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Pakistan must take the lead at COP27

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ISLAMABAD:

The 27th meeting of the Conference of the Parties (COP) of the United Nations Climate Change Conference (UNFCCC), or more commonly referred to as COP27, is being held from November 6th-18th, 2022, in Sharm El Sheikh, Egypt.

Pakistan has a very strong case to present at COP27, as we continue to suffer the aftermath of the catastrophic floods to have stuck the country this summer. The gravity of the devastation was further realised with the UN Secretary General, António Guterres’ visit. His visit came in addition to visits from other high-profile global signatories and officials.

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The Pakistani delegation at COP27 is being led by Prime Minister Shehbaz Sharif, and like the 1992 Earth Summit, Pakistan is leading the largest and most influential G-77 bloc in the climate negotiations under the UN framework.

Pakistan has been listed in the top-ten most climate vulnerable countries in the world. The country has been experiencing erratic weather leading to flash floods, severe droughts, glacial lake outbursts, scorching heat waves and increased rainfall variability. Consequently, its ecosystems and landscapes are continually degrading. Forest fires, shifting of plant and animal species, and drying up of water bodies and wells are becoming more frequent due to increased anthropogenic activities.

According to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC), the change in climate is likely to increase the frequency and magnitude of such extreme events. Pakistan is party to the UNFCCC, the Paris Agreement, has adopted the Sustainable Development Goals (SDGs) and is seriously pursuing the enforcement of dozens of other Multilateral Environment Agreements (MEAs).

Pakistan, with only 0.43% of global greenhouse gas (GHG) emissions in 2013 and 0.67% in 2020, has an insignificant contribution to the larger phenomenon of global warming. However, the country is already witnessing the severe impact of climate change in the form of unprecedented floods that devoured crops, displaced people and dismantled households across the country between August to September 2022.

According to World Bank figures, the disaster resulted in total financial losses of an estimated $40 billion. The floods also affected 33 million people across Pakistan, left 1,714 people dead, 12,758 people injured, 13,000 km of roads damaged and destroyed 9.8 million acres of arable agricultural land. In addition, the reconstruction and rehabilitation cost may go into billions of dollars as the detailed assessment is underway.

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Going forward, Pakistan faces significant challenges in the quest to combat the impact of climate change. Weak and sketchy institutional and climate governance structures, at both the national and sub-national level coupled with poor coordination and limited finances for costly mitigation and adaptation arrangements, are major stumbling blocks in the path towards effective climate governance. Pakistan is not in a position to effectively address the third component of the Paris Agreement, which pertains to climate change adaptation and mitigation.

There are other challenges related to attribution. Addressing loss and damage is less popular because it demands more serious commitment from advanced economies (the main contributor of greenhouse emissions), especially the US and the EU.

For a developing country, accessing the climate and other global funding sources is a complicated process. In addition, the implementing partner (IP), the accredited international agency possessing the professional expertise, takes away most of the resources, leaving governmental institutions without any substantial funding.

For example, the Clean Development Mechanism (CDM) was so complex and bureaucratic that Pakistan could not benefit from it during the past two decades. Similarly, existing funding mechanisms, including methane pledges and the earning of carbon credits for transformation to low carbon renewable energy sources, are all difficult for Pakistan to adequately benefit from.

In COP26, nations adopted the Glasgow Climate Pact, aiming to turn the 2020s into a decade of climate action and support, including financial compensation for loss and damage brought about by climate-induced disasters. The package consists of a range of agreed items, including strengthening efforts to build resilience to climate change, curbing GHG emissions and providing the necessary funding for both.

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Nations reaffirmed their duty to fulfil the pledge of providing $100 billion annually to developing countries. In addition, they agreed to work collectively to reduce the gap between the existing emission reduction plans and the emissions cut-off requirement, so that the rise in the global average temperature can be limited to 1.5 degrees.

The methane pledge, led by the United States and joined by over hundred countries at COP26, aimed at supporting developing countries with access to technology and resources. However, this has not seen any progress and effective implementation still remains a major concern despite the passage of one year.

