[sacw] [Post-Hijack Indo-Pak Relations]

[Harsh Kapoor]

South Asia Citizens Web Dispatch #2. [India-Pakistan Relations in the
Aftermath of the Hijacking incident]
10 January 2000
_____________________
#1. When Pakistan and India feud, Kashmir suffer
#2. Hijacking Pushes India and Pakistan Further Apart
#3. The business of war: Indo pak trade takes a beating
#4. Gas Pipeline to India could bring in $600 million in revenues
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#1.
CNN - Asia Now
http://cnn.com/2000/ASIANOW/south/01/09/kashmir.misery.ap/index.html

WHEN PAKISTAN AND INDIA FEUD, KASHMIR SUFFERS

The grim scene at a camp in Chinari, near the Line of Control in
Pakistan-held Kashmir =20
January 10, 2000 Web posted at: 12:12 p.m. HKT (0412 GMT)

CHAKOTHI, Pakistan (AP) -- It's a typical winter's day amid the
breathtaking mountains of Kashmir: a hazy sun, cool air -- and a steady
rain of artillery shells from just across the frontier in India.

For decades, India and Pakistan have played out their ceaseless feud in
the peaks and valleys of this rugged Himalayan landscape. The inevitable
victims are the impoverished Kashmiris that both countries say they are
trying to help.

The recent hijacking of an Indian Airlines plane was tied to the Kashmiri
dispute, and though it was settled after only one death, the two Asian
rivals have since escalated their propaganda war and stepped up the daily
shelling along the line that divides Kashmir.
On this day, dozens of Indian rounds crash down on the Pakistani side,
wounding five people. At least nine Pakistani civilians were killed and
more than 30 wounded last week. On the Indian side, 17 people died in a
market bombing blamed on Kashmiri militants seeking an end to Indian rule.

The week's casualty toll was higher than usual, but the steady, low-level
conflict has become utterly routine, even to those caught in the middle.

"There is firing almost every day and night. But we are not going to be
chased away," said Bashir Ahmed, 43, a shopkeeper on the main drag in
Chakothi, a rundown village along the "line of control" that divides Indian
and Pakistani forces.

His almost casual defiance accents the routineness of the fight. A few
days earlier, Ahmed's sister-in-law Sakina Bibi, a mother of three, was
killed when shell fragments pierced her back as she walked along the dirt
road that passes his store.

Across the street, no more than 10 paces from his vegetable stand, is a
pile of rubble -- the remains of a dozen shops that were gutted by shelling
and a subsequent fire in 1998.

The heights on the Indian side of the line are a vivid golden brown in the
afternoon sun. More to the point, they offer an unobstructed firing line at
Ahmed's store and the rest of Chakothi. A sign at a Pakistani military
checkpoint features a skull and crossbones and orders drivers to turn off
their lights or risk winding up in the crosshairs of an Indian military
spotter.

India and Pakistan have been at odds over Kashmir since both received
independence from Britain in 1947, and two of their three wars have been
fought over the mostly Muslim territory.

With support from Pakistan, Islamic militants on Kashmir's Indian side
have been fighting for a decade to break away from India. Last summer,
militants battled Indian soldiers for nearly two months in the Kargil
sector before retreating to the Pakistan side, where they maintain bases.
The Chakothi bazar near Muzaffarabad, capital of Pakistan-held
Kashmir, is almost deserted =20
"We will continue to intensify our jihad (holy war) against the Indians,"
said Abdullah Muntazir, spokesman for Lashkar-e-Tayyaba, one of the leading
Kashmiri militant groups based on the Pakistani side. "We carried out
several successful operations during Ramadan (the just-ended Muslim holy
month), and plan to carry out more in the coming weeks."

India and Pakistan both conducted underground test explosions of nuclear
weapons in 1998, raising the stakes should their conflict escalate into
another full-scale war.

In <kashmir.muzzafarabad.gif> Muzzafarabad, capital of Pakistan's part of
Kashmir, a model of a large missile sits along the banks of the Jhelum
River, its nose pointing toward India. Down below, women wash red and green
shawls in the river's fast-moving waters -- a reminder of the region's
poverty, made worse by the long conflict.

