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APRIL 2008

^ISSUES:

• ‘Inflated bills, outstanding dues’

• The looming energy crisis

• ‘Tanker mafia’ behind Karachi’s water woes

• A house for every citizen

Top bosses of the privatised Karachi Electric Supply Corporation (KESC) have been invited by the federal water and power ministry to discuss issues that the Karachi utility has with the Pakistan Electric Power Company (PEPCO) on payment of bills for the electricity supplied by Wapda system. But there are doubts that the meeting would be held at all as the process of government change-over has begun and the National Assembly meets today. There is a big question mark on the status of the caretaker minister Tariq Hamid.

“Payment and recoveries of all utilities have political dimensions for which the caretakers have no mandate,” argued an official who is convinced that the matter would come up for detailed discussion next month when the elected federal and Sindh governments are set in place and competent bureaucrats, experts and elected representatives are assigned the job to tackle the complex issue amicably.

The KESC is on a notice from Pepco to pay Rs3 billion by April 1 next against a total outstanding amount assessed at Rs37.5 billion for purchase of power from the National Transmission and Dispatch Company (NTDC), a subsidiary of Pepco. The Pepco wants KESC to enter into a regular power purchase agreement with the NTDC that should stipulate payment schedule in future and also a plan to clear all outstanding dues. On March 6 some 20 million people of Karachi woke up to find suspension of power generation, transmission and distribution as the Pepco abruptly and without any notice cut off power supply from its system to the city. This suspension closed down the generation of the KESC system also. After more than two hours when Islamabad was informed of the Pepco’s abrupt action and its impact on Karachi, the power supply from Wapda system was restored. Normal supply with load shedding was resumed late in the evening as Wapda supplies were at 200 megawatt as against a demand of 750 megawatt a day. Debt: “It is a circular debt’’ contends the Chief Executive of the KESC retired General S.M. Amjad making two points on the issue. First, the clearance of Pepco is linked with the recovery of KESC dues from the federal, provincial and local government agencies in the city which are identified as ‘strategic customers’ by the government. “Recoverable amount from these strategic consumers is 19 per cent of our total revenue and we are instructed by the government not to cut their power connections’’, he disclosed, and emphasised that payment to Pepco is linked to receipt of outstanding bills from the government agencies that include about Rs4.75 billion from Karachi Water and Sewerage Board (KSWB).

Second, the KESC disputes Rs37.5 billion outstanding amount as it maintains that the Pepco is charging on marginal cost obtained from its most expensive and uneconomical power generating unit. The National Electric Power Regulatory Authority (Nepra) decided in May 2006 to allow Pepco to charge on the basis of marginal cost. The Pepco purchases power from a number of companies. Hydro power roughly constitutes 35 to 38 per cent of the total mix of electric power generation. Hydro power is the cheapest source of energy and till privatisation of the Karachi Electric Supply Corporation Wapda was charging on the basis of a mean cost of whole mix that came to Rs3.69 a unit. Pepco is now demanding Rs9 plus for a unit.

But officials in Pepco Lahore consider the KESC an “inefficient monopoly”. “This is not a circular debt’’, a senior official in Pepco informed Dawn on telephone from Lahore. The KESC is now a private independent entity and should ensure its recoveries from its consumers and not link it to payment of its dues to us. He said that Pepco bills to KESC for purchase of power were in accordance with the Nepra decision. Intervention: But, in short, the KESC is seeking government intervention for quick recovery of about Rs11-Rs12 billion from public sector consumers. Also, the cost of electric power being purchased from Wapda system should be on a mean basis rather than on marginal cost.“Once these two arrangements are made, the KESC would be in a much better position to improve its cash flow and plan for meeting the rising power demand for future’’, an official explained. “We have not increased our tariff of water supply and distribution for our customers for last more than ten years,’’ a well placed source in the KSWB said who revealed that the KESC billing had jumped up from an average of Rs30 million a month in 1997 to Rs180 million a month now. The board has improved its bill recovery after paying 25 per cent of the recovered amount to 18 town committees and 178 union councils of the city. The latest reports suggest that the board has given fresh employment to more than 4,500 persons which is more than 50 per of the existing workforce of about 8,000. There is yet no idea on increase in the wage bill of the utility and its impact on its balance sheet.

