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FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC IMMEDIATE 4035
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RUEHNE/AMEMBASSY NEW DELHI PRIORITY 5282
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RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
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UNCLAS SECTION 01 OF 02 ISLAMABAD 001724 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN ENRG PGOV PK
SUBJECT: PAKISTAN'S SUPREME COURT: ONE STEP CLOSER TO 
ALLOWING ELECTRICITY TARIFF HIKE? 
 
REF: A. ISLAMABAD 1525 
     ¶B. LAHORE 0154 
     ¶C. ISLAMABAD 1625 
 
This message has been coordinated with Consulates Karachi and 
Lahore. 
 
¶1.  (SBU) Summary: In a partial reversal of its July 6 ruling 
ordering the GOP to refrain from raising the electricity 
tariff, the Supreme Court ruled on July 23 that the National 
Electric Power Regulatory Agency (NEPRA) could continue to 
calculate the cost recovery tariff rate for power production 
and distribution.  The Supreme Court also declared that its 
investigation of the tariff issue would be concluded in three 
weeks.  While the ruling and timetable for concluding the 
investigation could indicate the court is backing away from 
its opposition to higher electricity prices, there is 
increasing public unrest due to massive power outages around 
the country, in particular in Karachi, brought about by a 
combination of severe storms and an overburdened and 
under-fueled electricity system.  End Summary. 
 
AN (INTERIM) STEP IN THE RIGHT DIRECTION 
---------------------------------------- 
 
¶2. (SBU) On July 6, the Supreme Court ruled that National 
Electric Power Regulatory Agency (NEPRA) could not increase 
electricity tariff rates by a proposed 17.5 percent until it 
was able to justify its need to do so to the Court's 
satisfaction, and that the court would hold the GOP in 
contempt if it carried out the planned rate hikes.  NEPRA 
Legal Advisor Iftikhar Ahmed confirmed to Econoff July 24 
press reports that the Supreme Court had on July 23 partially 
reversed itself and would allow NEPRA to resume calculating 
the tariff level necessary to recover the costs of power 
production and distribution.  The Supreme Court, however, is 
still pursuing its inquiries with the Ministry of Finance and 
the Ministry of Water and Power, the two government bodies 
responsible for determining energy subsidies and therefore 
the final power tariff paid by consumers.  The Court 
announced it would conclude its investigation in three weeks. 
 
¶3. (SBU) The tariff issue is being investigated by a 
three-judge panel headed by Supreme Court Chief Justice 
Iftikhar Chaudhry.  The other two justices, Chaudhry Ijaz 
Ahmed and Jawwad Khawaja, are both former corporate lawyers, 
who according to NEPRA Director General Hussain Barbur, 
"understand the economic realities" behind the proposed 
tariff hike.  Indeed, Barbur opined, the Chief Justice's 
selection of the two for the panel demonstrate that Chaudhry 
may be less of an economic populist inside chambers than out. 
 
 
POLITICAL CONSENSUS FORMING? 
---------------------------- 
 
¶4. (SBU) The Ministry of Finance Joint Secretary responsible 
for subsidies, Mohammed Sarwar, told Econoff July 24 that he 
believed the GOP would stick to the latest plan agreed with 
World Bank and Asian Development Bank (and pending before the 
IMF) to raise energy tariffs sufficiently to recover costs of 
production in three tranches: 5-6 percent on October 1; 10-12 
percent on January 1, 2010; and 5-6 percent on April 1, 2010. 
 Sarwar reported that at the July 23 session of a ministerial 
committee formed to address the energy crisis there was a 
clear consensus among the ministers present that the GOP had 
no other option but to reduce the energy subsidies and raise 
consumer tariff rates.  Sarwar said that President Zardari 
and Prime Minister Gilani are now "sensitized" to this need. 
Sarwar agreed with the GOP logic that delaying the initial 
rate hike until October will be more politically palatable as 
it would come after the high-demand summer load-shedding 
season. 
 
 
ISLAMABAD 00001724  002 OF 002 
 
 
AGAINST A BACKDROP OF SEVERE BLACKOUTS AND UNREST 
--------------------------------------------- ---- 
 
¶5. (U) This latest court activity takes place against a back 
drop of increasing power outages and a commensurate rise in 
demonstrations and unrest.  In Karachi, severe monsoon rains 
July 18 brought down power lines, further exacerbating power 
constraints caused by the complete shutdown of overburdened 
generation and distribution systems at the Mangla Dam June 
27, which took 1100 MW off the grid.  Of 1150 feeder 
stations, some 450 went offline in the storm; five of 58 
substations were under water.  Essential maintenance at the 
Karachi Nuclear Power Plant cost the grid another 80 MW and 
two independent power producers, Gul Ahmad and Tapal Energy, 
have recently stopped supplying KESC with power altogether 
(240 MW combined) because of non-payment.  Karachi Electric 
Supply Company (KESC) contacts reported that KESC's own 
generation is also in trouble: because the facility could not 
afford adequate supplies of fuel, it is operating at only 50 
percent of capacity.  As much as half of the city was without 
power (and water, as electric pumps were also offline) for 
more than four days while KESC struggled to repair power 
lines and restore service.  Karachi-ites took to the streets 
July 19, focusing their wrath on KESC and government 
facilities: media reported that some 21 KESC offices were 
damaged and police used tear gas to disburse rioters July 20. 
 Even after service began to be restored, protesters 
continued to block streets and pelt vehicles with stones 
while chanting slogans against KESC. 
 
¶6. (U) Protests continued the week of July 20 and spread to 
Lahore, Islamabad/Rawalpindi and other major cities as 
traders and industrialists joined unhappy mobs in demanding 
an end to load shedding.  In Lahore, transporters also joined 
the protests, focusing their anger on high fuel prices. 
Shops were closed and "wheel jam" strikes called in major 
urban centers; while implementation of the multiple protests 
varied, traffic was snarled and some workers were unable to 
report to work for lack of transportation.  In Punjab, 
protesters torched a passenger train in Jhang and offices of 
the Water and Power Development Authority (WAPDA), and threw 
stones and burned tires outside government offices and banks. 
(Ref B). 
 
¶7. (SBU) Comment: The July 23 decision, the timetable for a 
final ruling, and the composition of the three-court panel 
bode well for a final Supreme Court decision freeing the 
GOP's hands to again determine tariff rates - although 
Chaudhry has not relinquished his jurisdiction and could 
decide to intervene again at a later date.  A member of the 
GOP delegation to the July IMF review in Istanbul confided to 
us that the GOP had reached out to Chaudhry behind the scenes 
and that Chaudhry now better understood the need to address 
electricity tariffs and deal responsibly with the fuel tax 
(Ref C).  The technocrats in NEPRA and the Ministry of 
Finance believe the politicians have no choice but to raise 
tariff rates; the fact that PPP insider and Minister of State 
for Economy Hina Rabbani Khar led the negotiations for the 
most recent deal with the IFIs on a schedule for rate hikes 
could indicate more political buy-in than earlier efforts by 
Finance Advisor Tarin were able to muster.  MinFin tariff 
expert Sarwar said that the riots of the past few weeks were 
in response to the failure to deliver power, more than the 
proposed tariff increase; we agree.  But if the GOP cannot 
bring - and keep - more power online for consumers, tariff 
increases in the autumn and winter could prove as difficult 
to implement as they have been this summer.  Septels will 
examine the status of new generation expected online by 
December 2009 and other efforts to revamp Pakistan's decrepit 
energy infrastructure, as well as GOP progress tackling the 
circular debt and other financial issues negatively affecting 
Pakistan's power sector. 
FEIERSTEIN