CHINA PAKISTAN ECONOMIC CORRIDOR (CPEC)

CHINA PAKISTAN ECONOMIC CORRIDOR (CPEC)

Mr. Kashif Mateen Ansari,

CEO Sachal Energy

At the moment CPEC is one of the most significant topics under discussion. It ranges from the drawing rooms to the floors of the National and the Provincial assemblies. Though the CPEC is rightly a game changer in the region and especially, for Pakistan but it has also evoked a lot of positivity mixed with anxiety, unfounded fears, and some rightly-placed apprehensions. As soon as CPEC was announced, there was a visible lobby which lost no opportunity to finding fault with the CPEC, the way it is planned or in the manner it is executed as well as how it moves forward. While we will try to discuss some reservations about CPEC, we will also try to steer our discussion in areas, which are often not yet touched upon in the popular discourse. CPEC has been maligned on various bases ranging from Punjab being the favored beneficiary, to the fears of the Baloch losing their own homeland and becoming a minority. However, if you look at Chinese history for the last thousands of years, China has never engaged with occupational wars, it does not bear any favoritism towards taking over and subjugating other people. The way CPEC Is planned, it is a large infrastructural project having no parallel in the history of Pakistan. It is planned as a network of roads and rail bridges and tunnels and then adding together industrial zones and power generation being the most dominant element of the grand project. Now in the area of power generation we all know that in the early harvest projects, we are looking at almost 10,000 MW of energy ultimately getting to our grids. Already work on grid projects is underway that means the bottleneck created by our old and poorly maintained grid would be solved. New grid lines are being planned and at least a few of the major ones have started coming on ground. Another fear is that the cheap Chinese goods are going to elbow out the Pakistani products. I think this is an unfounded fear because what we are seeing in the core projects of CPEC, they do not relate to any cheap product. First of all we are looking at the power plants. The Pakistani manufacturers and the Pakistani industrial sector have nothing to offer in competition where we can produce the power machinery the turbine generators or the power plants. While we are looking at the roads and the railways most of the raw material in the form of cement and steel will come from the local area economy and once it comes to the construction of these mega projects I believe there is still a division over the underlying sub-contracting between the Chinese and the Pakistani businessmen. However, what we must look at is that, at the moment at many levels Pakistani businesses do not possess the adequate experience and knowledge in high- level engineering and technology. They will be best served by their interaction with the ongoing and the future projects and working in those areas where they have a competitive advantage and yet being exposed to those areas which are traditionally new to us and thus creating new expertise and understanding. The real trade between China and Pakistan will start and as the numbers go we are looking at hundreds of thousands of containers moving over these arteries. Obviously this will give rise to enormous economic activity ranging from the logistics businesses to the services and supplies enroot for the trade convoys going down to Gwadar and I believe that the people living in the far flung areas of the Baluchistan, KP and GB will see unprecedented economic growth which they have never seen before. With the better network of railways and roads they will be connected to the outside world, information knowledge and money will flow-in, opportunities will grow so shall the economy. With the availability of power and increase in the power generation we are sure that the economic activity will grow. There will be remarkable increase in the GDP and the peripheral economic activity will also be stimulated by the availability of the power. There will be a certain cost to it. First of all you must allay the fears about the CPEC being loaded on the weak economic backbone of Pakistan in the form of the costly debt. First of all not all the part of the CPEC is debt, and second, if there is a debt associated with the project that can produce returns in excess of the interest burden of the debt then such a debt can only enhance the economic activity and will not harm the economy in general. Although it is very easy to criticize the CPEC and the Chinese investment marking it as purely debt but if you look back a few years even from my own experience of developing a Wind Power Project, Pakistani projects were struggling to find any financing in the international market. Hence, even the availability of the foreign debt by virtue of CPEC is a positive thing for our economy. However, generally the kind of fear that Mr. Kashif Mateen Ansari CEO Sachal Energy 14 February 2017 is evoked by the perception of the foreign debt actually relates to the debt which is not used for any productive set-up of projects or economically viable project. If a foreign debt is used only to pay off for the largesse or the corruption of the ruling elite then obviously that debt is a trap that would lead any economy to ruin. But in case of CPEC projects, the investments which are coming in the form of debt, will ultimately result in the construction of power plants or the erection of the major grid lines or the network of motorways, rails and roads along with the industrial estates, allied industries and the dry ports, which will have a positive impact on our economy. What we have yet failed to understand is that CPEC requires something more, not only that this is an economic activity creating enormous economic opportunities for the people but also there will be an avenue of the cultural exchange and enhance friendly ties, with not only China but with all the regional players in Central Asia and South Asia. I believe the real long term effect of the CPEC would be the integration of this region in a friendlier economic zone lowering of the restrictions on the movement of trade, goods, and people. It is likely to enhance the cultural exchanges between us, the Central Asian states, China and rest of the South Asia. What we need to look forward to is how we can enhance the technical knowledge and the productivity of our people, how to get ready for the incoming competitions, how to benefit from the enormous opportunities that are going to open in front of us, how not to get carried away by our fears rather to look towards our future with hope and promise. We must also start thinking on the lines that we have to put down the gauntlet and reduce the negativity towards the regional players, though this has to be reciprocated from all sides but nonetheless we have to change the narrative on our side also. We have to bring forth a narrative of peace, a narrative of mutual co-existence and respect for all the players in the region. We have to cultivate and encourage any opportunity to improve ties with India and we must look towards China to help us in settling our dispute over Kashmir and water. We must look towards Afghanistan to help Afghanistan gain stability which in turn would stabilize our tribal areas and foremost we have to equip our young generation with the modern knowledge and tools to be able to take part in economic activity that is now being unleashed from the heights of Himalayas down to the shores of Gwadar.

