VZCZCXRO3172
RR RUEHLH RUEHPW
DE RUEHIL #1623/01 1121004
ZNR UUUUU ZZH
R 211004Z APR 08
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC 6591
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEHRC/USDA FAS WASHDC 4183
RUEHNE/AMEMBASSY NEW DELHI 3146
RUEHLO/AMEMBASSY LONDON 7745
RUEHML/AMEMBASSY MANILA 2969
RUEHKP/AMCONSUL KARACHI 9591
RUEHLH/AMCONSUL LAHORE 5342
RUEHPW/AMCONSUL PESHAWAR 4075
RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL
RHMFISS/CDR USCENTCOM MACDILL AFB FL

UNCLAS SECTION 01 OF 05 ISLAMABAD 001623 
 
SIPDIS 
 
 
SENSITIVE 
 
SIPDIS 
 
E.O.  12958:  N/A 
TAGS: ENGY EFIN ECON EINV PREL PK
SUBJECT: NAVIGATING THE MAZE OF PAKISTANI ENERGY POLICY- PART ONE 
 
REFS: A) Islamabad 00655 B) Islamabad 00810 C) Islamabad 00921 D) 
Islamabad 01420 E) Karachi 199 
 
¶1. (SBU) SUMMARY: Pakistan's energy crisis has the potential to slow 
down economic growth and create law and order problems.  With 
massive blackouts affecting every region and every demographic, 
energy policy and shortages are daily front page news.  Not a single 
mega-watt of electricity has been added to Pakistan's national grid 
since 2000 despite record breaking economic growth and population 
expansion. With economic and manufacturing capacity slumping due to 
power outages, unemployment is increasing while tempers and 
temperatures are rising.  Complicating the situation is the complex 
maze of GOP policy makers who cannot coordinate Pakistan's energy 
policy due to overlapping and contradictory authorities.  As a 
reference for USG efforts in providing aid to Pakistan's energy 
sector, the following serves as a roadmap of GOP energy policy 
making bodies and entities. END SUMMARY. 
 
¶2. (SBU) This three part cable reviews the haphazard mix of 
horizontally and vertically placed institutions which comprise the 
energy policy making sector of Pakistan. Part one explains the 
Ministry of Water and Power and its 19 subordinate agencies involved 
with electricity.  Part two, in "Navigating the Energy Maze," will 
address the Ministry of Petroleum and National Resources and the 16 
subordinate agencies.  Part three will address the other 4 
Ministries and 7 other agencies involved in and at various levels of 
the GOP energy policy process.  A lack of coordination and absence 
of any clear line of authority hampers any formulation of policy 
efforts to address the current energy crisis in Pakistan. 
 
¶3. (SBU) This is a continuation of cables on Pakistan's energy 
sector. 
 
--------------------- 
A SIMPLIFIED OVERVIEW 
--------------------- 
 
¶4. (SBU) The lead line agency in government for the electric power 
sector is the Ministry of Water and Power. However, the Ministry of 
Petroleum and Natural Resources controls fuel supplies; the Finance 
Ministry holds the purse strings; the Planning Commission manages 
the investment approval process; and National Electric Power 
Regulatory Authority (NEPRA) regulates companies operating in the 
power sector.  These operating companies include the Water and Power 
Development Authority (WAPDA), owner of the public sector hydro 
power plants, and the Pakistan Electric Power Company (PEPCO), the 
holding company for WAPDA. 
 
¶5. (SBU) PEPCO includes three power generating companies (GENCOS), 
in the south, center and north; the National Transmission and 
Dispatch Company (NTDC), a central purchaser, dispatcher and 
wholesaler of power; the Central Power Purchasing Agency (CPPA) 
which has been set up as an autonomous body to acquire power from 
the generation companies (GENCOs), on behalf of the distribution 
companies (DISCOs), and deliver it via the NTDC network; nine power 
distribution companies (DISCOS), including one for the Federally 
Administered Tribal Areas; the Karachi Electric Supply Corporation, 
a private generation and distribution company covering Karachi; and 
the independent power producers (IPPs), the privately-owned power 
generation companies selling to the NTDC. 
 
---------- 
MINISTRIES 
---------- 
 
¶6. (SBU) Each federal ministry in the Pakistani government is headed 
by a Minister.  A Secretary (a vice Minister equivalent) heads the 
administrative functions of the Ministry and is assisted by varying 
numbers of second tier Additional Secretaries and Members.  While 
Additional Secretaries are career civil servants with functional and 
administrative background in that Ministries' functional area, 
Members are subject specialists with specific professional 
qualifications.  At the third and fourth tier of each ministry are 
varying numbers of Joint Secretaries and Deputy Secretaries.  In the 
energy policy making arena, each committee and subordinate agency 
contains a crisscrossing network of appointments from this cadre to 
ensure full authority by the federal government over the 
"privatized" joint ventures and provincial bodies. 
 