In countries like Singapore and South Korea, the ratio of employees in water utility is two to three for every 1,000 connections. But in Pakistan in most of the utilities including KSWB it is more than 25 for every 1,000 connections. Then there is water loss through leakages and pilferage, with increase in population and problems in water supply and distribution mainly because of old and worn out distribution system. The provincial government had been asked a few years ago to further augment water supply from River Indus which too would need a big capital investment. A revamping of water distribution system is also a capital- intensive activity. The next government will have to work out a strategy to harness resources for this essential need of the city. Repayment: The KESC has entered into a long-term arrangement with the Sui Southern Gas Company and the Pakistan States Oil on payments for fuel. For long the utility remained a defaulter of both the companies and there were frequent reports of KESC getting notices from SSGC and PSO of suspension of oil and gas supply. But well-placed sources in the SSGC disclosed that the KESC was now sticking to the payment schedule worked out in October last year. It was paying all current dues well in time every month with Rs500 million to adjust the accumulated default of Rs4 billion. The PSO also informs that it was receiving all payments from the KESC according to the arrangements it has reached with the utility. In Karachi, most of the industrialists and businessmen are not ready to buy the idea that Wapda should bill the KESC on the basis of marginal cost.

“The fuel cost in whole country is uniform because we in Karachi contribute to the pool’’ argued a businessman. He said Karachi being a port city where imported oil and fuel comes, the cost should be lowest. Similarly, the people of Karachi pay the highest revenue and have contributed most in payment of foreign and domestic loans acquired for the construction of the Tarbela, Mangla and Warsak Dams. How can the benefit of low cost hydro power be denied to Karachi?

(By Sabihuddin Ghausi, Dawn-Economic & Business Review, Page-1, 17/03/2008)

From 2004 onwards, the price of oil started soaring in the international market, and for the first time in October 2004, oil prices crossed the benchmark of $50 per barrel. The price continued to fluctuate but kept moving up each year and in 2007 briefly crossed $100. For the past few days it has been hovering around $110 per barrel.

The oil industry has been plagued by two main deficiencies viz. a drop in exploration activity following the economic slowdown of the mid-1990s, and global refining capacity that did not keep pace with the rise in demand in China, India and the Far East beginning 2000. Yet, both Opec and the vertically integrated oil industry have displayed no interest in increasing the output, which needs additional investment in exploration and at last 4-5 years to build additional refining capacity. All oil-consuming countries, particularly third world countries, have suffered due to the consistently rising demand-driven cost of energy. Pakistan is one of the countries worst hit by the rise in price of energy. The domestic energy generation sources are restricted to hydropower, limited production of oil and gas, and negligible use of coal as the input for power generation. Even the conversion of cement industry to coal required import of coal from Indonesia and some other countries. According to the PPIB website, during 2008 Pakistan would be short of electricity supply to the tune of 1,457 MWH. This supply gap does not take into account the fact that, during the day, in the peak consumption hours this gap increases well beyond 1,457 MWH. Given this supply shortfall, and few choices for plugging this gap with indigenous energy resources, the planned and projected growth in GDP appears highly unlikely.

If Pakistan chooses to rely on fossil fuel to generate electricity it would be a constant burden on the country’s foreign exchange reserves, and due to continuously increasing price of oil, our exportable surplus would become progressively more uncompetitive, goods for local consumption would become costlier, some industries could face closure/bankruptcy and the country could face economic stress on a wide scale. It is therefore imperative that Pakistan finds workable remedies to the looming energy crisis and such remedies encompass practical solutions to facing up to the problems arising out of growing population and the growing energy needs to support reasonable GDP growth.

For the last 10 years, Pakistan has been importing crude oil and refined petroleum products to generate electricity, besides meeting the increasing demands of its expanding transport sector. The energy being consumed in transport is beyond the scope of this article, and is a subject that should be dealt with separately. Coming back to energy, since all energy-types are inter-convertible, there can be several possible solutions in a comprehensive plan for utilising alternate sources of energy.

The basic idea which I would like to promote is that we must develop a plan which does not impose a constant burden on the country’s foreign exchange reserves, the cost of implementing that plan is not inflated by the depreciation of the rupee, and the dangerous correlation between operating cost of the power sector and future increases in the prices of petroleum products is rapidly contained within manageable limits.