Entrepreneurship and the role of Higher Education Institutions

By

Kashif Mateen Ansari

Entrepreneurship education has attained a new importance in the 21st century on account of various factors. The youth of this modern information age wants to think outside the box and to identify and pursue opportunities in totally new and innovative ways. The founder of Grameen Bank of Bangladesh and Nobel laureate Muhammad Yonis said, “My greatest challenge has been to change the mindset of people. We see things the way our mindset instructed our eyes to see.”

In today’s world, social change can be brought about by the entrepreneurship. The great management guru Peter Drucker said, “What we need is an entrepreneurial society in which innovation and entrepreneurship are normal, steady and continual.”  A lot of studies have been conducted in the last few decades which clearly underline the need for the modern education’s requirement to develop entrepreneurship and entrepreneurial mindset in the youth so that they can act as a catalyst of change in the social and the economic sector.

What is entrepreneurship? Entrepreneurship can be defined in a number of ways. A crisp one that I found reads as “the pursuit of opportunity beyond the resources you currently control.” This definition is attributed to Stevenson and Jarillo. Another definition that I came across:  “Entrepreneurship refers to an individual’s ability to turn ideas into action. It includes creativity, innovation and taking calculated risk, as well as the ability to plan and manage projects in order to achieve objectives. This supports everyone in day-to-day life at home and in society; makes employees more aware of the context of their work and better able to seize opportunities, and provides a foundation for entrepreneurs establishing a social or commercial activity.” (European Commission, 2008) In simple words entrepreneurship is a process that results in creativity, growth and innovation. Entrepreneurship takes various forms and its benefits are not limited to starting up of new businesses or creating new jobs but it leads to overall development in the fields of science, art and culture.

According to a report on entrepreneurship by Kaufman Foundation it was found in a number of studies that 25% of kindergarten level children manifest the characteristics of initiators (we will describe initiators later) But the study found out that for the same kindergarten level children who showed this trait, regrettably when they graduated from high school the percentage had dropped to 3% of the students. “Initiator “is the basic form of an entrepreneur, who has the ability to identify good market opportunities and possesses the required skills and the passion to lead the effort to follow those opportunities and take risk. In other words initiators are the kind of person who is ready to take risks and go into action. The study mentioned above puts forward the great dilemma of today’s education system that instead of creating the spirit of taking action and creating new things, the education systems, even in the developed countries, are stifling the creativity of the young mind.

The modern emphasis on Entrepreneurial education has many proponents but the seminal work of Schumacher “Small Is Beautiful” has made a lot of impact. Schumacher was mentored by John Maynard Keynes. Schumacher recognized that unemployment and poverty had scourged the world and raised his voice against the focus on large-scale projects and organizations.  According to him, individuals mattered. He propounded that with proper training, education and support, individuals can become self-employment and active members of the economy.

Further support to this phenomenon was provided by the British Prime Minister Margaret Thatcher who favored private enterprise and preferred individual responsibility. This was further supported by Ronald Reagan in the US with his focus on privatization and entrepreneurial frame work of private enterprise. Demise of larger enterprise due to oil prices and economic crises also helped the situation.

The emphasis on entrepreneurial education led to a lot of work on what constitutes the main frame for this activity. So there came out a list of fundamentals required to be understood by the potential entrepreneurs. Important amongst these included;

·         Understanding the pleasure of business,

·         A desire to serve others, of wealth creation and ownership.

·         Market opportunity recognition and research,

·         Empathy ,  

·         Comparative advantage.

·         Laws of supply and demand.

·         Marginal utility (“economics of one unit”).

·         Return on investment and break-even calculation.

·         Compound interest

If we get back to the Guru, Peter Drucker, he said: “Entrepreneurship is not magic, it’s not mysterious and it has nothing to do with the genes. It’s a discipline and like a discipline, it can be learnt”. If we cross this major hurdle of mindset and move forward, that entrepreneurship can be taught then the universities themselves can become entrepreneurial centers.

Entrepreneurship cannot be exercised in vacuum. Our higher educational institutions have to understand that the young people have a desire to do something and do something new. They have a desire to create something good and they have an innate longing to give back to the society. So the higher education institutions have to encourage and foster such attributes which can help the young people do the same. Entrepreneurship can be supported and helped in the most effective way by the education system at the higher level.

