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Viewing cable 08ISLAMABAD3389, AS PROTESTS CONTINUE GOP RESERVES DECISION TO ELIMINATE

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Reference ID Created Released Classification Origin
08ISLAMABAD3389 2008-10-27 12:49 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Islamabad
VZCZCXRO5581
RR RUEHLH RUEHPW
DE RUEHIL #3389/01 3011249
ZNR UUUUU ZZH
R 271249Z OCT 08
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC 9495
INFO RUEHRC/DEPT OF AGRICULTURE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEHRC/USDA FAS WASHDC 4271
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RUEKJCS/SECDEF WASHINGTON DC
RUEHKP/AMCONSUL KARACHI 0517
RUEHLH/AMCONSUL LAHORE 6255
RUEHPW/AMCONSUL PESHAWAR 5091
RUEHNE/AMEMBASSY NEW DELHI 3942
RUEHBUL/AMEMBASSY KABUL 9306
RUEHLO/AMEMBASSY LONDON 8957
RUEHML/AMEMBASSY MANILA 3053
UNCLAS SECTION 01 OF 02 ISLAMABAD 003389 
 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ECON ETRD EAID EFIN ENGY PGOV PK
SUBJECT: AS PROTESTS CONTINUE GOP RESERVES DECISION TO ELIMINATE 
ELECTRICTIY TARIFF HIKE 
 
1. (SBU) Summary. Faced with protests nationwide the Government of 
Pakistan has reversed the recent decision to increase electricity 
tariffs by 31 percent.  Minister of Water and Power Raja Pervez 
Ashraf stated at a news conference on October 26 that the government 
stands by its decision to slash the annual subsidy from Rs 185 
billion (USD 2.27 billion) to Rs 65 billion (USD 79 million), but 
the implementation of the decision has been delayed for now.  With 
unsustainable subsidies on electricity at a time of heightened 
financial distress, Adviser on Finance Shaukat Tareen, noted that 
tariff increases are necessary but that the GOP would review the 
percentage passed to the public.  Faced with unprecedented power 
blackouts of up to 20 hours per day in several cities across 
Pakistan, it is not difficult to imagine why the Pakistani public is 
contesting the government notion that they should pay more for less. 
End Summary. 
 
2. (SBU) As expected the Government of Pakistan's (GOP) September 9 
decision to raise the domestic electricity tariff by an 
unprecedented 31 percent was met with stiff resistance by the 
Pakistani public.  The GOP claimed that the step was necessary to 
reduce the subsidy on electricity from Rs 185 billion (USD 2.27 
billion) to Rs 65 billion (USD79 million) annually.  The GOP decided 
to pass on the burden to the public with a phase one price hike of 
31 percent increase in calendar year 2008 and another planned 30 
percent increase before the end of Pakistan's fiscal year in June 
2009. 
 
2. (U) When people received their monthly electricity bill for 
September, which reflected the 31 percent increase, riots and 
protests were held in sixteen cities across the country.  Fearing a 
major law and order situation the GOP announced a reversal on 
October 23 and suspended collection of the increased electricity 
bills.   Minister for Water and Power Raja Pervez Ashraf stated at a 
news conference on October 26 that the government stands by its 
decision to slash the annual subsidy from Rs 185 billion to Rs 65 
billion, but the implementation of the decision has been delayed for 
now.  The GOP has formed a committee to recalculate the percent 
increase. 
 
3. (U) At a national televised press conference, Ashraf claimed that 
the previous government left Rs 400 billion (USD 4.9 billion) in 
circular debt in the domestic power sector and the Pakistan Peoples 
Party-led government must now pay the price.  He noted the huge 
circular debt had affected the supply of furnace oil and gas to 
power companies and has taken a heavy toll on the generation 
capacity of independent power producers (IPPs). He added that the 
debt is adversely affecting the functioning of the Water and Power 
Development Authority (WAPDA) and the distribution companies 
nationwide since they are unable to buy fuel for their power 
plants. 
 
4. (U) Minister Ashraf noted that the recent release of Rs 60 
billion (USD 0.737 billion) in outstanding payments to IPPs has 
helped increase power generation nationwide.  Newspapers reported 
that Ashraf has issued a statement stating "I appeal to the masses 
to stop the protests because the increase in tariff has not been 
implemented."  Ashraf further alleged that some people are fuelling 
the issue for political gains. He said those who resorted to 
protests and damaged public and private property were not serving 
the best interests of the country. 
 
6. (U) Faced with unsustainable subsidies on electricity at a time 
of heightened financial distress, Adviser on Finance Shaukat Tareen, 
ruled out a complete withdrawal of the recent increase in power 
tariff on October 26.  Talking to the media he said that the "tariff 
increase would be there. How much and what proportion, I think this 
has to be decided by the committee set up to review the hike." 
 
7. (SBU) Comment. With the power tariff issue the GOP finds itself 
between a rock and a hard place.  The current 61 percent subsidy is 
unsustainable and further depletes the dangerously low foreign 
reserves; however faced with double digit inflation the public is 
unable to absorb another significant price increase.  While the GOP 
has made commitments to international institutions to eliminate the 
 
ISLAMABAD 00003389  002 OF 002 
 
 
fuel subsidies, the public outcry will demand that such increases be 
passed along in much smaller increments and that the public sees 
more power generation as well.  Faced with unprecedented power 
blackouts of up to 20 hours per day in several cities across 
Pakistan, it is not difficult to imagine why the Pakistani public is 
contesting the government notion that they should pay more for less. 
End Comment. 
 
PATTERSON