At the summit, Pakistan should propose that compensation for climate-induced loss and damage needs to be a part of the core agenda of COP27. According to initial estimates from the World Bank, Pakistan immediately needs an amount of $53.5 billion.

Likewise, the process of accessing climate finance needs to be made more transparent and simpler for developing countries. Pakistan is yet to see the promised 50:50 balance in adaptation and mitigation finance. Pakistan’s 2030 ambition in the agreed National Determined Contributions (NDCs) are already higher than many countries aiming at a net zero target by 2060.

The global community should establish a Pakistan-focused climate fund with $50 billion as seed money. For the future, capacity building commitments in line with the Bali Action plan are needed for Pakistan to effectively deal with the climate change monster.

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The writer is A PhD in Natural Resources Management, has served at provincial, federal and international organisations as an environmental consultant

 

Published in The Express Tribune, November 14th, 2022.

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Privatisation fails to meet objectives

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ISLAMABAD:

The success of Pakistan’s privatisation programme has remained limited to only generating $11 billion in sale proceeds, as the country could not achieve the post-privatisation objectives of improving efficiency and competition, says a new independent study.

The findings come amid the International Monetary Fund’s (IMF) push for approval of the State-Owned Enterprises (SOEs) Bill to improve efficiency and management of public sector firms. The finance ministry has requested the holding of a joint session of parliament to approve the law, after the bill was rejected by the Senate.

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In a study titled “Public Sector Enterprises (PSEs) in Post-Privatisation: Evidence from Pakistan”, authors Naseem Faraz and Dr Ghulam Samad concluded that the key objectives of the privatisation programme had remained unfulfilled. The study has been published in the Journal of Applied Economics.

“Our main finding is that the performance of firms has improved in the post-privatisation period but (it is) statistically insignificant,” said the authors. Privatisation has been carried out with the motive of reducing the fiscal burden and increasing the efficiency of the inefficient PSEs. Since 1991, the sale of PSEs has raised revenues of Rs649 billion, or $11 billion.

The $11 billion has been worked out by applying the exchange rate of the year when a privatisation transaction took place.

Pakistan is one of the developing countries where privatisation of a large number of PSEs has taken place, but the post-privatisation effect is yet to be analysed. Second, rather than focusing on one or a few sectors, the study considers all the privatised PSEs.

The study showed that the performance of a few firms improved in the post-privatisation period but it largely remained negative.

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“In particular, the privatised PSEs in energy, cement and chemical sectors do not show positive gains in the post-privatisation period. However, the telecom and textile sectors have experienced a positive change in the performance of the privatised PSEs.” “Similarly, the results also showed that the efficiency of firms did not increase significantly.”

The authors said that according to their assessment through the Key Informant Interviews, the malfunctioning of regulatory environment led to the market failure that eventually resulted in market exploitation.

Regulations and regulators are captured by the market, bureaucrats, judiciary and politicians. An effective regulatory environment does not exist to force the privatised entities to have higher efficiency and develop a competitive environment.

Government intervention in the regulatory sphere is dominant. Every regulatory authority has a board member from the government. This practice is clearly not aligned with the privatisation regulations.

The government intervention (secretary sitting as a board member) creates conflict of interest by having ownership and management together.

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The privatised banking and energy companies have failed to bring in the benefits of sell-off, according to the study. The process of privatisation and rewards distribution favoured mainly the buyers, while the government faced risk and cost.

According to the authors, the privatised companies earned a higher average rate of return on assets compared to their fully government-owned counterparts, as measured by the total net profits-to-sales ratio.

The higher returns on assets suggest a favourable effect of privatisation. On the contrary, the profitability or productivity measure (net profits-to-sales ratio) was relatively higher for the privatised firms but it was statistically insignificant compared to the period when the firms were fully government owned.

“The privatised firms experience a mild increase in productivity compared to their pre-privatisation period. This difference in performance is not statistically significant.”