We have to create an Eco- system whereby various education institutions and the government have to come together to help support the entrepreneurs. Obviously that Eco- system will be incomplete till the time the businesses don’t partner with the higher education institutions and the government. The higher education institutions have to come up with new and innovative ways of imparting education which is conducive for generating an entrepreneurial mindset.  It has been found that just by adding courses on entrepreneurship alone does not help the young minds to transform into entrepreneurs. Globally this has been found out that where the curriculums are broad base or students are allowed to come together into teams drawn from various disciplines of knowledge; like business, marketing, engineering, technology and social sciences, the cross learning which occurs across all these various disciplines help the students become entrepreneurs.

Our universities have to look more into creating multi-disciplinary approach towards entrepreneurship which can be best achieved by creating centers of entrepreneurship having no particular course or curriculum of their own rather having a collection of multi-disciplinary courses and multi-disciplinary education which can be brought together in the form of various teams working on various technical, social or business projects. Then the universities have to be supported by the government in the form of small seed capital which can be assigned to such teams. The businesses must join hands in helping the young entrepreneurs to put their ideas to practice in the real business world. The ideas selected should be the ones that have been tested in the incubatory environments of the universities’ entrepreneur centres. This will be a win-win situation whereby businesses will get a new injection of ideas and fresh blood, and the young entrepreneurs will find a ready market for their newly developed ideas.

The universities can play an important role by overcoming the myth that new business formation or entrepreneurship is only the domain of a select few who either come from rich backgrounds or from families that are already well-known for establishing new businesses. There is no such evidence which links entrepreneurship with the genes. However, there can be a lot which can be found in the research studies linking entrepreneurship and education.

We may quote five core elements identified by Bortum clerk in his book “Creating Entrepreneurial Universities, Organizational pathways of transformation”. The core elements which he indicated were:

1.      A clear vision and mission

2.      Good structures and mechanisms to interact with the outside world

3.      Diversified funding base

4.      Inter and multi-disciplinary activities

5.      An integrated entrepreneurial culture

If we look around in the international arena, many universities will come out as great examples of entrepreneur centers which are furthering entrepreneurship. In the list of such universities, Stanford University ranks really high, which is generating patents for almost 80% of the amount of funding spent on their research. That is a great example of entrepreneurial activity. Across the world governments are helping big universities with their initiatives to stimulate links between businesses and universities. An example rams

There are many approaches which can be taken by our universities to include entrepreneurship as a form of mainstream learning. These approaches can be that:

1.      They can develop leadership skills

2.      They can embed entrepreneurship in general education

3.      As discussed earlier, they can take a cross-disciplinary approach

4.      They can leverage the availability of technology in the form of the technological advances in general and in the information technology in particular.

In Pakistan we can bring about a great change through the universities by creating a high number of entrepreneurs who, instead of becoming job-seekers will become job-makers and the few factors which can help this initiative succeed, would be formation of an entrepreneurial ecosystem as discussed earlier, which would include the Interaction of government with the universities and the interaction of businesses with universities in a well-linked program. Other important success factor would be developing good teachers who can instill the qualities and traits required for entrepreneurship.

Another key area for success would be development of a curriculum which instead of suppressing the creativity of the youth would develop it. We have to adopt a strategy where we have to include all the social classes in this process. Especially we have to hunt and groom talent by outreaching the students of far flung areas.

We have to understand as a society that it will be entrepreneurship that will lead the next wave of our development in Pakistan. Global data is already available linking the US dominance in the world economy to the spirit of Entrepreneurship that is there. With the young population constituting over 25% of our population we are already facing a  population bulge that comes with a lot of threats of chaos and turmoil if not handled properly or can become a time of unprecedented growth if channelized properly.  We would not be able to engage this multitude of youth properly and feed them unless we move quickly on the road to entrepreneurship.of such work includes:

1.      Formation of innovation centers

2.      Entrepreneurial university centres and science parks

3.      Support of collaborative innovation and research

4.      Funds for the development of university projects and making them ready for commercialization

rams

There are many approaches which can be taken by our universities to include entrepreneurship as a form of mainstream learning. These approaches can be that:

1.      They can develop leadership skills

2.      They can embed entrepreneurship in general education

3.      As discussed earlier, they can take a cross-disciplinary approach

4.      They can leverage the availability of technology in the form of the technological advances in general and in the information technology in particular.

In Pakistan we can bring about a great change through the universities by creating a high number of entrepreneurs who, instead of becoming job-seekers will become job-makers and the few factors which can help this initiative succeed, would be formation of an entrepreneurial ecosystem as discussed earlier, which would include the Interaction of government with the universities and the interaction of businesses with universities in a well-linked program. Other important success factor would be developing good teachers who can instill the qualities and traits required for entrepreneurship.

Another key area for success would be development of a curriculum which instead of suppressing the creativity of the youth would develop it. We have to adopt a strategy where we have to include all the social classes in this process. Especially we have to hunt and groom talent by outreaching the students of far flung areas.

We have to understand as a society that it will be entrepreneurship that will lead the next wave of our development in Pakistan. Global data is already available linking the US dominance in the world economy to the spirit of Entrepreneurship that is there. With the young population constituting over 25% of our population we are already facing a  population bulge that comes with a lot of threats of chaos and turmoil if not handled properly or can become a time of unprecedented growth if channelized properly.  We would not be able to engage this multitude of youth properly and feed them unless we move quickly on the road to entrepreneurship.

