It helps to know where you stand

It helps to know where you stand

Junior Isles,

Managing Editor

Never mind the American public. What about Hilary Clinton? The turnaround by President Clinton, although half expected, was extraordinary to watch. To see any partner, whether personal or business, behave in such a contradictory manner is more than a touch unnerving.

Without sounding too much like a marriage guidance counsellor; relationships are built on trust – knowing where you stand and what you can reasonably expect from your partner.

What is happening in Asia highlights exactly what can happen to relationships when the pressure is on. With the crisis, relations between individual countries and IPP developers have become strained.

Most countries to their credit are trying to take a sensible approach to working through the crisis. Malaysia`s national power utility Tenaga Nasional Bhd (TNB), for example, is trying to renegotiate agreements with IPPs. With the currency depreciation, the utility admits that it is struggling to meet payments and is seeking a deferment and discount approach as a way out.

TNB has asked IPPs to consider the economic climate and to take a long term view of the situation and has said that, at worst, it would have to default on payments.

Indonesia`s government has also encouraged state power utility PLN to renegotiate rather than terminate its power contracts. It is concerned that Indonesia`s credibility would be damaged if contracts were terminated, and believes that private companies are willing to renegotiate for the sake of mutual interest.

Pakistan, meanwhile, seems to have few qualms about credibility. If it were a marriage, Pakistan would be going through the messy divorce. The government announced a new international competitive bidding process for determining tariffs for private power projects. The announcement came soon after the government issued cancellation notices to eight IPPs on grounds of corruption and violation of their agreements.

Whether all, some, or none of the allegations are true or false; it is not going to help Pakistan`s situation in the short term. It will only serve to create more uncertainty and even ill-feeling. Pakistan, with power demand increasing at five per cent annually and facing a shortfall in capacity by as early as 2003 could come unstuck.

The Far East, Pakistan and India are not the only areas of concern. Even China, long considered the market to be in, is not being viewed as favourably as it once was. The country, one of the world`s largest coal producers announced it was to close 22 000 pits by 2000. The news reveals the extent of China`s economic slowdown. Coal contributes about three quarters of its energy needs but output fell 7.8 per cent in the first half of the year compared to the same period a year ago.

According to reports, gross domestic product climbed an annualized 7 per cent in the first half of the year, down from 8.8 per cent for the whole of 1997. Total energy output, however, fell 5.5 per cent in the first six months compared to the same period last year. This prompted economists to speculate that China`s headline growth figures give a false impression. One Chinese stockbroker was quoted as saying: “It is difficult to understand how we can have 7 per cent growth when the energy to fuel that growth is down by nearly as much.”

With all markets down or well on their way, you have to wonder where help will come from. With the weak Yen being blamed for the region`s woes, recovery may have to start there. Japan expects the current government to be out by the end of the year. The new man tipped as the next prime minister, Mr Naoto Kan of the Democratic Party of Japan, promises fundamental changes. One of his main plans is an overhaul of the country`s banking sector.

A change in politics can often get an economy back on course but sometimes the following uncertainty can make matters worse. Look at Russia and its deepening financial crisis. The Rouble has turned to rubble and Boris Yeltsin`s fire, hire, fire approach certainly does nothing to promote confidence. It is however amusing – from the outside. It reminds me of the first Star Wars movie. Remember the scene where Darth Vader kills off one admiral and turns to instantly appoint another? You could almost imagine Yeltsin as Vader saying: “You are now in charge. Don`t fail me admiral”.

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