the root causes of the conflict and lawlessness. Rather than opting for a neutral police force and ensuring the rule of law and fairplay, successive governments have resorted to policy of appeasement, compromise or political victimisation for short-term political gains. The pattern of this ad hoc management has not changed, though the level of violence and its ferocity have risen with every passing year. The city has lumbered from one cycle of violence to another, punctuated by uneasy periods of lull. And this pattern continues. Life in Karachi has moved from one tragedy to the next – and it is simply the resilience of its citizens that has kept this city afloat.

Vicious Circle

By Amir Zia
Newsline, August 2010

For the top management of Pakistan State Oil (PSO), arranging monthly oil import payments is now an ordeal. The company, which holds almost 70% market share in the country’s downstream oil business, stands cash- strapped as the key public and private power generation entities fail to clear dues on time. PSO’s receivables hover, on average, in the range of 130 to 140 billion rupees every month, which explains its vulnerable situation not just in meeting its import payments but also with clearing dues of the oil refineries.

“We have been at the brink of default on oil import payments in recent months,” PSO’s Managing Director, Irfan Qureshi, told Newsline. “If PSO even once fails to meet import payment obligations on time, it means the country’s crucial oil supply would be suspended for at least four months.”

On June 14, the company sent a SOS message to the Petroleum Ministry through a “most urgent” letter underlining the gravity of the situation. “The default to international L/Cs (Letters of Credit) has also now become imminent as during the current month PSO has to retire Rs.36 billion against international L/Cs,” the letter said.

The situation prompted Prime Minister Yousuf Raza Gillani to order clearing of Rs 41.4 billion of PSO dues, of which the company received 34.2 billion. The timely payment of this sum helped the company to meet its June payments. However in July, PSO receivables again ballooned to more than 135 billion rupees, prompting the company to raise a red flag and request the top government officials to intervene. And this has been more or less the pattern since early 2010.

“It is survival on a day-to-day basis,” Qureshi said. “Most of our work hours are spent figuring out the company’s critical money matters. We have become sort of expert fund managers in the way we handle our fragile finances,” he said jokingly.

PSO, which once was considered one of the most financially strong state-run organisations, is a victim of inter-corporate circular debt that has held the country’s entire economy hostage. On one level it is hurting Pakistan’s overall energy supply chain, and on the other it is hitting the country’s already battered economy very hard. According to the latest Economic Survey of Pakistan, the cumulative effect of the energy crisis on the economy is estimated to be more than 2% of GDP in fiscal year 2009-10.

Independent experts put the figure of circular debt at around Rs 420 billion, which indeed would require a Herculean effort from the country’s economic managers to clear in the current difficult times.

Dr Ashfaque Hasan Khan, a former advisor to the Finance Ministry, said that circular debt has been rising every day. “And the irony is that the government does not seem focused on the issue. Its approach is ad hoc. If tough and bold measures are not taken, it will sink the economy.”

Dr Khan, who is now working as the Director General and Dean of the National University of Sciences and Technology’s business school in Islamabad, suggested that it was not just imperative to raise the power-tariff to meet its production cost, but checking power theft and line losses also remain a must.

“In Pakistan, only in big cities do people pay their electricity bills,” he said. “FATA is one chronic example where unpaid electricity bills soared to 85 billion rupees and the entire amount had to be picked up by the government. Half of Peshawar city’s electricity connections fall in the FATA jurisdiction.”

Then there is no tradition of paying electricity bills in the interior of Sindh, Balochistan and parts of Punjab, he said. “Whatever revenue is coming, it is from the select big cities.”

No wonder then that the power distribution and generation companies including Pakistan Electric Power Company (PEPCO), Karachi Electric Supply Corporation (KESC) and Hub Power Company (HUBCO), remain the top defaulters of PSO.

As of July 16, 2010, PEPCO owed PSO more than 32 billion rupees, HUBCO 49 billion, and Kot Adu Power Company 25 billion. Pakistan International Airlines, KESC and OGDCL also remain high on PSO’s list of defaulters. In turn, PSO owed 80 billion rupees to oil refinery companies and 36 billion to international fuel suppliers in July. A senior Finance Ministry official, who asked not to be named, said that PEPCO remains at the heart of the circular debt problem. PEPCO is a huge company and if it has about Rs 45 billion credit on a 45-day basis, it should not raise any eyebrows, he said. “But the matter of concern remains that it has liabilities worth more than Rs 130 billion.”

