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International relations

Pakistan's probe into Qatar gas deal risks worsening power cuts

PM Khan caught between pledge to rid corruption and country's energy needs

The government's probe into alleged corruption in a gas deal the previous administration signed with Qatar could backfire if much-needed imports are halted.   © Reuters

ISLAMABAD -- Pakistan's new administration is investigating alleged corruption over a gas import deal the previous government signed with Qatar, but critics said the move is risky for Prime Minister Imran Khan at a time of serious energy shortage as winter sets in.

The deal worth at least $16 billion was signed early 2016 under the government of former Prime Minister Nawaz Sharif. Under the terms, Qatar would export liquefied natural gas to Pakistan to help it meet demand and provide relief to consumers in the energy-starved country.

The investigation by Khan's government could put the deal on hold, according to several executives at leading businesses who are worried that already weak business confidence will be further hit by a gas shortage.

"The idea of investigating the deal with Qatar has everything to do with a lack of transparency in the contract signed in 2016," said a head of a private local bank based in Karachi. "From day one, the terms of the agreement were never revealed publicly. But simply investigating the contract and threatening to cancel it sends a very negative signal to investors." 

Already business has stalled in the country as companies await the resumption of government negotiations with the International Monetary Fund for financial assistance of at least $7 billion. The IMF loan is needed to stave off a balance of payments crisis. The two parties are set to resume formal discussions next month to finalize a set of conditions for a new loan.

The IMF is seen demanding a substantial increase in electricity and gas tariffs to improve the government's fiscal position. But higher tariffs will hit the Pakistani public and could become a major challenge for the Khan administration to implement.

Men warm themselves by a fire to escape the cold on the outskirts of Islamabad.   © Reuters

"Gas shortages in parts of Pakistan are absolutely brutal," said a foreign businessman in Karachi. "If you send larger bills to consumers because that is what the IMF is demanding, then there will be a backlash. Renegotiating the Qatar gas deal is easier said than done."

Investigating the Qatar deal was central to the prime minister's promise of wiping out corruption, a senior member of Khan's cabinet told the Nikkei Asian Review. "Prime Minister Imran Khan fought elections and won on the central message of creating a new Pakistan which is free of corruption," the minister said. "The Pakistani public deserves to know the details of the contract. People ask us if the tariff that Pakistan accepted for the gas deal with Qatar was fair. We have to answer such questions."

The prime minister believes in a "cleaner environment for business," said a western economist. "In the short term, it's possible that some people may get scared. But if investigating the Qatar deal leads to a level playing field [in Pakistan], that will be a good outcome."

For now, ordinary citizens on the streets of Pakistan have given little thought to the fallout despite daily gas shortages. "For the past week, I have left home without a bath in the morning because our gas geyser switched off during the night. There was no gas," said Naseem Chaudhary, an Islamabad-based office clerk.

Voicing one of consumers' main concerns, he said: "Ultimately, we need to have gas. Our dinner gets delayed because there is no gas and we have to cook food on a kerosene oil stove which takes longer."

Whether consumers care about the outcome of an investigation into Pakistan's largest gas deal with Qatar is a different matter.

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