ISLAMABAD 00001623  002 OF 005 
 
 
 
--------------------------- 
Ministry of Water and Power 
--------------------------- 
 
¶7.  (SBU) The Ministry of Water and Power (MWP) develops all policy 
relating to water and power as well as the strategic and financial 
planning for both the public and private sector.  A Secretary heads 
the administrative functions and is assisted by an additional 
secretary, three joint secretaries, an advisor and a member. 
 
SIPDIS 
 
¶8.  (SBU) The Ministry of Water and Power monitors activities in the 
fields of power generation, transmission and distribution, and 
performs a supervisory and advisory role for the power sector's 
overall smooth operation.  MWP reviews all public sector power 
projects submitted by the Water and Power Development Authority 
(WAPDA) and its 19 "unbundled" corporations with a mandate to 
scrutinize the technical and financial viability.  Similarly all 
private sector projects in the power sector are approved by the 
Private Power and Infrastructure Board (PPIB) under the close 
supervision of the MWP which sets the policy guidelines for 
approval.  The MWP also oversees preparation of the five year plans 
and the Annual Development Program (ADP) in the water and power 
sector.  Areas of conflict arise due to this delegated oversight 
review capacity delegated to the MWP which pits government oversight 
against private sector competitiveness. 
 
¶9.  (SBU) In its water capacity, the MWP also coordinates 
inter-provincial water sharing issues and activities related to 
irrigation, drainage, water logging and monitors the operation of 
Indus Water Treaty of 1960 between Pakistan and India.  The Water 
and Power Wing are the main functionaries of the MWP including 
office of Chief Engineering Adviser/Chairman, Federal Flood 
Commission and PPIB. 
 
------------------------------------- 
SUBORDINATE ORGANIZATIONS OF THE MWP 
------------------------------------- 
 
¶10.  (SBU) There are 19 subordinate, yet distinctly independent 
organizations, which report to the Ministry of Water and Power. 
Descriptions follow below. 
 
------------------------------------- 
Water and Power Development Authority 
------------------------------------- 
 
¶11.  (SBU) With a umbrella workforce of 175,000 employees, and 14 
subordinate agencies, Pakistan's Water and Power Development 
Authority (WAPDA) is one of the largest employers in Pakistan. 
WAPDA, Pakistan's only remaining public sector utility company, was 
created in 1958 to coordinate and develop the water and power 
sectors.  WAPDA is headed by a Chairman, appointed by the Prime 
Minister for a three-year renewable term. 
 
¶12.  (SBU) Since October 2007, WAPDA has been separated into two 
distinct entities:  WAPDA and the Pakistan Electric Power Company 
(PEPCO).  Headed by a Chairman and assisted by three Members, for 
water, power and finance, WAPDA is responsible for water and 
hydropower development, whereas PEPCO is responsible for overseeing 
the privatization efforts related to thermal power generation, 
transmission, distribution and billing.  However, privatization 
efforts have remained stalled for over a decade and WAPDA continues 
to forestall approval of drastically needed reforms to allow the 
unbundling to continue. 
 
------------------------------- 
Pakistan Electric Power Company 
------------------------------- 
 
¶13.  (SBU) Established in 1992, Pakistan Electric Power Company 
(PEPCO) was established as a state owned private limited management 
company to manage and oversee activities related to privatization. 
PEPCO now has an independent Chairman and Managing Director.  While 
GOP interlocutors tout PEPCO's independence, in practice PEPCO must 
get approval from WAPDA for decisions who in turn seeks approval 
from the MWP.  "Privatization" has not translated into 
"independence" in Pakistan's energy sector. 
 
ISLAMABAD 00001623  003 OF 005 
 
 
 
¶14. (SBU) The unbundling of the power sector has resulted in the 
formation of fourteen corporate entities; three power generation 
companies (GENCOs), one national transmission and power dispatch 
company (NTDC) and nine distribution companies (DISCOs).  These 
companies are each working under independent Boards of Directors. 
Yet, WAPDA still controls the finances of all these companies and in 
turn must get permission from the Ministry of Water and Power to 
make payments to each entity. 
 