India and Pakistan both rank among the poorest nations on Earth, yet they
spend vast sums on military forces. Each claims all of Kashmir, and they
are so entrenched and have been so unwilling to compromise that it is
almost impossible to imagine them resolving the dispute.

The remote, mountainous terrain only adds to the high cost of waging the
conflict.

Both countries have hundreds of soldiers facing off on the Siachen
Glacier, an uninhabitable chunk of ice more than 15,000 feet high. The main
enemy is not the other side, however -- the bitter cold is the leading
cause of casualties for both forces.

Copyright 2000 The Associated Press.
____________

#2.
The Washington Post
9 January 2000
Page A21

HIJACKING PUSHES INDIA AND PAKISTAN FURTHER APART
By Pamela Constable

NEW DELHI, Jan. 8 Just when it seemed that relations between India and
Pakistan could not get much worse, the eight-day hijacking of an Indian
Airlines plane by Muslim separatists has plunged the two rivals into an
alarming new round of accusations and name calling.
In the past four days, the Indian government has claimed it has
"conclusive proof" that Pakistan was "neck-deep" in the hijacking plot and
that the hijackers acted on behalf of Pakistani intelligence services.
Prime Minister Atal Bihari Vajpayee has demanded that the world declare
Pakistan a terrorist state.
Pakistan, in turn, has adamantly denied the charges and suggested that
India is trying to use the incident to antagonize and isolate Pakistan,
partly because it was taken over by a military regime in October and partly
to deflect attention from the burning issue of Kashmir, the disputed
Himalayan region divided between the two countries.
"The relationship is more brittle now than it has been in a long time,"
said Uday Bhaskar, an Indian naval officer and deputy director of the
Institute for Defense Studies and Analysis. "I think both countries
understand each other's war of words," he said, "but there is a wild card
of terrorist violence" that can erupt any time in such a volatile
atmosphere.
The strained relationship between the two countries and their protracted
conflict over Kashmir have drawn special concern internationally since May
1998, when both tested nuclear weapons.
Pakistan, a majority Muslim state, has long supported the Kashmiri rebel
movement in India, which is 90 percent Hindu. Pakistan's armed forces have
trained and supplied numerous insurgent groups, and last summer they
supported rebel fighters who entered India's Kargil mountains and held them
for more than two months against India's far larger forces.
In the wake of that conflict and the unexpected takeover of Pakistan by
its army chief three months ago, hope for a resumption of talks on a series
of issues, starting with Kashmir, seemed extremely dim.
Pessimism continued to grow as insurgent violence in Indian Kashmir, the
political heart of the disputed region, surged to levels not seen in 10
years. Since July, Muslim rebels have killed several hundred people in
bombings and ambushes in Kashmir, and their leaders have threatened to
escalate the attacks further.
Then, on Dec. 24, five armed men hijacked an Indian jet flying from
Katmandu, Nepal, to New Delhi with 189 people aboard. The hijackers claimed
to support insurgents in Kashmir, and they demanded the release of numerous
imprisoned rebels. Finally, they settled for three, who were freed in
exchange for the hostages on New Year's Eve.
Although the hijacking drama was brought to a peaceful end, the diplomatic
success was rapidly eclipsed in the ensuing bout of accusations between
India and Pakistan. Three days ago, one of the freed prisoners, Maulana