The alternate energy sources need to be explored.

Nuclear (civil) energy: KANUPP was established with the help of the Canadian government in the 1960’s, but due to the changed geopolitical realities, expansion of Pakistan’s nuclear energy base for civilian uses seems unlikely. Although Pakistan has already achieved its goal of assembling nuclear weapons via the uranium enrichment route, and may not need more fissile material, yet the possibility of reprocessing the spent fuel from civil nuclear power units to extract plutonium from the spent fuel may become a matter of concern for those powerful lobbies that advocate non-proliferation and no longer rely on Pakistan since, with the passage time, the trust deficit has grown. The other disadvantage of civil nuclear energy might be the disposal of radioactive material and a constant flow of fuel rods and the required spares to operate the unclear power stations. These factors will again be a burden on the scarce foreign exchange reserves.

Natural gas exploration: Pakistan still has huge untapped gas reserves. If we allocate more resources to their exploration there is a possibility that in the near future part of the energy resource gap may be met from new reserves. To achieve this objective, the government has to revise its gas pricing policy including but not limited to upward revision of the well head prices. The current gas prices and the limits they place on increasing the profitability of this sector would not attract any reasonable amount of investment, whether local or foreign, since the cost of exploration has gone up substantially and current well head prices do not justify further investment at the current rate of return. The other factor discouraging exploration of new gas reserves, which would continue to haunt us, is the law and order situation in most of the areas where gas finds can be a possibility.

Natural gas Import: For quite some time, Pakistan has been planning to import gas through cross-border pipelines. This was never a great possibility but our planners continued to toss this idea around, and gave people false hopes. Any gas pipeline from Turkmenistan must pass through Afghanistan. Laying a gas pipeline through a war-torn and hostile Afghanistan never seemed more than a myth.

Laying the gas pipeline and its maintenance and management through that territory always defied imagination considering the fact that, for the last so many years, Pakistan could not manage and protect its gas pipelines even in Balochistan. Yet, the planners continued to sell the idea of a pipeline from Turkmenistan.

The import of gas from Qatar too had a snag, which was never highlighted. This pipeline was to be laid on the (deep) sea bed, for which global experience has been pretty uneven, limited, and shows this transportation method to be uneconomical. In the case of both Turkmenistan and Qatar, Pakistan did not enter into any sort of binding agreements, and because available supplies with these countries have been sold, no more gas would be available from these countries.

The IPI (Iran-Pakistan-India) gas pipeline project is a long story (global political situation is not being discussed for obvious reasons) but the current plan to lay the 54 inch pipeline through the coastal area has a major flaw. The long route has escalated the project’s cost and the route requires building a lot of bridges otherwise the pipeline will have to be buried very deep. These bridges are to be built keeping in view the damage that (has been and) could be caused to the coastal highways by flash floods, which would add a lot to their cost substantially, and the time required to build the pipeline will become uncomfortably long. The shorter route available through Balochistan is not being considered by the government, which does make sense because of the safety fears referred to earlier. Even if Pakistan starts building the pipeline on priority basis, it may take five years to complete the project (i.e. by 2013), and it may plug the energy gap only thereafter.

LNG is a possibility but there are few issues that need to be addressed. To begin with, there is a global shortage of LNG, and all the current production facilities are booked. At present no surplus is available off the shelf. Hence, Pakistan has to enter into a long-term agreement with a supplier, possibly in the Middle East, or another nearby supplier. During the next few years, both the countries working under a binding agreement would build the facilities, which would make it possible to import LNG in sizeable volumes in four years’ time after such agreement. There are some sources that promise to supply LNG in a short span of time. These “brinks men” demand a high price for supply, and a very costly re-gasification plant would have to be installed on the ship bringing the LNG. Finally, the gas could be purchased only from the ready markets that are already over sold.

Solar energy: At present, except for low-ampere domestic use, solar energy is a distant possibility, although in a country like Pakistan where clouds are a rarity for most part of the year, it could be a workable option. There is a simple way of harnessing this energy for the industry, which is dependent on steam generation through oil or gas-fired boilers. Water can be pre-heated by converging sun rays on tanks made of metals/alloys that can easily absorb the heat. This pre-heating can reduce the cost of producing steam and reduce the energy resource gap to an extent, though negligible.