Privatisation also did not enhance the efficiency of the privatised firms in terms of increase in sales. It suggested that the efficiency improvement was merely coming through the reduction in cost of production.

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The study identified weak regulators as a reason for the failure to achieve the privatisation objectives.

“Unfortunately, the regulator Pakistan Telecommunication Authority (PTA) did not influence PTCL and other related entities to work in a regulated market environment.”

The role of the PTA is limited to overseeing the determination of market prices. PTCL’s privatisation was not a fair deal. It lost $800 million and also did not improve the market in terms of competition.

“The government sold 26% shares to Etisalat and also transferred the management, which is against the rule, which requires 51% shares,” emphasised the authors.

The government had agreed that Etisalat would pay $2.6 billion by making upfront payment of $1.4 billion and the remaining $1.2 billion in nine installments of $33 million each. For the deal, the government received only $1.8 billion and the remaining $800 million was never paid.

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“The monopoly of the telecom sector persisted despite the privatisation and drove away billions of dollars.”

The privatisation of KESC, now KE, also did not achieve the objectives. Though the main reason of the privatisation was to get rid of the loss-making enterprise, unfortunately the government is paying more after privatisation, according to the study.

Published in The Express Tribune, November 24th, 2022.

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Tractor maker faces legal action over fraud

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KARACHI:

The Federal Tax Ombudsman (FTO) has ordered legal action against a tractor manufacturing company as the Federal Board of Revenue (FBR) reported a fraud of more than Rs10 billion.

According to FBR sources, the tractor company has allegedly committed a fraud of over Rs10 billion under the previous government’s initiative to provide tractors at a lower cost to the farmers.

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As part of the subsidy scheme, the government gave billions of rupees to the deserving and underprivileged farmers for the purchase of tractors.

Sources said that the tractor manufacturer had claimed sales tax refunds on fake documents and flying invoices. The FBR then referred the case to the FTO.

They added that the FBR recommended the application of the Benami Transactions Act while taking legal action against the tractor manufacturer.

“The respondent company misused pay orders of the complainant by issuing bogus and fake sales tax invoices to other persons for obtaining fraudulent adjustment and refund,” a notification of the FTO office read.

The FBR has initiated legal proceedings against the owners and dealers of the tractor manufacturing company for the recovery of money obtained through fraudulent means.

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The Directorate General of Intelligence and Investigation, Inland Revenue has been tasked with investigating the fraud and tax evasion case.

Published in The Express Tribune, November 24th, 2022.

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G7 looking at Russian oil price cap of $65-70

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BRUSSELS:

The Group of Seven nations (G7) are looking at a price cap on Russian sea-borne oil in the range of $65-70 per barrel, a European Union (EU) diplomat said on Wednesday.

Views in the EU are split, with some pushing for a much lower price cap and other arguing for a higher one. The G7, including the United States, as well as the whole of the EU and Australia, are slated to implement the price cap on sea-borne exports of Russian oil on December 5.

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“The G7 apparently is looking at a $65-70 per barrel bandwidth,” the EU diplomat said.

“Poland, Lithuania and Estonia consider this too high because they want the price set at the cost of production, while Cyprus, Greece and Malta find it too low, because of the risk of more deflagging of their vessels, which might mean the G7 has found a good middle-ground,” the diplomat said.

Some 70%-85% of Russia’s crude exports are carried by tankers rather than pipelines.

The idea of the price cap is to prohibit shipping, insurance and re-insurance companies from handling cargos of Russian crude around the globe, unless it is sold for no more than the maximum price set by the G7 and its allies.

Because the world’s key shipping and insurance firms are based in G7 countries, the price cap would make it very difficult for Moscow to sell its oil – its biggest export item accounting for some 10% of world supply – for a higher price.

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At the same time, because production costs are estimated at around $20 per barrel, the cap would still make it profitable for Russia to sell its oil and in this way prevent a supply shortage on the global market.

Brent crude front-month future oil prices initially fell to $86.54 from $87.30 on the news.

Published in The Express Tribune, November 24th, 2022.

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