¶15.  (SBU) Despite GOP claims that these companies are 
administratively autonomous, none of these distribution companies 
have any autonomy over their finances sixteen years after creation. 
Privatization efforts have stalled due to the inability of these 
companies to set their own tariffs based on the marginal cost of 
their individual production and largely because of the GOP's 
continued use of fuel subsidies which prohibits any free market 
price stabilization. 
 
¶16. (SBU) The three GENCOS are Jamshoro Power Generation Company 
covering the south, Central Power Generation Company covering the 
central areas, and Northern Power Generation Company covering the 
north.  The nine DISCOs include Faisalabad Electric Supply Company 
(FESC); Gujranwala Electric Supply Company (GESC); Hyderabad 
Electric Supply Company (HESC); Islamabad Electric Supply Company 
(IESC); Karachi Electric Supply Corporation (KESC); Lahore Electric 
Supply Company (LESC); Multan Electric Supply Company (MESC); 
Peshawar Electric Supply Company (PESC); and FATA Electric Supply 
Company (FATA ESC). 
 
----------------------------------- 
Karachi Electric Supply Corporation 
----------------------------------- 
 
¶17.  (SBU) The Karachi Electric Supply Company (KESC) was 
incorporated in 1913, and the Government of Pakistan took control by 
acquiring a majority shareholding in 1952.  As Pakistan's only 
"private" sector utility company, KESC's privatization was finalized 
in November 2005 with the transfer of management control and a 73 
percent share from the GOP.  KESC is listed on the Karachi, Lahore 
and Islamabad Stock Exchanges. 
 
¶18.  (SBU) KESC generates, transmits and distributes electricity. 
KESC provides electricity to some 12 million people through two 
million connections over a 6000 square kilometer area. Its two 
million connections reach a customer base that is primarily 
residential (1.5 million) and industrial (425,000). 
 
¶19.  (SBU) Despite privatization, the MWP meddles in the business 
affairs of KESC to ensure consistent electricity rates, manage the 
KESC debt and also gives permission to WAPDA to bridge any demand 
and supply gaps.  KESC is not free to set its own tariff rate and 
thus operates at a loss.  The GOP's use of fuel subsidies forestalls 
KESC's ability to charge competitive market rates. 
 
¶20.  (SBU) KESC is still purchasing electricity from WAPDA to meet 
its needs two years after privatization.  Infrastructure upgrades 
cause severe strain on KESC's financial resources.  As a result, 
WAPDA and KESC have continual payment disputes.  Most recently, in 
March 2008, WAPDA literally turned the lights off, plunging 
Karachi's 12 million people into darkness for up to 8 hours in 
various parts of the city because KESC owes WAPDA USD 558 million. 
While WAPDA only cut the electricity for 1 hour and 25 minutes, KESC 
was unable to restart its systems properly due to its outdated 
equipment. (Ref E). 
 
-------------------------------------- 
Private Power and Infrastructure Board 
-------------------------------------- 
 
¶21.  (SBU) The Private Power and Infrastructure Board (PPIB) was 
created in 1994 to facilitate private sector investment in power 
generation with a "One-Window" facility for the establishment of 
power projects and related infrastructure.  PPIB is responsible for 
the negotiation of implementation agreements, establishing investor 
incentives, and clarifying investor rights and obligations.  PPIB 
also provides a guarantee to the individual power producers (IPPs) 
for the performance of the power purchaser and fuel supplier.  It 
 
ISLAMABAD 00001623  004 OF 005 
 
 
also assists the regulatory authority (NEPRA) in determining and 
approving the tariff for new private power projects. 
 
¶22.  (SBU) PPIB also provides support to the power purchaser and 
fuel supplier while negotiating the Power Purchase Agreement (PPA), 
Fuel Supply Agreement (FSA)/Gas Supply Agreement (GSA), other 
related agreements, and serves as a liaison with local and 
international agencies for facilitating and expediting progress of 
private sector power projects. 
 
¶23.  (SBU) The Minister for Water and Power serves as the Managing 
Director of the PPIB.  The organization is governed by a Board of 
Directors which consists of the Minister for Water and Power; the 
Advisor to the Prime Minister on Energy; the Secretaries from the 
Ministries of Water and Power, Petroleum and Natural Resources, 
Finance, and the Board of Investment, plus the Member Planning 
Commission, the Chairman of WAPDA and the Managing Director of PPIB. 
 The Managing Director is responsible for the administrative control 
of the organization and is assisted by four directors in the areas 
of administration, finance, projects and legal. 
 