Coal: Pakistan has enormous coal reserves (probably the third largest in the world) that remain untapped and even the industries that have converted from gas to coal as their energy source have to import coal mostly from Indonesia, which is again a drain on Pakistan’s scarce foreign exchange reserves.

Wind energy: The government is following a policy to encourage investment in wind energy. Two corridors have been identified in Sindh, and land has been allocated to various wind energy projects. But simultaneously, the government of Sindh has raised the price of leased land from Rs500 to Rs1000 per acre, which can act as a deterrent. The other issues confronting the wind power sector are as under:

* Scarcity of equipment: Wind power equipment is in short supply, the world over. Propelled by GDP growth needs, demand for energy has been growing globally, and as cost of energy derived from fossil fuels has increased two-fold during the last three years, the demand of wind power equipment has also grown manifold.

*Due to growth in demand and increase in the cost of metals, especially steel and its products, the price of equipment required for wind power has increased manifold.

*Technical know-how is available but is scarce, which renders this vital input very costly but the bigger problem is getting this input.

*Due to all these stated factors, the cost of generating electricity using wind power technology remains high while the current tariffs being offered by the government are low. Currently, the estimated cost of power generation through this technology is Rs11 to Rs12 per KWH while the tariff allowed by the government ranges from Rs10.5 to Rs10.75 per KWH.

Although the cost of equipment and know how is high, the advantages of wind power are quantifiable, and after a number of years, electricity generated by this technology would become the cheapest compared to alternate sources of energy at that point of time. To boost the wind power energy sector, the government should agree to realistic tariffs so that investment could become attractive and feasible. The case for such adjustment is strengthened by the fact that, at present, the government is subsidising oil prices by paying price differential claims. Diesel alone is being supplied at the parity value equivalent to $52 against an average market price of $93 per barrel.

The wind power project equipment consists of some medium and some high tech equipment. The equipment consists of a mast, which in Sindh’s conditions should be a least 80-meter high. There is a lift in the mast and a wind turbine besides other related equipment. The highly technical parts are the wind turbine, electric circuits, and the technology that determines wind speed and direction, and accordingly changes the angle of the blades. Changing the angle of the blades is crucially important for the safety of the mast itself because high winds, storms, or tornados could damage the whole mast and its machinery besides causing loss of life and damage to property around the mast.

To install this initially expensive but eventually very economical technology, in the first instance Pakistan may start importing and installing the equipment to generate electricity but in the long run, it must encourage domestic production of the equipment. If Pakistan can replicate the sophisticated machinery and equipment for uranium enrichment and also can produce or cause to be produced very high RPM centrifuges, machinery, electric circuits, vacuum valves and allied equipment then, probably, Pakistan also has the capacity to produce equipment for wind power. It can also enter into technology transfer agreements with foreign manufacturers. The local capability has the necessary ingredients to deliver which includes a production base in metallurgy, capability for manufacturing other essential components, and know-how of electrical engineering. In the first instance, simpler equipment could be produced locally and gradually the more complex components could also be fabricated in Pakistan. Since wind power machinery would continue to be scarce globally, in the coming years, the country could become an exporter of some of this equipment through joint ventures with internationally recognised manufacturers. Initially domestic producers could enter into technology transfer agreements and the industry could grow, which, in the past, has been the case with various other technologies. Small suppliers’ chains would erupt as we have seen in Sialkot, Gujranwala and Gujrat where, to produce finished goods, many exporters now only have to assemble the components manufactured by domestic suppliers in the small and cottage industries sectors. The considerations that place wind energy on top of the list are--- that generating energy using this technology requires no fuel, and the energy production process does not pollute the environment. If Pakistan starts producing even a part of the hardware of this technology then, progressively, the equipment would become cheaper, and there would be less drain on the foreign exchange reserves compared to the pressures generated by import of fossil fuels to generate power through heat conversion that requires burning environment damaging fossil fuels.

(By Tariq Iqbal Khan, Dawn-Economic & Business Review, Page-1, 17/03/2008)

Recently undertaken research has revealed that Karachi’s water tanker mafia, which generates an estimated Rs49.6 billion annually, siphons off over 272mgd — or 41 per cent — of the water from the city’s bulk distribution system every day and then sells the commodity at exorbitant rates to residents and industries suffering from the water scarcity that is largely caused by the activities of the water tanker mafia itself.

