Indo-Pak Power Deal and Confidence Building

12 Feb, 1999    ·   172

D.Suba Chandran & Mallika Joseph A say any positive movement in the power deal may pave the way for both countries to hopefully find a solution in more complex issues at a later stage

Three rounds of discussions held at the technical level on the sale of electricity by Pakistan to India since November 98 have focussed on the following:



a) Quantum of Power that Pakistan is to sell India :



Pakistan has surplus power, mainly because of the establishment of power plants by a number of Independent Power Producers (IPPs). Given the present power situation, Pakistan can export upto 2000 MW to India till 2010. However, to begin with Pakistan has offered to supply India 300 MW-500 MW of power.



b) Cost of Power



The major hurdle in the power talks has been the sale price of power per unit. As Pakistan is planning to sell its surplus power from the IPPs, it is expecting to sell the power at Rs. 3. 60 plus a profit margin.



The domestic price of power prevents India from buying power at this high rate. India ’s stand is that it cannot buy power to sell to its states that would cost more than Rs. 2.00. This price will also have to include transmission costs. Also, Pakistan is selling the power in cents and not in rupees, which necessitates the setting up of foreign exchange reserves for this purpose. This presents an additional constraint on India . As a result it cannot buy power from Pakistan if it costs more than Rs. 1.80.



c) Technical aspects of transmission:



It has been decided that transmission lines on both the sides would be constructed within six months from the date of the commercial agreement between the two governments. The respective countries will bear the cost of laying the lines on their sides. Besides, a 65 km interconnecting line is to be set up from Dinagar to Amritsar .



d) SAARC Power Grid:



India has made a proposal for a SAARC power grid to connect the national power grids of all the countries in the subcontinent as obtains in Europe . Surplus power available in any SAARC country would automatically flow to any other country which has the need. Detailed discussions on the SAARC grid is due pending a positive response from Pakistan .



Problems facing the Deal:



a) Cost of Power: The major problem seems to be the cost of power and on what basis the deal should be made. While India prefers  an agreement on the basis of ‘take and pay’ policy, Pakistan insists on a ‘take or pay’ basis. This means that India would like to pay for the power it actually takes for utilisation. But Pakistan would like India to pay for the units contracted, irrespective of whether it is utilised or not.



In India , consumption of power by states vary from season to season, place to place, and during each day. This inconsistency in demand prevents India from assuring Pakistan that it would purchase a fixed amount of power all the time.



India has forwarded another proposal in which has offered Pakistan a smaller component of assured purchase(200 MW) on ‘take or pay’ basis, and a larger component of non-assured purchase(500 MW) on a ‘take and pay’ basis. India is willing to pay a higher price for the ‘take and pay’ part of the agreement. This ensures that both sides can safely invest in the initial laying of lines. This proposal is still awaiting a response from Pakistan .



b) Technical: The cost of power, synchronisation of the power grids, and transmission inefficiencies are some of the technical problems facing the power deal. However, these problems should be taken care of by both sides.



c) Political:  At the political level, there has been some opposition to the deal from the Pakistani side. Since the Pakistan government is paying Rs 3.60 per unit to the IPPs, the critics are against exporting to India below this cost. The government of Pakistan has to balance the internal price and export price. At present only 34 percent of Pakistan has access to electricity. Secondly the critics of the power deal in Pakistan also feel that India would not import more from Pakistan, because that would make India depend on Pakistan, which they assert that India would never do.





Towards Confidence Building :



Both countries should realise that the power deal will benefit them equally. For India the deal will enable it to overcome its power shortage. For Pakistan this deal, besides helping it to reduce its adverse balance of trade with India , will also help to strengthen WAPDA’s (Water and Power Development Authority) financial position. Besides, the deal will enable the IPPs in Pakistan to generate more power, ultimately reducing the cost of power inside Pakistan .



Since the greatest problem facing the deal seem to be the cost that India is willing to pay, one can expect the Indian Prime Minister to make an announcement regarding this price during his trip to Pakistan .



Any positive movement in this sector may increase the opening provided by the India-Pakistan sugar deal to increase bilateral trade in other areas. These attempts along with other measures like the bus service from Delhi to Lahore and playing cricket matches, however minor they may be, will ultimately result in reducing the tensions between the two countries. In addition to bringing true Article III Clause 3 of the Simla Agreement which states “Trade and Co-operation in economic and other agreed fields will be resumed as far as possible…”, this may pave the way for both countries to hopefully find a solution in more complex issues at a later stage.