(The writer can be reached at kashifmateenansari@post.harvard.edu)

Interview Published in Pakistan and Gulf Economist and South Asian Pulse

South Asian Pulse   

Interview Link on the Web Journal

  Interview : Kashif Mateen Ansari, Finance Expert

Q.No.01: Tell me something about yourself AND your company, please?
I started my career from the army where I completed my training with the distinction of winning the “Sword of Honor” along with five gold medals, which is a record in itself. After serving the army for few years I left it to pursue a very different career in the corporate world. I completed my studies and became a Management Accountant. I did not stop there and went to Harvard Business School, so today apart from being a Fellow Management Accountant I am also a Harvard alumni. Currently I am serving as the secretary of the Harvard Club of Pakistan.

As I travelled along the career path, I tried to gain as diverse experience as I could. I have worked for local and international organizations and lead teams across various countries and territories. In the initial part of my career I have found a lot of opportunity to travel across the globe as part of my various assignments. This has greatly enhanced my experience and exposure. Prior to starting my current Wind Project I was the chief operating officer of Askari group (Army Welfare Trust).
On a personal level my main interests include reading and writing. I have presented a number of papers at national and international conferences. Very recently my papers on Alternative Energy and Accounting for Micro Enterprise have been very well received. I have written on various topics including Privatization, Corporate Governance, Economy, and Energy. I am actively involved in philanthropic work. I feel most satisfied about the humble work that I am doing to help the special children. I am raising funds for the construction of a residential school for special children. Another area of my involvement is education where we are providing scholarships to the needy students of the professional universities.

Currently I am leading Sachal Energy Development, which is a wind IPP. It has completed its development phase which includes getting all the consents and approvals from regulatory authorities and finalization of all the contracts etc. We are about to start the implementation phase and the dream that I saw a few years back will be fulfilled, Insha’Allah. This project will be amongst the initial projects in the alternative energy sector in Pakistan. By the Grace of Allah this project has many achievements where it has achieved first of its kind milestones including it being the first ever privately sponsored power project financed by Chinese institutions. The project is named in the Pak-China Energy corridor in the fast track projects for the first phase. I am quite sure that this project and many others that are coming up will lay a solid foundation for enhancing the energy security of Pakistan through the production of alternative energy.

Q.No.02: Your views on consumer financing in Pakistan
Consumer finance is a well-known financial product across the globe, particularly in developed economies, where it constitutes a significant portion of banks’ lending portfolios. In the Pakistani banking sector, however, the evolution of the consumer financing portfolio is a more recent phenomenon, as banks have traditionally focused on lending to the corporate sector and public sector entities. It started with some prominent foreign banks introducing credit cards in the banking sector in the nineties; their outreach was limited to the top‐tier of salaried customers and businessmen.

Domestic private banks have followed suit and have shown great acumen in adopting new procedures and policies. These include credit risk assessment, setting up the requisite policy and collection units, and upgrading the scope of their IT based systems. In doing so, they successfully introduced several innovative products for the individual consumer segment. On the other side, the consumers responded well to these products as previously they did not have access to bank credit without sufficient liquid collateral.

A combination of factors is responsible for the widespread popularity of consumer finance in the recent years; I will enumerate three of these: first is the financial liberalization process, second is the liquidity and third is the lower interest rate. The financial liberalization over the last decade or so, has led to the creation of a privately owned banking system which is free to allocate resources in response to the demands of the market. Then we saw influx of liquidity in the banking sector in the last decade which motivated the banks to diversify and expand their earnings base by venturing into previously untapped areas, and third, the easy monetary policy stance of the central bank in the same period provided eligible customers with financing options at historically low rates to meet their consumption demand. In this backdrop, consumer finance has emerged as one of the most promising product for banks. Providing access to purchasing power to the middle‐class consumer has been the most significant achievement of this development of consumer financing. People have been able to raise their standard of living by purchasing various consumption goods which were previously treated as luxuries in reach of only a few. The demand for these goods has also led the manufacturing sector to expand its capacity. So the both sides of this consumer financing growth; demand and supply have contributed to the expansion in economic activities. Banks’ auto loans product and loans for consumer durables, for instance, have been instrumental in this aspect. Though still small in proportion, the rising demand for mortgage finance reflects the individual consumer’s need and financial capacity, to acquire private ownership of houses. Hence through consumer financing, banks have played a positive role in promoting economic development in Pakistan.

Q.No.03: How would you comment on consumerism and its benefits to Pakistan?
Answer: Consumerism is defined as the belief that it is good for people to spend a lot of money on goods and services. It is also seen as the actions of people who spend a lot of money on goods and services. As the Society progresses and grows economically consumerism also grows. Consumerism is seen as something directly related to the increasing standards of living. Economic growth can be achieved through consumerism. But economic growth led by consumerism alone may do more harm than good. As any other aspect of life things are good till the time they are balanced whereas overdose can turn even medicine into poison. If we discuss the disadvantages of consumerism there are numerous arguments that can be stated against it. Consumerism encourages highly wasteful behaviour. We waste our money on goods that we often do not need. Advertisers work tirelessly to create an environment conducive to impulsive buying. We waste our time in search of new things to buy rather than thinking ways to use the things we already have. Consumerism also leads to the waste of valuable resources and energy. It also contributes to increasing amounts of garbage and waste in our environment.

