Open warfare is out; covert economic operations are in. Military force is out; financial warfare is in.
DR. FARRUKH SALEEM– ‘Unsound economic projects’ are the new weapons of war. In the 70s, President Richard Nixon ordered the CIA to “make the [Chilean] economy scream (declassified documents relating to the military coup, September 11, 1973)”. Lo and behold, Pakistan’s economy is screaming today.
For the record, Pakistani leaders stand convinced of taking on additional layers of debt on top of existing layers of debt. For the record, Pakistani leaders stand convinced of ‘adopting economic policies that are bound to impoverish’ Pakistan.
For all of us to see, ‘uneconomical, financially non-viable and fiscally unsound’ projects are being bankrolled. The 27-kilometer Orange Line, the light rail rapid transit system, is expected to cost Rs162 billion. The estimated breakeven is Rs175 per ticket. At Rs20 a ticket, the Orange Line will lose Rs40 million a day or Rs14 billion a year every year. Plus, an additional Rs4 billion for operation and maintenance. Assuming that the Chinese loan is concessional, the debt payment of interest and principal is estimated at around Rs10 billion a year. Red alert: The debt burden is in dollars and the project loses money.
Imagine, the Government of Pakistan has guaranteed an annual Return on Equity (ROE) of 34.49 percent for the Thar Coal Block-I Power Generation Company (Private) Limited. The project cost is estimated at $767 million of which $575 million is debt. The interest rate used as the reference is Inter Bank Offer Rate (LIBOR) of 0.45 percent plus 450 basis points (https://nepra.org.pk/Tariff/IPPs/003%20Coal/Thar%20Coal%20Block-I/TRF-360%20TCB-I%20Upfront%20Tariff%208694-96%2010-06-2016.PDF).
For the record, the annual Return on Equity guaranteed by the Government of Pakistan on the Sahiwal Coal Power Project stands at a tall 27.2 percent. The interest rate used as the reference is Inter Bank Offer Rate (KIBOR) of 11.91 percent plus 350 basis points. The project cost is estimated at $956 million of which $723 million is debt (https://nepra.org.pk/Tariff/IPPs/Huaneng%20Shandong%20Ruyi%20(Pakistan)%20Energy%20(Private)%20Limited/TRF-308%20HUANENG%20UPFRONT%20COAL%20DETERMINATION%2031-03-2015%204385-87.pdf).
Red alert: This is awfully expensive electricity. Our industry cannot produce exportable competitive products with this electricity. Resultantly, we will have a huge dollar-denominated debt servicing burden but no additional exports.
Nandipur has gone from $329 million to $847 million. Neelum-Jhelum has gone from Rs15 billion to Rs414 billion. The New Islamabad Airport has gone from Rs37 billion to over Rs100 billion. Imagine, the tariff for Nandipur is: Refined Furnace Oil Rs18.17/kWh; High Speed Diesel Rs27.91/kWh and Gas Rs8.44/kWh.
Pakistan is getting crowded with ‘unsound economic projects’. Debt is the new weapon of war – debt that leads to ‘emergency managers’ and ‘emergency managers’ then “turn over the reins of the economy” to their political masters. The combination of unsound economic projects, debt, enforced austerity (by the IMF) and under-investment in health and education are the new weapons of war. This is what the 4th Generation War is all about.
Missiles, as weapons of war, are out. Unsound economic projects, as weapons of war, are in. Tanks, as weapons of war, are out. Debt, as a weapon of war, is in. Cold start, as a weapon of war, is dead. An economic strategy based on unsound economic projects is in. Open warfare is out; covert economic operations are in. Military force is out; financial warfare is in.
(The article also appeared in The News)
(The views expressed by the author do not necessarily reflect the position or policy of PKonweb)