A report authored by Perween Rahman of the Orangi Pilot Project (OPP) shows that the city is supplied with 695mgd of water, 645mgd from the River Indus and an average of 50mgd from the rain-fed Hub dam supply. Of this, 30mgd are supplied to the steel mills and Port Qasim before the water reaches the main Dhabeji pumping station, so the actual supply of water to the city is 665mgd every day. However, the city requires a maximum of 601mgd — of Karachi’s 16 million residents, lower and middle-income areas require about 20 gallons per person per day while the needs of the higher income groups, about 20 per cent of the population, are estimated at 35 gallons per person per day; meanwhile, industries require an average of 123mgd and there is an additional requirement of 110mgd for other uses. This would indicate that sufficient water is supplied to the city every day to meet its needs.

However, the reality is that “bulk supply to towns is 293mgd and thus there is a shortfall of between 260 and 308mgd,” says the OPP report. “This shortfall is met through tanker supplies. Karachi’s bulk supply is 665mgd. With 15 per cent wasted due to technical leakages, the available supply comes to 565.25mgd. The gap between the actual supply and the availability is 272.25mgd, which is siphoned off from the bulk distribution and sold through tanker supplies. This operation generates an estimated Rs49.6 billion annually (at the average cost of Rs0.5 per gallon).”

There is an official system in place for water supplies via tankers. The Karachi Water and Sewerage Board (KWSB) maintains nine official hydrants which are managed by the Rangers. The officially sanctioned quantum of water is 13.75mgd, of which 3.42mgd is the quota for gratis supply to water-deficient areas while the rest is meant to be sold at official rates. This water is to be distributed through 13,750 trips made by 1,000-gallon capacity tankers of contracted tanker suppliers. The Rangers are authorised to charge the contractor a fixed amount of Rs44 (4.4 paisas/gallon) per 1,000 gallons of water for residential use and Rs73 (7.3 paisas/gallon) per 1,000 gallons of water for industrial purposes, which is then to be sold at the official rates.In reality, however, 25mgd of water is taken from these hydrants and supplied to the city through tankers with capacities ranging from 1,000 to 5,000 gallons and some of 10,000 gallons. The water is then sold at over double the official rates. The approved price of water supplied through tankers ranges between 15 and 25 paisas per gallon depending on the distance, and whether it is intended for residential or commercial use. “In reality, the rates are more than doubled to 35-60 paisas/gallon depending on the distance, bargaining with clients and the season in which the water is supplied,” reports the study. These inflated rates are Rs350-600 for 1,000 gallons, Rs700-1,200 for 2,000 gallons, Rs1,600-1,800 for 3,000 gallons and Rs2,000-2,400 for 5,000 gallons. “Therefore, the revenue generated per day from the sale of water is an average Rs10 million,” reveals the study. “This is shared between the various sectors.”

Unofficial hydrants

Investigations undertaken by the OPP show that in addition to the nine official hydrants, at least 161 unofficial hydrants and filling points exist all over Karachi, most of them located near bulk distribution mains. Additionally, many more filling points have been reported from all the towns. A sample survey of nine unofficial hydrants shows that they are being used to siphon off 19.78mgd of water from the bulk supply. When extrapolated over 161 unauthorised hydrants, this means that some 358mgd of water is being removed from the regular supply channels and being sold to citizens at exorbitant rates. Clusters of these unauthorised points have been reported from six main areas: Hub reservoir to Banaras Chowk, along Manghopir Road; Banaras Chowk to Gutter Baghicha; Mewashah graveyard to Shershah along Lyari nadi; near Saba Cinema, Ayub Goth-North Karachi and up into Gadap town; along the National Highway-Malir, and in Lalabad Landhi.

With reference to the 272.25mgd of water that is siphoned off from the bulk distribution and sold through tanker supplies, the OPP report also identifies the methods used. These include piped connections to the bulk distribution mains and perpetually unattended leakages in the bulk distribution mains which cause water seepage. At such sites, bores become filling points. “In some cases, like that of the Fauji Commander’s hydrant near the Hub reservoir,” says the report, “ponds are formed through which water is pumped out into tankers.” However, the report also acknowledges that “lately, KWSB officials have informed that 73 piped connections to the bulk distribution mains have been disconnected in North Karachi and Gadap.”