Keeping these negatives in the view we can coin a term as balanced consumerism which we take as good consumerism. So for our discussion here we are talking about balanced and good consumerism which balances spending and investment. Good consumerism is very important for Pakistan’s economic growth as it will boost healthy economic activity, manufacturing and employment.

Consumerism can help Pakistan by inducing mechanism of compulsory savings among the masses this way they would try to create assets and uplift their standards of livings. On the other hand, it will usher new investment in the industry thus promoting employment and economic activities. In the specific Pakistani contest our large population itself can become an engine of economic growth. Demand of consumer goods and availability of consumer financing can give rise to indigenous economic activities.

Higher consumer spending contributes in the economic activity by creating more demand for goods and services which encourages more investments in plants, equipment, services and real estate. These investments create jobs which further encourage demand. Higher consumer spending also indicates the emergence of a strong middle class with growing purchasing power. It should be clear that the very act of consumption is likely to encourage the private sector to expand their businesses to meet the growing demand.


Q.No.04: Could you comment on prospects of investment in financial sector of Pakistan?
Answer: Pakistani financial sector is one of the well organized and better regulated sectors in Pakistan. However, currently it is facing challenging conditions due to macroeconomic problems and law and order issues. According to a recent report by the international rating agency Moody’s; current conditions are weighing on business generation, asset quality and increasing exposure to government securities. However, Pakistani Banks have a strong deposit base and as confirmed by the rating agencies the deposit growth is also quite healthy. This makes our banking sector quite lucrative for investments. If we couple this with demographic growth and the density of the banking services to the general public, it appears that in the long run this sector will remain the darling of the investors.

As we discussed earlier that higher consumer spending feeds back into economy by creating more demand for goods and services which encourages more investments in plants, equipment and services etc. These investments create jobs which further arouse demand. This consumption encourages the private sector to expand their businesses to meet the growing demand. Many countries in Asia like Indonesia, India and Vietnam promoted consumerism as a policy to promote and sustain economic growth. From investment perspectives, these countries have emerged as the most exciting destinations for the investors. Keeping in view the future expectations of the GDP growth of Pakistan it is highly likely that it will be led by consumer spending and obviously consumer financing on one hand and long term financing for the businesses on the other hand will be the drivers of this growth. This means that the financial sector will be at the heart of this economic growth. So in my view the prospects of the financial sector are very bright.


Q.No.05: Your views on competition in the banking sector:
Answer: There is a healthy competition in the Pakistan financial sector. Specifically this competition among the banks has resulted into increased product range for the consumer. There has been a gradual shift from the traditional limited product range of credit to the government and the public sector enterprises, trade financing, well known large corporate loans, and credit to multinationals. This has resulted into better access to the general public of the consumer finance at affordable rates. Because of this competition SME’s and non-traditional sectors have also benefitted. The borrower base of the banks expanded significantly as the banks diversified into agriculture, SMEs, Consumers financing, mortgages, etc. The middle class that could not afford to buy cars or houses/apartments as they were excluded from the clientele of the banks as far as the lending is concerned, had been the biggest beneficiaries of these new products and services. Now they have the financial means available in the form of consumer financing for their requirements. This has resulted into increased consumer spending on one hand and higher investment in the related manufacturing set ups and also in the non-traditional sectors on the other; having said that I think that we can still see some increase in this competition if the regulators nudge the sector in the right direction.

Q.No.06: What must be done to promote the financial sector of Pakistan?
Answer: Although Pakistan financial sector is well regulated and quite developed but there are still areas which can be improved. It is needless to say that the stabilization of the micro economic situation is most important to promote the financial sector. Improved corporate governance will help strengthen this sector further. This sector has to further reform itself to bring the fruits of financial liberalization to the common man. In order to further grow this sector the simple grievances of the ordinary people have to be addressed. First and foremost would be the access to finance as that has been a sour area in Pakistan traditionally; as per reports just till few years ago hardly 12% of the population had access to formal banking which includes almost 3% for the women. Access to informal financing is a bit higher but none the less this state of affairs is quite sorry in this age of information and development. Although some work has been done on the rates for small deposit holders but this area also needs some more attention. Then there is in-availability of suitable assortment of flexible products for smaller costumers, service delivery standards and the general availability of the services.

Government can contribute in the promotion of this sector by further strengthening the regulatory framework so as to reduce any mal-practice by any player as this will increase the credibility and reach of financial sector. Also government can reduce the tax burden on the banks and ease out the bureaucratic red tape.

Interview : Kashif Mateen Ansari, Finance Expert - South Asian Pulse

Interview : Kashif Mateen Ansari, Finance Expert - South Asian Pulse

My Interview on IDPs ---FACE 2 FACE(NISAR HUSSAIN)P1 8-7-14 - Video Dailymotion

FACE 2 FACE(NISAR HUSSAIN)P1 8-7-14 - Video Dailymotion

Privatisation-More Important; Right Intentions or Correct Action ?

