Cablegate: Friends of Democratic Pakistan to Tackle Energy

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FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC IMMEDIATE 7553
INFO RUEHBUL/AMEMBASSY KABUL PRIORITY 1544
RUEHLO/AMEMBASSY LONDON PRIORITY 2515
RUEHNE/AMEMBASSY NEW DELHI PRIORITY 6155
RUEHKP/AMCONSUL KARACHI PRIORITY 2968
RUEHLH/AMCONSUL LAHORE PRIORITY 8577
RUEHPW/AMCONSUL PESHAWAR PRIORITY 7633
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RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RHEBAAA/DEPT OF ENERGY WASHINGTON DC PRIORITY
RHMFISS/HQ USCENTCOM MACDILL AFB FL PRIORITY
RUEKJCS/JOINT STAFF WASHINGTON DC PRIORITY
RHEHNSC/NSC WASHINGTON DC PRIORITY
RUEKJCS/SECDEF WASHINGTON DC PRIORITY
RUMICEA/USCENTCOM INTEL CEN MACDILL AFB FL PRIORITY

UNCLAS SECTION 01 OF 02 ISLAMABAD 000453

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EAID ENRG PREL PK
SUBJECT: FRIENDS OF DEMOCRATIC PAKISTAN TO TACKLE ENERGY
SECTOR

1. (SBU) Summary: In the first meeting of the Steering
Committee on February 10, co-chairs Water and Power Secretary
Shahid Rafi and Asian Development Bank Country Director Rune
Stroem outlined the goals, membership and work plan for the
Friends of Democratic Pakistan (FoDP) Energy Sector Task
Force (ESTF). The Steering Committee agreed that the ESTF
would prepare and present a diagnostic of Pakistan's power
sector with short- and medium-term recommendations to the
July FoDP Ministerial. The Steering Committee membership
includes GOP representatives from the Ministries of Water and
Power, Planning and Development and Foreign Affairs, WAPDA
and PEPCO and FoDP representatives from the ADB, Islamic
Development Bank, France, Germany, Japan and the United
States. The Steering Committee will oversee the ESTF
Secretariat energy experts provided by the ADB and FoDP
member countries. Though the ESTF is only in its nascent
phase, Post believes it is a worthy venture, as it will
enhance donor coordination and, more importantly, provide a
forum for donor nations to speak with one voice in pushing
for GOP sectoral reforms. Post has selected an energy policy
expert for the ESTF Secretariat who will be on board by
mid-March. End Summary.

ESTF Membership and Modalities
------------------------------

2. (SBU) Assistance Coordinator and Econoff participated in
the first Steering Committee meeting of the FoDP Energy
Sector Task Force (ESTF) on February 10. The Steering
Committee will meet periodically to oversee the work of the
ESTF Secretariat -- a group of energy experts drawn from the
Asian Development Bank (ADB) and FoDP member countries that
is tasked to produce an energy sector diagnostic and short-
and medium-term (three to five year) recommendations to
improve Pakistan's energy sector for the FoDP Ministerial in
July.

3. (SBU) Rune Stroem, ESTF Steering Committee co-chair and
ADB Country Director, said the FoDP representatives were
chosen based on two criteria: the provision of $100 million
in assistance to the energy sector and the secondment of a
technical expert to the Secretariat. The FoDP
representatives are the ADB (co-chair), Islamic Development
Bank, France, Germany, Japan and the United States. Turkey
and Korea are providing technical experts to the Secretariat
but are not represented on the Steering Committee.

4. (SBU) The GOP Steering Committee representatives are
Secretary Water and Power Shahid Rafi (co-chair), Secretary
Planning and Development Ashraf Hayat, Foreign Affairs
Additional Secretary Abdul Basit, Water and Power Development
Authority (WAPDA) Chairman Shakil Durrani, and Pakistan
Electric Power Company (PEPCO) Managing Director Taheer
Cheema. Asked about the absence of the Ministry of Finance
from the list, especially given Finance's role in resolving
the circular debt, Rafi responded that other ministries, such
as Finance and Petroleum and Natural Resources, would be
consulted as needed.

5. (SBU) Stroem noted that the ADB, Germany and Korea had
already provided energy experts to the ESTF Secretariat and
that the Islamic Development Bank, France, Japan and Turkey
would provide experts soon. Post has selected an energy
policy expert who will arrive in mid-March. The ADB will
provide office space and administrative support for the
technical experts.

Scope of the ESTF report
------------------------

6. (SBU) The Steering Committee approved a draft outline for
the ESTF report which includes a diagnostic on the financial
performance and corporate governance of the gas and power
sectors; progress to date on institutional reforms; the

ISLAMABAD 00000453 002 OF 002

diversity of the power generation mix; and efforts to improve
energy transmission and efficiency. The diagnostic would
feed into an action plan for structural and regulatory
reforms; corporate governance and financial controls; changes
in the fuel mix for power generation; and investments in the
sector. The report would also include a monitoring and
evaluation plan for sector performance.

7. (SBU) MFA Additional Secretary Basit expressed concern
that the ESTF report would provide a forum for FoDP members
to place conditions on their assistance to Pakistan's power
and gas sectors. Stroem and Rafi responded that the purpose
of the report was to coordinate and align donor assistance
with needed GOP reforms to improve the sectors in the next
three to five years.

8. (SBU) Comment: The first Steering Committee meeting was
basically a meeting about meetings, setting the framework for
the real work to be done. Post believes that the Energy
Sector Task Force, both in the Steering Committee and the
working-level Secretariat, will provide a forum to improve
donor coordination as well as a vehicle for donors to speak
as one to push for GOP power sector reforms. The challenges
to the gas and electricity sectors remain immense -- with the
gas supply gap reaching 1.1 billion cubic feet per day (cf/d)
when domestic consumption spikes in the winter, and the power
generation gap exceeding 3,000 megawatts (MW) during peak
summer demand. And power sector finances, even with tariff
hikes in October 2009 and January 2010, continue to fall in
the red. The Ministry of Finance estimates that up to $1.2
billion in new intra-corporate "circular debt" has accrued
since September 2009. Donor assistance has helped keep the
sector chugging along, but the ESTF forum could at last
provide us the leverage sufficient to move it into a
sustainable direction. End Comment.
PATTERSON

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