Masood Azhar, surfaced in Pakistan and gave a rabble-rousing speech,
claiming triumph for the Kashmiri cause and warning of more violence
against India and the West.
"After the conflict in Kargil, we said we still wanted to normalize
relations with Pakistan, but they would have to earn our trust by stopping
their support for terrorism against India," said R.S. Jassal, spokesman for
India's Foreign Ministry. "Instead, what happened? A graphic example of
Pakistan's support for such terrorism."
On Thursday, Indian Home Minister L.K. Advani presented what he said was
"irrefutable evidence" that Pakistan was involved in the hijacking. Advani
said that Indian police had arrested five men in Bombay who were
accomplices to the crime and that they had located photographs of the
hijackers identifying them as Pakistanis.
Advani said India had intercepted radio communications between the
hijackers and their Pakistani advisers, and he charged that Pakistan was
"neck deep" in the plot. Officials said the key evidence was an intercepted
phone call from the Bombay group to a journalist in London on Dec. 29 in
which a member of the Bombay group threatened that the plane would be blown
up if the hijackers' demands were not met.
But Bombay police, contradicting federal authorities, insisted that the
arrested men were wanted for a bank robbery and had nothing to do with the
hijacking. Pakistan, meanwhile, said it had cooperated fully with Indian
authorities during the hijacking and asserted that if the hijackers
appeared in Pakistan, they would be arrested and prosecuted.
"These charges are utterly baseless," said Jehangir Qazi, Pakistan's
senior diplomat here. "We support the freedom struggle in Kashmir, but that
doesn't mean we condoned or organized the hijacking.
"India has had a negative attitude toward Pakistan ever since the change
of government," he said. "They want to show we are a failed state, a
military state, a terrorist state, in order to deflect attention from the
real issue of Kashmir."
The United States and other Western governments, wary of becoming
embroiled in the Indo-Pakistani conflict, declined to act on India's call
to label Pakistan a terrorist state. In Washington, officials expressed
alarm about Azhar's inflammatory remarks, but they stopped far short of
blaming Pakistan for the upsurge in terrorist violence against Indian
targets.
Western diplomats in the region, meanwhile, expressed concern this week
over the escalation of hostilities, stressing that no matter how tense
their current relations may be, India and Pakistan eventually must sit down
and thrash out their differences.
"We have told them they must stop this infernal bickering," said one
Western diplomat. "The real casualty of the hijacking has been
Indo-Pakistani relations. It has brought relations to a new and
pathological low. We just wish both sides would stop this petty quarreling
and start dealing with each other."
Given the events of the past two weeks, however, such a development hardly
seems likely. In the wake of the hijacking, a dozen people have been killed
in the Kashmir Valley, a passenger train was bombed in New Delhi, and
Indian military officials--furious at civilian authorities for giving in to
the hijackers' demands--have hinted at India's readiness to wage and win
more "limited wars" in the region.
The only ray of hope, analysts and diplomats here said, lies in a basic
instinct for survival on the part of both India and Pakistan. Beneath their
escalating war of words, they said, the world's two newest nuclear states
must realize that if a real war were to erupt on the subcontinent, both
would suffer greatly.
=A9 Copyright 2000 The Washington Post Compan
____________