The decision to privatise government-owned entities brought the subject to the lime light. The debate that has been going on for some time has been reinvigorated again with both the camps - for and against privatisation - coming up with everything in their arsenal of arguments.

As I noted in another article "Privatisation; salvation or an incomplete truth" the debate whether privatisation is good or bad and whether it is required or not has to come to an end soon. Privatisation has been the order of the new era. In the last more than two decades global economy has seen a lot of privatisation. We have seen that the number of transactions across the globe have risen and the size and value have also increased.

It is hard to find a country that has not embarked on a privatisation programme. Malaysia has sold its National Lottery, Buenos Aires its zoo, Poland has privatised its glass and picture tube factories, etc etc

Margaret Thatcher noted in one of her articles citing "the Economist": "Nationalisation, once all the rage, is out; privatisation is in. And the followers of the new fashion are of the left, the right and all hues in between."

The new thought says that ownership is a significant determinant of enterprise performance. In both developed and developing countries, good SOE performance has been very difficult to bring about and even harder to sustain. Those who prefer state ownership advise for the induction of highly-paid and obviously-motivated managers backed by changes in the systems and incentive plans. Very often governments comply and try to improve performance by bringing in new and dynamic managers, and paying them incentive salaries. These measures sometimes have a positive effect. But as the crisis dissipates, so does political resolve.

Political interference is a common syndrome of SOEs and it tends to re-emerge. According to a World Bank Study in Korea, where reform short of ownership change ended losses in a group of SOEs for three years in the mid-1980s, large deficits reappeared later on. In New Zealand and Japan, SOE reforms were successful only when done in conjunction with privatisation.

SOE reforms have been seen as limited and unmaintainable by many governments. The burden of funding loss-makers has put the poor governments to opt for privatisation. Same is the case in Pakistan where the giants owned by the weak state are bleeding our anemic economy to death. The only good these SOEs are doing is providing nice job opportunities with magnificent titles to the mighty bureaucrats and an ever obliging employment exchange to the politicians.

The debate whether privatisation works or not appears to have long been won by the proponents of privatisation. But for a privatisation programme to be really successful, it has to be properly structured. Only then it will yield enduring benefits.

In a book titled "Privatisation in Malaysia: Regulation, Rent-Seeking and Policy Failure" by Jeff Tan, the author has studied the process and concluded that privatisation does not necessarily lead to efficient economic outcomes and that its success or failure depends on the political context in which it is formulated and implemented. It highlights the role of politics and its interconnection with the underlying class structure in determining the nature and outcome of privatisation. It is also suggested that privatisation should not be undertaken unless the government has the political and institutional capacity to regulate it.

"The outcome of privatisation, including what is privatised, how, to whom, and more crucially, the performance of privatised entities, will thus be determined by both institutional and political factors." Furthermore, success or failure of privatisation in developing countries depends not on whether the government intervention remains, but on both the government capacity to monitor and regulate the privatised entities and socio-political constraints on it.

This clearly indicates that the discourse has to shift. We need to understand what has to be done right to make the privatisation successful. While going over some articles I read a report published in 1992 by the World Bank written by SunitaKikeri, John Nellis and Mary Shirley. They concluded that "Privatisation is not a blanket solution for the problems of poorly performing SOEs. It cannot in and of itself make up totally for lack of competition, for weak capital markets, or for the absence of an appropriate regulatory framework."

They synthesised a few lessons to make privatisation a fruitful process. In their view, it works best when a larger programme of reforms is under way and privatisation fits into that. In the countries where successful privatisation happened like New Zealand, UK and Mexico it was accompanied by reforms to open markets, removing price and exchange rate distortions, and encouraging the development of the private enterprise. It has worked best where regulations have been created to protect consumers. Improving competition and reduction of monopoly has been a part of such reforms.

In our context the privatisation of larger companies like OGDCL there has to be a detailed preparation and homework before they are brought to the block. This preparation includes the scoping of the assets, thereby identifying what we have on the books, which are valued properly and what we do not have in a proper valuation on the books. Further if larger organisations require injection of cash or modernisation or induction of machinery or aircrafts as in the case of PIA that has to be left for the next phase when the private sponsors come in, as privatisation is undertaken for the same reason that new sponsors bring in capital and make these investments. A few ways in which this preparation has happened across the globe in successful privatisation's: breaking the organisation into competitive and marketable units, bringing in dynamic private sector managers (this has been done in airline sales around the world) and settling past liabilities. In Argentina while privatising the steel and railways, they shed excess labour. It sounds familiar as Pakistan Railways and PIA are notoriously high on the number of employees per operative unit of their business assets.

Much has been said about free market these days in Pakistan. Privatisation and free market require a well-developed, properly managed regulatory framework. In Pakistan regulatory scene is not that bad. We have a number of regulatory authorities in place with a fair level of policy and regulation framework. However, the requirement is to reduce the red tape and make these regulatory authorities more responsive to change.

