Pakistan Economy - News & Updates - Archive

[Neo]

MEGA projects are again making headlines. Not only Pakistan but other countries are also approving gigantic projects. Malaysia recently built a whole new city ‘putrajaya’ to function as its new administrative capital.

Canada is planning to build a thousand kilometer pipeline in its western region to export its oil. The Three Gorges Dam in China, another mega project, is near completion after 16 years of work. South American countries are planning a mega-pipeline, which will run from Caribbean Sea in the north to Argentina in the south.

Despite their low success rate, mega projects have always been popular with decision makers because these projects appear to be solution of many diverse problems. President Musharraf, for example, wants to built big dams to make more water available to farmers, reduce the possibility of floods, reduce electricity rates for industrial consumers, to increase exports, decrease poverty in the region where dam will be built.

Now, a major hurdle __ non-availability of large financing—which previously hampered many mega projects, has been removed. Due to the merger mania that swept the globe during the 1990s, now banks have become bigger and have the capacity to successfully finance these projects. Finally, advance in computer technology has helped the cause of mega projects. It is now possible for a project manager to have real-time information about millions of small things which can possibly derail the project.

The basic characteristics, which distinguish mega projects from other projects, are singularity, complexity and massive scale/ scope. Singularity points toward the uniqueness of each mega project. While ordinary projects can be exact replica of other projects completed in the past, mega projects are distinct and project managers don’t have much to draw lessons from. Therefore, management for mega projects is done with an open mind and emphasis is on learning while doing.

The Chinese company, Sino Hydro, which was contracted to built Gomal Zam dam in Frontier province had experience in building dams so its management thought Gomal Zam dam will be similar and ignored the peculiar circumstances (political volatility in the area). This was their undoing. Ignoring the singularity of the project and not taking precautionary measures, led to canceling of the contract.

Mega projects are also complex as they require different types of experts, professionals and organisations to work together in harmony. Building Gwadar project, for example, involves not only building a port but also two oil terminals, a grain terminal and procurement of port handling equipment costing millions of dollars.

Moreover, construction of coastal highway from Karachi, a railway line from Dalbandin, a transmission line from Turbat, a five star hotel and other residential facilities, although not officially part of the project, are crucial for the success of the Gwadar port.

The third distinguishing characteristic of mega projects is their scope and scale. They are spread over a large area, effect millions of people and are completed in many years.

A pertinent example will be the ‘Three Gorges’ dam project. During the 16 years of its completion, around $100 billion have been spent and millions of people have been displaced. Its 600 km long reservoir, with 18 million acre feet capacity, is the largest in the world and this dam will be producing 85 billion kwh of electricity per year. Compare it with Pakistan’s proposed Kalabagh dam, which will generate only 11.4 billion kwh annually.

Mega projects are a challenge to the discipline of project management. Since huge amount of man-hours, capital and expertise is involved, it is important that these projects succeed but unfortunately lot of them fail. This leads us to the crucial question ‘What are the success factors for mega projects?’

The most important success factor in mega projects is related to how the goals are formulated and how much they are changed during the course of the project. As mega projects are colossal affairs, having many goals, it is very important to prioritize them at the start of the project. Many times, after the start of project, decisions cannot be made, as project goals appear contradictory.

Prioritisation of goals will make sure that the whole project management team is striving toward one goal. Another reason for the failure of mega projects is change of goals during the course of the project.

Since mega projects completion is spread over a number of years, governments, socio-economic scenario, international affairs are different from what they were when the project was conceived. Therefore, planners sometimes change the goals of the project to align it with the changing scenario. This change might lead to total failure of the project as it will make project management to change its focus, contracts, time-line and finances, leading to all kinds of disarray.

Coordination is also crucial for mega projects. Project managers have to coordinate different activities, different work cultures, procurement from different sources and work at different locations sometimes hundreds of miles apart for a long time, if they want their mega project to succeed.