Supreme irony

In a city notorious for water shortages, it is often the KWSB that becomes the target of citizens’ ire during dry days. And while the organisation certainly does suffer from organisational and infrastructural problems, the study conducted by the OPP reveals that the tanker business is taking away a critical chunk of the revenue that ought by rights to go to the KWSB.

According to the study conducted by the OPP, the KWSB’s budget is dependent on government subsidies and its current annual budget (2007-2008) is Rs5.3 billion. Of this, Rs2.0-2.5 billion are recovered as water/sewerage taxes while the rest is government subsidy. (A total of Rs18.678 billion worth of dues are outstanding against the government and others.) However, water supply to everybody is not only possible but possible at affordable and humane costs. “A comparison of the KWSB’s annual budget of Rs5.3 billion with the Rs49.6 generated through the sale of the 272mgd that is siphoned off and supplied through tankers shows the irony of the situation,” states the report. “If the KWSB can supply this water, it can earn profits as well as provide water to all at affordable, humane costs.”

For example, it says, if only the minimum requirement of 20 gallons per person per day were supplied at the cost of 5 paisas per gallon, the KWSB could generate Rs5.8 billion annually. This is more than the organisation’s annual budget. For the citizens, meanwhile, the bill amounts to about Rs200 a month, which is affordable and is incidentally the same as the average tax billed all over the city. “In water deficit areas, poor people are spending an average of Rs500-600 a month buying sweet and brackish water,” the report points out. “People are willing to pay this same amount to the KWSB for the provision of sweet water. In addition, some of the poorest are buying sweet water supplied through gadha garis (donkey carts), the cost of which comes to Rs100-120 for about 25 gallons, ie 40 paisas per gallon and about eight times the cost of water supplied through water tankers.”

Meanwhile, the KWSB could also annually generate Rs44.7 billion by selling the rest of the water, about 245mgd, at the current average rate charged by tankers (50 paisas per gallon). This could be used to resolve organisational and infrastructural issues.

Traffic troubles

In addition to swindling citizens and the KWSB, the dominance of the tanker mafia also contributes to traffic congestion, pollution and needless wear and tear on the city’s already overburdened road network. According to the OPP study, the Private Tankers Association reports that their members own 5,000 tankers of which 60 per cent are of 5,000-gallon capacity, 30 per cent of 3,000/2,000-gallon capacity and 10 per cent of 1,000-gallon capacity. Each tanker makes 10 to 12 trips every day, which means that about 50,000 to 60,000 trips are made across the city every day to supply the water that is the citizens’ right.

Distribution and quotas

The city receives water from the River Indus via canals from Kinjhar, Haleji and Gharo, and through conduits to the main Dhabeji pumping station. Thereafter, the water is distributed across the city through conduits and distribution mains of 66-inch and below diameters. There are two routes: the northern (via Pipri to parts of the Malir cantonment area, the Gulshan COD reservoir, Gulshan Town and parts of Gadap, North Karachi, NEK, North Nazimabad, Gulberg, Liaquatabad and parts of Lyari) and the southern (Bin Qasim Town, Landhi, Korangi, along the National Highway to Shah Faisal and Jamshed towns, Saddar town including Defence and Clifton, Lyari and Keamari). The Hub water supply, meanwhile, services mainly Orangi, Site and Baldia towns. Since the Hub and River Indus supplies are interconnected at the distribution mains, the supply is meant to be shared as needed. According to the OPP report, the Karachi Water and Sewerage Board’s quota for supply to the various towns, the cantonment and DHA amounts to 417.65mgd of the available water. “However, the actual supply reaching the towns is only about 293mgd. Seven towns – Orangi, Gadap, Baldia, Jamshed, Site, North Karachi and Gulshan get 30-57 per cent of their quota while others get about 60-100 per cent. Cantonment gets 100 per cent while DHA gets 133 per cent,” states the study.