------------------------------------ 
Alternative Energy Development Board 
------------------------------------ 
 
¶24.  (SBU) The Alternative Energy Development Board (AEDB) is 
mandated to act as a "One-Window" facility for establishing, 
promoting and facilitating renewable energy projects based on wind, 
solar, small-hydel, fuel cells, tidal, ocean, biogas, and biomass. 
 
 
¶25.  (SBU) AEDB is governed by a Board of Directors chaired by the 
Minister of Water and Power.  The other members are the MWP Chief 
Executive Officer, AEDB Secretary, Advisor to the Prime Minister on 
Energy, and Secretaries from Ministries of Finance, Water and Power, 
Science and Technology, Petroleum and Natural Resources, Planning 
Commission and Environment. The board also has three Members from 
the private sector. 
 
¶26.  (SBU) The GOP has tasked the Board to ensure that five percent 
of the total national power generation capacity (or approximately 
970 MW) will be generated through renewable energy technologies by 
the year 2030.  In addition, under the remote village 
electrification program, AEDB has been directed to electrify 7874 
remote villages in Sindh and Balochistan provinces using renewable 
energy.  The AEDB is responsible for creating development which 
incorporates private sector participation in plans for solar 
products, including lights, fans, stoves, and heaters. 
 
¶27.  (SBU) The AEDB has thus far issued 94 letters of intent to 
potential investors for setting up 50 MW wind power plants; however, 
none are operational yet because of on-going land title disputes and 
the absence of a set tariff.  The inability of the AEDB to produce 
tangible projects resulted in internal political shifts.  While 
established in May 2003 as an autonomous Cabinet division, the 
administrative control of the Board was downgraded to be subservient 
to the MWP in February 2006, and the subsequently ruffled feathers 
are still visible in turf wars over control of various projects. 
 
--------------------------------------------- ---- 
Pakistan Council of Renewable Energy Technologies 
--------------------------------------------- ---- 
 
¶28.  (SBU) Under the administrative control of the Ministry of 
Science and Technology, the Pakistan Council of Renewable Energy 
Technologies (PCRET) coordinates renewable energy technology 
research and development. PCRET is actively involved in research and 
development activities in photovoltaic, solar thermal applications, 
micro-hydel power plants, biogas plants and wind energy.   AEDB and 
PCRET have duplicative mandates, yet AEDB falls under the MWP and 
PCRET under the Ministry of Science and Technology. 
 
-------------------------------------- 
National Engineering Services Pakistan 
-------------------------------------- 
 
¶29.  (SBU) Established in 1973 as a private company by the GOP, the 
National Engineering Services Pakistan (NESPAK) is ranked in the 
 
ISLAMABAD 00001623  005 OF 005 
 
 
world's top 200 consulting firms.  With a staff of over 2400 
employees including 1900 engineers, architects, planners, 
geologists, economists and other professionals, NESPAK has 
undertaken 2816 projects worth USD 151 billion, of which 2419 are 
domestic and 397 are overseas. 
 
¶30.  (SBU) NESPAK specializes in power and mechanical engineering; 
water and agriculture; architecture and planning; highways, bridges, 
airports and seaports; environmental and public health engineering; 
engineering for industry; heating, ventilation and air-conditioning; 
information technology and geographical information systems.  NESPAK 
has provided pre-feasibility and feasibility studies to power 
producers in public and private sectors. 
 
----------------------------------- 
National Power Construction Company 
----------------------------------- 
 
¶31.  (SBU) A state owned enterprise under the control of the MWP, 
the National Power Construction Corporation (NPCC), was established 
in 1974 to execute power engineering projects including extra high 
voltage transmission lines, cable networks, distribution network, 
substations, power generation plants, industrial electrification, 
and even the external lighting of housing complexes.  The Secretary 
of Water and Power heads the NPCC's five member Board of Directors 
drawn from the Ministries of Water and Power and Finance.  With an 
enormously expansive mandate, NPCC was created to ensure speedy 
execution of power projects. 
 
---------------------------- 
Pakistan Engineering Council 
---------------------------- 
 
¶32.  (SBU) Created in 1976, the Pakistan Engineering Council (PEC) 
is a regulatory body responsible for overseeing the transparency of 
bidding documents, setting evaluation criteria as well as awards and 
execution of construction and consultancy contracts for public and 
private sector power projects.  PEC works with both federal and 
provincial governments and must approve project proposals. The PEC 
also regulates the engineering profession in Pakistan and oversees 
the accreditation of engineering programs at all educational 
institutions. 
 
 
PATTERSON