#3.
Outlook
17 January 2000
Cover Story

THE BUSINESS OF WAR:
IN THE AFTERMATH OF THE HIJACK, BILATERAL TRADE-AND SAPTA-WILL TAKE A BEATIN=
G
By Shantanu Guha Ray

It was not just an Indian Airlines plane that was hijacked. Also held
hostage now is any possibility of development of trade in the South Asian
region, especially between the two biggest neighbours.

"It's an unfortunate fallout of Kandahar. Talking business with Pakistan is
almost over. There cannot be any talks when there is a situation of
complete distrust," admits a senior aide at the PMO, adding: "The odd trade
might continue but in terms of concrete business plans, I do not think
Pakistan has left any scope."

CII [Confederation of Indian Industry], which had been working towards
improved Indo-Pak trade relations, agrees. The association had even sent a
delegation to Pakistan last year to explore business possibilities,
especially in infrastructure. Says Sushanta Sen, CII's deputy director
general: "We had been extremely serious in our approach and had stressed
the need to discuss and develop long-standing investments in Pakistan. A
few months later, the ministry of external affairs even started considering
proposals for visa-free visits to Pakistan by businessmen and we also
planned a trade fair exclusively for Pakistani firms. But all that's now in
cold storage."

Diplomatic observers admit Islamabad's current stand on Kandahar will also
affect the proposed South Asian Preferential Trade Agreement (SAPTA) mooted
by India a few years ago as part of the business agenda of SAARC. New Delhi
had initially envisaged increased trading and business to the tune of Rs
150 crore in the first year itself. And expectedly, moves to develop
business between the two largest nations in the region assumed importance.
Hopes for that have now faded. But perhaps some cold comfort can be taken
from the fact that barring cross-border trade with countries like Nepal,
Bangladesh and some trading with Pakistan and business ventures in tea
estates of Sri Lanka, SAPTA was more or less a non-starter as Indian
business houses remained wary of Islamabad's intentions to allow the
setting up of proper business establishments.

Not just fast-moving consumer goods, even the sugar trade between India and
Pakistan has fallen victim to the imbroglio. =20

=46or example, the Rs 1,200-crore Dabur group had filed an application with
the government to set up operations in Lahore to produce its Amla brand of
hair oil and Hajmola tablets. But the business house shelved the proposal
and continues its supplies to Pakistan from its Dubai operations. "We have
almost stopped trading with Pakistan. It's a very, very small market. A few
years ago, we were sending huge consignments of soya husks but that too has
stopped," says Abhinav Rahul, the Dabur spokesperson. But he's quick to
add, "We have not stopped selling our products in Pakistan, which would
mean losing the market to someone else. But whatever interest we had to
develop a market (with common links) is all over."

=46orget fast-moving consumer goods, even the lucrative sugar trade between
the two neighbours has fallen victim to the current imbroglio. The
government last week banned import of sugar from Pakistan, which was a huge
600,000 tonnes in 1999. While that move has delighted the Indian Sugar
Manufacturers Association (ISMA) at least for the moment, it is also
concerned about the long-term impact of the ban on bilateral trade. "I am
not for banning the trade, because a few years ago we used to regularly
export sugar-up to 300,000 tonnes-to Pakistan," says ISMA chief S.L. Jain.
"At the same time, we cannot shut our eyes to reality. As the situation
stands today, there cannot be any talks for business with Pakistan."
However, he hopes pragmatism will dictate future trends. "Hopefully, in the
longer run, the two nations will need each other and good sense will
prevail," he says.

But diplomatic observers are not too optimistic. They feel that not just
sugar and oil, the hijacking drama has also put to rest any hopes for
importing gas to India from Central Asia via a pipeline passing through,
among other countries, Pakistan. "The non-cooperative attitude of both the
Taliban and Islamabad spells bad news for India, as well as a host of
global oil majors," says a source in the ministry of external affairs. Not
to say the South Asian region.

=A9 Copyright Outlook 1999
________
#3.
The Friday Times
7 January 2000

Gas Pipeline to India will bring in $600 million in revenues

K S Khan says a transit pipeline will help Pakistan reinvigorate its oil
and gas sector

The announcement by Minister of Petroleum and Natural Resources, Usman
Aminuddin, that Pakistan is likely to allow transit pipelines to its
neighbours, particularly India, for natural gas import comes at a time when
Pakistan is exploring avenues to reinvigorate its oil and gas sector. The
project is estimated to bring Pakistan about US$600 million in revenues.

However, insiders tell TFT so far no serious steps have been taken to
effect any policy shift. "There will be serious interest only when Pakistan
and India can work out their present differences. So far India has declined
to talk to Pakistan," says an analyst in Islamabad. This seems typical of
the policy on the gas sector, which has seen many opportunities being
missed due to the myopic policies of the government.

Islamabad hopes privatisation will change the face of the gas sector in the
country. However, a number of international players say Pakistan might have
missed the boat because of bureaucratic red-tapism and lack of political
will. In the past few years, especially during Sharif's tenure, the pace of
development of the gas sector remained slow because of contradictory
policies.

Despite a policy decision by the government to privatise the oil and gas
sector, then minister of petroleum and natural resources, Chaudhry Nisar
Ali Khan, blocked all initiatives at privatisation, arguing that oil and
gas was the purview of the public sector.

With the change in government things have turned for the better. The new
minister, Usman Aminuddin, is from the private sector and is known for his
competence as well as his ability to move ahead on the policy objective of
privatising key oil and gas entities of the government.

