The presence of Independent Power Producers (IPPs) in Pakistan has resulted in the production of surplus power. Pakistan initially announced to sell 2000 MW to India but it has been decided during the talks to sell 300 MW-500 MW, that is being produced by four IPPs operating around Lahore.

However both the sides find it difficult to arrive at a mutually agreeable cost of electricity per unit. As Pakistan is a planning to sell the surplus power from the IPPs, it prefers to sell at a price that Pakistan is paying to these IPPs plus a profit margin that is Rs. 3.60. India is willing to pay the incremental cost and even a profit margin beyond it, but not ready to buy the costliest power that is being produced by Pakistan.

Besides, the domestic price of power also prevents India from buying power at theexpected rate, despite the heavy demand. Power from the Indian grid costs from Rs. 0.11 to Rs. 2.00. Therefore, India cannot buy any power to sell to these states which would totally cost more than Rs. 2.00. This price will also have to include the transmission cost.

Secondly, the terms of agreement also pose problem between the two sides, India prefers to have the agreement based on `take and pay', whereas Pakistan insists on a `take or pay' basis. The disadvantage over the `take and pay' policy is that it induces an element of uncertainty in the deal, as the party buying is not bound by any fixed amount of power that needs to be bought. It can, and will only, purchase if and when the demand arises.

Whereas in a `take or pay' deal the purchasing party will have to pay irrespective of whether it has drawn the stipulated amount of power or less. India says that it may not be able to purchase power on a `take or pay' basis because of its fluctuating demand. However, India is willing to import power on `takeor pay' basis but only to a limited extent and on `take and pay' basis according to the demands. The critics of the deal in Pakistan say that `take and pay' deal will enable India to dictate its will on Pakistan.

Suppose if India decides not to import power for political reasons, what will Pakistan do with the surplus power? Thirdly, at the political level, there seem to be some opposition to the deal especially from the Pakistani side. At present only 34 percent of Pakistan has access to electricity. The critics of the deal expect Pakistan to utilise the surplus power inside Pakistan so that the rest of 66 percent also has access to electricity.

Besides, Pakistan has to balance between the internal price and the exporting price. Since Pakistan is paying Rs. 3.60 to the IPPs these critics will oppose any decision on selling at a lesser price to India.Given this background, what are the prospects for the deal? How much can India pay per unit to Pakistan? India cannot insist that Pakistan should sell to aprice that India is paying internally to produce per unit of electricity. At the same time Pakistan should also not insist India that India should get Pakistan's costliest power, because the IPPs were not formed to sell power to India. A via media should be found.

Since the internal opposition to the deal comes mainly from Pakistan, it should make its people realise that the power deal will help Pakistan at both internal and external levels. Externally, the sale of power would reduce the balance of trade with India. Internally, the power deal will help the Wapda to strengthen its financial position. At present, Wapda is facing a deficit of Rs. 52 billion in the current fiscal year and is expected to reach Rs. 72 billion in the next fiscal year. Though the involvement of military has made the Wapda to recover Rs. 9 billion, yet the Wapda is facing severe crisis.

Finally, to remove the fear that India may stop buying power in the future due to political reasons, India can sign an agreement with Pakistan tobuy power for a specific period based on an assessment of its demands in the previous years.

The writers are with the Institute of Peace and Conflict Studies, New Delhi