fueling the future - Woodrow Wilson International Center for Scholars

Shahid Javed BurkiIt was during the 1990s that Pakistan experienced the first major mismatchbetween economic growth and increase in power. Between 1977and 1988—the third time the military was in control 11 —GDP increasedby 6.5 percent per year and GDP per capita by 3.5 percent. But theenergy supply failed to keep pace with the increase in demand causedby growth. The predictable happened, and the economy slowed down.Constraint on energy supply was one of the many reasons for sluggishperformance of the economy during the 1988-1999 period. However,as already discussed, the rich incentives provided to IPPs by BenazirBhutto’s government brought in external finance. Within five years thecountry moved from a serious power deficit to power surplus. By then,Benazir Bhutto was out of power and Nawaz Sharif was prime minister.His government, convinced that the previous one had indulged incorrupt practices, harassed the IPPs and brought an end to the flow offoreign direct investment into the energy sector.Nawaz Sharif’s government also carried out long and protractednegotiations to draw up a new contract with the Hub River PowerCompany, a consortium of foreign investors put together by the WorldBank. This group had developed the largest generating unit in the countryin the private sector, which produced 1200 MW of power and wasof critical importance to Karachi, Pakistan’s largest city and the center ofthe country’s finance and commerce. But the Sharif government seemedunconcerned about the damage the dispute might do to either Karachi’seconomy or Pakistan’s ability to attract foreign capital for the power sector.This episode had a serious impact on how the foreign communityof investors looked upon Pakistan as a possible destination for green fieldinvestments, particularly in the energy sector.Before the controversy over the Hub River erupted, the project wasconsidered a model of what could be achieved in combating energy-supplyshortages in the developing world by multilateral development agenciessuch as the World Bank, working in partnership with the privatesectors in both developed and developing countries. After the prolongeddispute over the Hub River, the project began to be cited as an exampleof the difficulties encountered in doing business in the emerging economies.The effect on Pakistan was particularly severe. The country did notreceive foreign investment in energy for almost a decade. There was nonew direct foreign investment in the energy sector from 1997 to 2006.| 44 |