As things stand, Pakistan's gas sector has been dominated by state-owned
companies, which have been tightly regulated ever since gas was first
discovered by Pakistan Petroleum Limited (PPL) in 1952 at Sui in
Baluchistan. Since then the government has monopolised gas sale and
distribution and has had a major stake in the exploration and development
of gas fields.

A short-term policy goal of the government is to sell off viable
state-owned entities to foreign buyers in a bid to reduce the country's
US$34 billion external debt, which has put increasing pressure on the
country's foreign exchange reserves.

Past initiatives at importing gas from either Turkmenistan, Iran or Qatar
have been shelved for the time being because of two major factors: the
discovery of new gas reserves within the country, which have been very
encouraging in the past two years, and the ability of Pakistan to pay for
imported gas, which has been hampered by its current foreign exchange
constraints.

Pakistan has one of the most extensive natural gas grids of any developing
country and has proven reserves of natural gas at 32 TCF with estimates of
unexplored gas resources running into another 200 TCF.

Currently, all gas is produced on shore from 36 active fields. Major
producers include Pakistan Petroleum Limited (PPL), which accounts for 47%
of annual gas production, Oil and Gas Development Co (OGDC) 21%, Marri Gas
Co Ltd 19% and Union Texas Pakistan 7.8%.

The government jealously guarded natural gas sale and distribution. It was
only in 1994 that it began to encourage private-sector players to enter the
field of oil and gas exploration. This was done to bring in the much-needed
expertise, investment and capital, which the government did not have. Still
the OGDC and other government entities remained heavily involved in the gas
concession agreements that most companies signed ostensibly to protect the
national interest.

The two gas-distribution companies, Sui Southern Gas Co Ltd (SSGC) and the
Sui Northern Gas Pipelines Ltd (SNGPL), enjoy a virtual monopoly on their
respective geographical markets. SSGC caters to nearly 35% of the
population and operates the gas transmission and distribution system in the
Sindh and Balochistan provinces, which include the commercial and
industrial capital, Karachi. SNGPL provides for around 65% of the country,
mainly in the Punjab and Frontier provinces. Besides supplying gas to
industrial and domestic consumers, these companies are major suppliers of
fuel and feedstock to the fertiliser industry and the emerging independent
power production units located in various parts of the country. The
capacity of their 49,000-km network is currently growing at an impressive
rate.

Currently, the government adjusts a Gas Development Surcharge from the
gross sales of all gas companies to fix the rate of return on pre-interest
earnings and taxes other income at 17.5% (in nominal rupee terms.) The
government has also imposed a 15% general sales tax on sale of gas but this
is unlikely to impact the demand or consumption of gas in any major way.

Recently, the government has introduced a new market-based gas-pricing
system to avoid future stalemates like the one that involved it and the gas
exploration companies for the past two years. The two parties remained at
loggerheads over pricing and payment issues for the past two years and the
dispute threatened Pakistan's oil and gas discovery prospects.

In July 1999, the government informed international oil and gas exploration
companies that it was not possible to honour the agreements signed with
them under the 1994 and 1997 petroleum policies and asked them to negotiate
a new gas pricing structure.

The problem stems from the government's 1994 petroleum policy introduced in
Ms Bhutto's government, which linked the price of gas to international oil
prices, providing a benchmark for the explorer. This was done to attract
international names to an otherwise unknown country and for companies to
put in the investment needed to explore and extract oil and gas.

Pakistan's economic crunch, caused by sanctions imposed by the G-8
countries after Pakistan tested in May 1998, left Islamabad in a tight
financial situation. Therefore, when oil prices touched a 20-month high in
July that year, the country did not have money to pay for the gas it had
itself priced to match international oil prices. The government then
pressed for a change in the pricing structure and threatened to boycott any
companies that refused to comply with the new price structure.

Under the agreements signed with these companies, the government was the
sole purchaser of gas. However, the agreement did not bind the government
to purchase the gas supplied by these companies. Evidently, the government
used this clause to its advantage to restructure the pricing mechanism
downwards. For their part, Foreign company officials say while the
government has the legal right to do so, it goes against the spirit of the
agreements since the government is the only buyer.