Saqib Sherani, principal economic advisor to the Finance Ministry, said there is a need to restructure PEPCO and other distribution companies that remain responsible for the crisis. “There has been a 60% rise in power tariffs during the last two years, but the cash flow of PEPCO has not improved. It has become part of the problem now,” he said. “This underlines the fact that along with tariff, power sector governance issue needs to be addressed on the war footing.” Sherani said that even after the increase in power tariffs, PEPCO has been selling electricity at around 2 – 2.5 rupees per unit lower than the actual generation cost. This kind of subsidy remains unsustainable for any country.”

The Economic Survey of Pakistan said that the country has been forced to depend more and more on the expensive thermal power generation because of a decline in hydroelectric (hydel) generation as well as unprecedented shortages of the natural gas. “Since this occurred at a time of a doubling of the international oil prices, the effect on the cost structure of the utilities was amplified greatly,” the Survey said. “With no change allowed in the electricity tariff between 2003 and 2007, the compounded effect on the viability of the energy sector has been devastating.”

The gap between average power generation cost and recovery hovers around 30 per cent. Ashfaque Hasan Khan, the former Finance Ministry advisor, said that the imbalance between cost of generation and distribution and the tariff remains the main cause of the circular debt.

The issue of circular debt existed even during 2000, but at that time it was not this acute because of low oil prices and also because of the fact that energy supply was higher than demand, he said. By 2003/04, Pakistan had surplus electricity. The crisis began when oil prices started surging, but due to political considerations the government continued to give subsidies to consumers. On the one hand, it did not pass on the production cost to consumers and on the other it failed to undertake any reforms that could stop or even reduce power theft and generation losses, which range between 30 – 35%.

“This is a huge amount,” confessed a Petroleum Ministry official, who spoke on the condition of anonymity. “But the government has not been able to move on this issue the way it is needed mainly because of political considerations. The increase in power tariffs has come too late while there has been no effort to stop the theft of electricity, which remains rampant both in rural and urban areas.” Mighty feudal politicians, tribal chiefs and industrialists are all involved in massive power theft, he said. Power theft also remains widespread among poor and low-income localities where legal connections are not available, he added. “Even where there are connections, people prefer to steal.”

A KESC official, who also asked not to be named, said that one reason for the lack of action on this front is the issue of law and order. “In Karachi, there are huge neighbourhoods running on stolen electricity, but we can’t take action because the administration, the police and paramilitary Rangers do not support us.”

Finance Ministry officials say that with circular debt piling up, heavy bank borrowing by the corporate sector has resulted. This has burdened them with high financial costs in terms of interest payments, erasing their profit. Take the case of PSO. From July 2009 to May 2010, PSO made interest payments worth 8.5 billion rupees, officials said. Had this amount not gone into interest payments, this would have been part of its profits, they added.

Ashfaque Hasan Khan said that the dilemma for the power generation companies remains their inability to recover money from consumers. “The IPPs (independent power producers) charge a fixed amount on their production, which enters the grid without any line or distribution losses. The problem starts at the end of distribution companies, which not only have to sell it lower than their production cost but also suffer theft and line losses.” He adds, “The irony is that when oil prices hit 140 dollars a barrel even then the cost of electricity was not increased.” Dr Khan says Pakistan missed a crucial chance to lower circular debt when oil prices slipped in 2008/09. “The government managed to get 130 billion rupees, but instead of clearing circular debt, it was taken as surplus revenue.”

Experts said that the issue of circular debt seems likely to stick for a long time to come as the country’s reliance on thermal power increases against the backdrop of rising international oil prices. And the negative consequences will continue to ripple through the country. Every downstream player is forced to delay payments for fuel supplies, which results in lower generation capacity as well as more pressure on the government, which subsidises this sector at the cost of social and infrastructure development.