Pakistan Court Shuts Power Plants

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By CHRIS BRUMMITT, Associated Press

ISLAMABAD (AP) — David Walters saw a business opportunity where few other foreign investors would dare to tread: Pakistan's power sector. He forecast profit by importing power stations, linking them to the national grid and selling the electricity to the energy-starved country.

But the former governor of Oklahoma didn't reckon on three things that would sour his multimillion dollar investments: the inability of the government to provide the fuel, a chronically unstable grid and, in the end, the country's activist Supreme Court.

Acting on a petition by lawmakers who alleged the businesses were little more than a scam, the court declared his company's plants and all other similar projects established in the country since 2006 illegal. Judges ordered criminal investigations into those involved, saying corruption marred the bidding process and the country didn't need any more power plants — just better management of existing ones.

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Supporters say the decision was a much needed move by the only institution in Pakistan willing or able to strike a blow against rampant government graft and incompetence. Others called it a political decision by an overreaching court that has killed off any hope of foreign investment.

"Every company that will consider making an investment in Pakistan will now have a lump in their throat," said Walters, who counts his own losses in the millions and is vowing to seek international arbitration.

The chaos has highlighted the chronic mismanagement of Pakistan's power sector, which is unable to produce enough electricity to meet demand. The country suffers rolling power cuts for up to 18 hours a day. The government charges consumers less for the power than it costs to produce, but it doesn't have enough money to subsidize the producers, trapping the sector in a debt cycle.

The outages have crippled the country's industrial base, particularly textile factories, and serve as a daily reminder of the state's inability to take care of its citizens. As air conditioners are switched on this summer, record power cuts are being forecast — along with added social unrest in a country already creaking under assault from Islamist militants.

The government, which devotes most of its attention to political survival, has done nothing to address the causes of the energy crisis since it took power four years ago.

Back in 2006, the government of Pervez Musharraf pitched what it thought was a short-term solution to the problem — granting small power plants contracts of between three and five years, while it worked on longer-term projects like hydroelectric power.

Walters saw an opportunity and teamed up with one of the country's wealthiest businessman, Iqbal Ahmed, to exploit the demand for power. Ahmed's family company is Pakistan's biggest producer of natural gas and was close to Musharraf.

President Asif Ali Zardari continued with the so called "rental power projects" when he took office. By April, Walters Power International or its local partner had contracts to run three stations and was aiming to build one of Pakistan's largest power generation portfolios.

Under the deals, the companies received multimillion dollar payments in advance. But in many cases the government failed to provide gas to run them. With the plants not producing and the frequency of power outages increasing nationwide, the deals that led to them came under scrutiny from the media, the opposition and anti-corruption agencies.

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"The government knew there was no gas. Walters knew there was no gas," said Khwaja Mohammad Asif, one of two lawmakers who petitioned the Supreme Court asking it to investigate the projects. "There is overwhelming evidence that these were scams from the word go."

Walters denied any wrongdoing and said the contracts were vetted by seven government agencies before it was signed. He said he never had any reason to doubt the government would provide gas, and said the advance and guaranteed payments were standard in such power arrangements around the world.