Industry sources also say the government wanted to cap prices at a certain
level so that any hike in oil prices would not trigger a rise in the gas
purchase price. They say oil prices had already broken that level by
surging to a 20-month high of $19 per barrel in July.

As things stand, there has been some initiative towards the resolution of
this problem. In a partial resolution of the long-standing gas pricing
dispute the Pakistan government and two exploratory oil and gas
multinationals signed a gas pricing agreement in November over the Miano
gas field in Sindh province.

The agreement was signed by the operator of the Miano gas field, OMV AG of
Austria and SSGC. The agreement has reduced, at the current level, the gas
price by about $1 to $2 per MMBTU or approximately $60 million per year
compared to the original tariff under the 1994 petroleum policy.
However, the tariff is slightly higher than the gas pricing formula
currently being debated between the petroleum ministry and the gas
production companies as far as sharing the profits of the first slab of
international oil price fluctuation is concerned. The formula offered by
the petroleum ministry envisages discount sharing on 50% basis if the oil
price goes beyond $15 per barrel but in this case the discount will be
shared on 50 per cent for $16 per barrel of oil in the international
market. Originally, the gas price is indexed at 67.5% of the world oil
price but now if the price crosses $16 per barrel, the profit will be
equally shared by the government and the gas company.
The second slab will remain unchanged - 30% to 70% for $20 to $25 per
barrel, and 20% to 80% sharing above $25 a barrel by the production company
and the government respectively.
Insiders say the government's move is owed to the discovery in the last
four years by the international gas exploratory companies of gas reserves
of about 8 trillion cubic feet (TCF). This is equal to the reserves in Sui,
Pakistan's largest gas field. In the space of four years, exploratory
companies have been able to discover and develop more gas fields than the
government could estimate when it came out with its policy in 1994.
This is also an advantage for Pakistan. It gives the country breathing
space on its plans to import gas from a third country, which otherwise
would have become imperative within the next five years as domestic gas
supplies dwindled. It also gives the government an incentive to go ahead
with the plans to develop local gas resources as against importing
expensive fuels from abroad.
Import of petroleum and petroleum products is likely to cost Pakistan $2.5
Billion in 1999-2000. As things stand, Pakistan needs an estimated $1
billion to develop its oil and gas fields in the next few years. Pakistan
meets 37% of its energy needs from natural gas compared to 46% from oil.
But recent government moves show Pakistan is moving towards more dependence
on gas, which the power ministry says is a cleaner and cheaper fuel for
Pakistan.
However, the Gas Regulatory Authority is still not in place. The need for a
regulatory framework is imperative before any sell-offs can be undertaken
in this field. The parliamentary bill for the creation of a GRA was passed
by the National Assembly but before it could be passed by the Senate, the
government was dismissed. The new government is now weighing its options
and finding ways on how it can resume the previous privatisation programme.
As it has stated, it is in favour of privatisation and one of its focus
areas will be the oil and gas sector. While the government is looking for
an outright sell of SNGPL and SSGC, the OGDC is expected to be broken up
into smaller entities before they are sold.
Some experts argue Pakistan may already have missed the bus. Two companies
that were very interested in buying into the gas sector - Nova of Canada
and British Gas - ran out of patience and left Pakistan last year. While
the plans to import gas have not been cancelled, they have been effectively
pushed back by a decade by the discoveries of gas within Pakistan. A high
level delegation from Turkmenistan in December and a visit by the country's
chief executive to Iran, in which the pipeline project was discussed,
signal that while there may be a delay, gas import option has not been
written off completely.
However, experts with the gas consortiums say the only way such a project
can move ahead is if India is included in the gas import plane. Otherwise,
they argue, the economics are not there since Pakistan has a large domestic
base and is unable to afford international gas prices.

__________________________________________
SOUTH ASIA CITIZENS WEB DISPATCH is an informal, independent &
non-profit citizens wire service run by South Asia Citizens Web
(http://www.mnet.fr/aiindex) since1996.