While talking about the regulatory framework I am reminded of another book published by the World Bank. Commenting on the objectives and strategy for the privatisation in their book, "Privatisation the lessons of experience", John R Nellis and Mary M. Shirley put forward the conditions for success of any privatisation programme. They have enumerated two main aspects, which will affect the strategy and outcome of the privatisation. One of them is the macroeconomic policy framework of the country and the other is the nature of the market where the enterprise is offloaded. As far as the first one is concerned, they think that a well-developed institutional and regulatory capacity has to exist for a privatisation programme to become successful and yield better financial economic results. For the strength and efficiency of this macroeconomic framework a well-functioning legal structure is very important. According to them such a framework contains important aspects of various business laws, including the competition law, dispute settlement laws, etc. If we examine how we are faring on this count we can look at the World Bank report on Doing Business. According to the report of 2012, as far as the regulatory quality is concerned Pakistan's performance was somewhat better than the developing countries of Asia, however, on the criteria of "Rule of Law" and "Control of Corruption" Pakistan is performing lower than the average of its peers in the region. Similarly another important area where our performance is not up to the mark is "Enforcing contracts" and "Paying Taxes".

It goes without saying that the whole process of privatisation has to be charted out in a manner that it is fully transparent and should be perceived as the same. Many countries have taken the route of competitive bidding, developing objective criteria for selecting bids, and creating a proper monitoring process.

Privatisation does come with its price, especially for the underprivileged working class of these SOEs. Privatisation's have been followed by large scale downsizing. This gives rise to a lot of apprehension that also becomes a motivation for the stakeholders to rise against the idea. Government can help by developing a safety net for the employees. This may include a generous severance package encouraging voluntary departures precluding the need of painful downsizing. Other ways of creating such safety nets may include employee ownership schemes thereby making the employees become part of the shareholder community and retraining the employees for other suitable trades so that they may get re-employed either with the same company or with some other business. These measures will reduce the problems of the employees and also add to the productive workforce of the country.

In the same way privatisation must help in changing the public-private mix in the economy. This can be brought about by encouraging the growth of a dynamic private sector by creating an enabling environment. In Pakistan the biggest hurdle in this enabling environment is red tapism and corruption. Though corruption gets a lot of attention and obviously a volley of statements from the top political leadership but "In-action" goes unpunished. Rather sometimes inaction is rewarded as those who do nothing and neither allow anyone to do anything get away with flying colours when judged for corruption. But this menace of inaction damages the private sector in the same manner as corruption does.

If we are sincere in turning around the economy and bringing in efficiency in the SOEs by Privatisation we need to take into account the lessons learnt from the past experiences all over the globe. It is said, the road to hell is paved with good intentions. Privatisation though intended for good can only achieve the right results only if it is done right and for the right purpose.

Sustainable Energy

 

“Sustainable Energy for all” is an initiative taken by the Secretary General of UN Ban Ki-Moon. He describes energy in these words: ““Energy is the golden thread that connects economic growth, increased social equity, and an environment that allows the world to thrive.”

The objectives of this initiative are three fold and the timeline to achieve these objectives is 2030. The First objective is about universal access to modern energy services. The second is about energy efficiency and the third is about the share of renewable energy in the global energy mix. The last two objectives are about doubling both the levels of efficiency and the utilization of renewable energy by 2030.

Energy is very important in the modern world as it is the gateway to everything modern and progressive. In Pakistan we understand better than anyone else that what it means to be without access to energy and how it would affect the studies of children, the livelihood of the youth and the quality of life of the elderly.

Energy access is a one of the great divides of the modern times and as noted by the website of this initiative “Nearly one person in five on the planet still lacks access to electricity. More than twice that number, almost three billion people, rely on wood, coal, charcoal or animal waste for cooking and heating. This is a major barrier to eradicating poverty and building shared prosperity.”

The situation in Pakistan is no different where, as per some estimates almost more than 40% of the population has no access to the grid. In other words, these people are without access to the modern way of living and the basic amenities of life. Their children are denied any up word mobility by default and their economic plight is set in stone with no sign of any change in the foreseeable future.  As per the World Bank, per capita utilization of electricity in Pakistan is almost 450 Kwh, or in lay man’s language 450 units of electricity. How we compare to others? Indonesia is almost double this value and Malaysia is more than nine times our usage per capita of power. India is more than a billion people of population with much larger geographical distribution; its electric consumption is above 680 units per capita.

The other aspect of problem is that where we are providing power, most of it is generated through Thermal sources. Almost 68% is produced by burning the fossil fuels and out of this 35% is from oil. The share of hydro power in this mix is almost 30% and other renewables, including Wind and Solar is almost nil.  Though the share of other renewables is more than nil, but for percentage please use your calculators to find out what 106 MW of Wind Power would stand for as against approximately 23000 MW.

The energy security of our country can be reflected by the fact that the imported source of energy is almost 30% of the total energy requirements in the form of imported fuels like furnace oil and diesel.