(By Hajrah Mumtaz, Dawn-17, 01/04/2008)

MR Gilani’s speech setting out his 100-day programme was interesting mainly because the words were uttered by an elected prime minister. In truth, he appeared to say we know the problems, without saying much about the solutions. One cannot take issue with an elected prime minister regarding his perception of the problems that confront Pakistan. However, this article intends to propose solutions in one of the key areas of his speech. The prime minister mentioned that he wants to revive both the five-marla grant scheme in rural areas and build a million low-cost homes a year.Undeniably, housing is key to developing a country. However, there is little originality in land grant schemes. Roman emperors did it; so did the Mughals and the British colonialists. The practice was kept up by their inheritors in Pakistan — the Pakistan army. One of my journalist friends always used to ask the so far unanswered question: what will happen to the army when the plots run out?

In Pakistan, the results of grants of land have been unfortunate. The wealth they bring to the rich adds only to their unproductive lifestyle. In the case of the poor, such land does not usually improve their standard of living because they are unable to build good housing on the land. In economic and legal terms, such schemes are also suspicious. It is after all the equivalent of giving away good government land for nothing. Government land should, therefore, only be provided after applying means testing to low- or zero-income people in the form of a sale and not as a grant. The title should remain with the government (or its nominees) and the money payable for the land should be payable in instalments by the people acquiring the land.

These instalments may be made payable over 20, 25 or even 30 years. Participation in a housing project which provides a house for each plot of land should be compulsory for anyone wanting to acquire the land. In other words, you do not get land alone but a house to live in as long as you work and pay for it. The government should then raise capital in the capital markets from investors against the projected income streams from the mortgages granted to provide housing schemes. And before people get too excited and raise the argument that this would be too huge a credit risk for investors, I would ask them to think again. The reality is that whenever micro-credit has been made available to low-income or zero-income groups together with income and job development programmes such people have generally been better at repaying than the bigger defaulting houses of Pakistan. This responsible credit behaviour of the low-income groups has actually been evident in success stories like the Grameen Bank and there is no reason to believe that this cannot be replicated in relatively less risky areas like land and housing. The important issue in ventures like this is to remove the need for collateral (which the poor will never have) to acquire housing and at the same time give them jobs which can pay the loans back. This leads to the question where will the jobs ensuring that people are able to repay the mortgage for the land come from? In this connection, there would be two categories of people: firstly, those who would be employed at the time of the implementation of these schemes who would typically have the wherewithal to repay the loans from the income provided by their ongoing jobs; and secondly those who are unemployed. For the employed, the scheme should be relatively straightforward as the type of housing it provides would be linked to their incomes. For the unemployed, the proposal would include a scheme of employment in the very same housing development schemes. Such a process would virtually see people who buy the land employed in building their own housing and paying for the land and the housing at the same time. Not only will this be an incentive-based mechanism but should also result in training them as semi-skilled construction workers. These skills can then transfer to new and bigger projects and continue repayments. In effect then, this article is arguing that the government should use its own land as collateral to raise money for housing. It can then recoup its investment by issuing asset-backed securities linked to the mortgages it provides to the people who acquire the land from it.

The current global credit crunch and the resulting suspicious approach towards asset-backed securities would, of course, need to be confronted. But given that such a scheme would take some time to put together, the global appetite for such investment may well have changed positively by the time this comes around. If not, imaginative measures to address credit default risk can be devised to make the securities attractive to investors.

In advanced countries, this process of raising finance is called securitisation and is a common financing structure. In Pakistan, as far as I am aware, it has mainly been used in the telecoms sector. As a matter of fact, at some level irresponsible dealing in such securities is considered responsible for the current American sub-prime mortgage market crisis. This, however, should not dissuade the government as long as it can put together an attractive package for investors. The return on such securities for investors would, of course, be linked to the future income streams that are expected from people repaying their loans. If the people repaying the loans perform better than expected then the investors benefit and it is a win-win scenario. The government’s test will lie in ensuring that the economic cycle generated by the schemes are sustained by its overall economic management. In fact, this would also be a tremendous way of regularising katchi abadis and developing new townships with proper architecture that fits our climate, is environment-friendly, wastes less water and above all leads residents to develop self-respect and socio-political cohesion. The obvious benefit of such an approach would be to interlink housing and employment both of which are key to the success of any government. If such an integrated approach is adopted then labour-intensive building projects can also be linked to local economies which can generate further growth. Admittedly, politicians are merchants of hope but in Pakistan’s history there has always been a question mark regarding their abilities to drive programmes that work. Let us hope that the time to turn this around is now.

(By S.A. Qureshi, Dawn-6, 10/04/2008)