As per the final report of Pakistan Integrated Energy Model by “IRG” sponsored by Asian Development Bank the conclusions based on scenario based projections include that to sustain economic growth corresponding to 5.6% average GDP by 2030, Pakistan would require a fourfold increase in electricity generation, which corresponds to approximately 82,000 MW of new capacity additions. It would require a threefold increase in consumption of high value petroleum products. The report concluded that if the government does not act quickly, it will be difficult to avert a looming Energy Security crisis.

By 2030 the outlook as per the report is that our proven conventional natural gas reserves will be depleted and energy imports would jump from 27% to over 45% of the total supply of energy.

With this outlook obviously the objective of providing energy access to everyone becomes a daunting task. The other two objectives are not easier either.

As they say, if there is a will there is a way. Renewable energy can come to our rescue and increasing the share of renewables can help us achieve the goal of energy access to all. The potential of renewable energy in Pakistan is enormous. According to a study, Pakistan has identified cumulative potential to generate 3.2 million MW of renewable energy from resources including: 340,000 MW from wind, 2.9 million MW from solar, 50,000 MW from hydro (large), 3,100 MW from hydro (small),1,800 MW from biogases cogeneration and 500 MW from waste.

There has been a view from some quarters that the renewable resources like Wind and Solar are expensive and thus they are not good enough to be utilized in poor countries like Pakistan. However, without going into the technicalities of the issue, this is not a correct idea. The cost of power produced from many thermal power plants is more expensive than the renewable resources like Wind and Solar. Globally these technologies are becoming pervasive and currently global installed wind capacity has exceeded 300,000MW and Solar has exceeded 100,000MW. According to a report since the year 2000, more than 70% of the growth in the electricity generation from renewable resources came from non-OECD countries.

Hydropower is cheaper than all these resources and enhancing the Hydropower capacity is an important aspect of the future energy mix of our country, however excessively relying on the run of the river generation is not without its risks. Most important of these is the risk of availability of water, or the hydro risk.  At the government level the Hydropower projects that come with a reservoir base must be given a priority. But the utilization of Wind and Solar for cleaner energy at an affordable price cannot be ruled out. These renewable resources have capital costs, but almost no hidden costs like the environmental costs associated with thermal plants in the form of pollution and displacement costs in the case of Dams.   

Power produced by any IPP or Genco, may those be thermal or renewable will go as far as the grid. However vast expanse of our people is not served by the grid. To improve the accessibility for such areas solar appears to be the priority number one. Solar as a resource is widely available all across the country and must be tapped with the help of “off-grid” and “grid tied” power generation for residential household, basic amenities like dispensaries, schools and hospitals.  We will talk a bit more about these boring terms “off-grid” and “grid tied” later in this article.

If we have to prioritize our work we need to look at the picture as it would emerge with respect to the requirement of energy in the future. Currently residential load is almost 46% of the total power consumption in our country. As we look into the future, it is predicted that the residential energy use will double, and it will continue to be the second largest component of final energy use in 2030.

Without going into the nitty gritty of the usage of energy in the future, it can be pointed out that by 2030 the growth in the residential sector energy consumption will be driven by utilization of air conditioning, cooking  and water heating. On the other hand rural household energy will grow by only 30% and is dominated by the demand for cooking.

In this scenario a less thrilling and till now a much less glamorous way to harness the energy of the Sun can be utilized; the Solar Thermal panels.  These are basically collectors of the Solar energy in the form of heat. These are successfully used when we require capturing heat. There are 4 major types and inquisitive readers can easily google the types.  Any of these thermal panels are more efficient (60 to 80%) and cheaper than the famous and more known Solar panels, which are technically called PV panels and collect the solar energy in the form of light. Efficiency is also gained by not having to transform the light energy to electrical energy. Many of these collectors even work on cloudy days and in cold wind and weather. These systems cost less and their return is far better thus the payback is more favorable. Utilizing these thermal panels can help us reduce the load in the areas where our residential consumers utilize the energy the most, i.e water heating, home cooling and heating, etc. we have already discussed above that the largest requirement of energy in residential sector which is our second largest energy consuming sector pertains to these aspects.

To help achieve the objectives of “Sustainable Energy for All”, another important area is “grid-tied” solar system, which is the most common method of installing a residential solar power system. Grid-tied systems are connected to the main power grid and are designed to sell power back to the utility company. In an arrangement known as “net metering”, residential consumers get paid for the electricity they generate in excess of what they use. Residential consumers often not only completely eliminate their electric utility bill, but they may actually realize a net profit.

The third area of importance is the off-grid power systems. These are useful in providing access to power to those who are not connected to the grid. These are small solar based systems that generate power for lighting and some other essential requirements.

At a national level we need to discuss the detailed aspects of the above mentioned solutions in a framework suitable to Pakistan’s context. We will deal with these in more detail in some other time. However it is clear that providing sustainable energy to everyone is a huge undertaking and will only be achievable if all the stakeholders, i.e government, consumers and businesses join hand together. Only then we can see better economic equality and growth for everyone. With concerted efforts in the right direction we will be able to achieve a bright future (without power outages).

 

 

(The writer is the CEO of a power project and can be reached at kashifmateenansari@post.harvard.edu)