Another success factor is how project managers deal with risk and uncertainty. Mega projects come with mega risks. Careful planning at the start is essential to avoid risks. A risk management system that identifies risks and then builds contingencies in the project plan is essential. But even after careful planning, due to mega projects’ complexity and scale, things don’t go as planned.

Therefore, project managers should be comfortable with uncertainty and willing to make difficult decisions with whatever data they have. Timidity or waiting for all the necessary information to arrive have led to delay, cost escalation and failure of many mega projects.

Finally, formation, capacity and structure of the projects management organization are also important for the success of mega projects. A separate project management organization should be established at an early stage of the project so that it is involved in the decision-making and has complete control on the project. This organisation should have representation from the major stakeholders in the project. Capacity of this organization should be enhanced by a transparent merit-based recruitment policy.

But it is also important to give preference to local people and recruit at least most of the blue-collar workers from the area where the project is based. This will enhance the ownership and acceptability of the project, another factor necessary for project’s success. Gwadar port project made a major mistake in this regard as it failed to even shift its office to the site, leading to protests from local people and escalating the costs of the project.

Experience has showed that structure of the project management organisation should be a balance between being hierarchical and flat or ‘democratic’. A hierarchical structure makes decision-making easy and avoids delays but democratic structures make sure that mistakes are identified early and are not swept under the carpet to threaten the whole project later on.

Mega projects success is important for the fast growth of an economy. As Pakistani government starts its mega projects, it is important that the success factors are carefully taken into consideration and nothing is left to chance.

 

[Neo]

TO overcome the deepening power crisis, the government is planning to increase stable electric supply to Karachi and the rest of the country. One wishes that these actions were taken a couple of years ago.

A short-term plan is to be implemented by June 2007, mid-term plan by 2008-09 and a long-term plan by 2011-15. Other immediate measures include such as allowing Wapda to set up fast-track thermal power plants, releasing huge funds for on-going power transmission and distribution projects, expediting completion of under-construction hydro power projects and extending financial support to the KESC.

But will these measures be adapted earnestly, effectively and timely to bring in significant improvement in the power system within foreseeable future? Only time will tell.

There is, undoubtedly, a dire need to focus on implementing the short-term plan with elections scheduled for 2007. By that time, there would be power shortage of 1,300 MW.

In a recent move, Wapda, which hitherto had capped its thermal power generation capacity, has been allowed to establish new thermal power plants. Thus, Northern Power Generation Co Ltd., a company of WAPDA, has embarked upon installing a 400-500 MW capacity plant at Chichoki Mallian, District Sheikhupura, for which international tender for design, supply and installation has been issued. In addition, three combined cycle power plants of cumulative capacity of around 600 MW, based on reciprocating (diesel) engine technology will be installed.

Using natural gas and residual fuel oil (RFO) as primary fuels, these power plants, each of 200 MW capacity, are being established at Chichoki Mallian (District Sheikhupura), Nandipur (District Gujranwala) and Faisalabad. Feasibility studies of these projects were conducted by Wapda, selecting the site locations near load centres aiming at minimising the current huge line losses.

These projects are scheduled to be operational by June 2007. Is the time-frame achievable? It becomes questionable if Wapda has to follow, and apparently it would, its routine procedure of issuing international tenders and stringent procurement rules, which makes decision-making a lengthy and time-consuming process. Then, the procurement of plant machinery is desired on the basis of suppliers’ credit that may not attract good response to tenders, as it is no more buyers’ market globally.

A look at the international market shows that the equipment manufacturers/suppliers have made a cartel dictating their own terms for payment, price and delivery. Lately, Wapda has experienced that the suppliers’ credit was not being offered by any source other than China, say, for its hydro power projects.

So far, all the IPP thermal power projects coming up under Power Policy 2002 have incorporated General Electric (GE) gas turbines or Wartsila diesel engines, depending on the technology selected.

Though there are other reputed manufacturers of gas turbines too, like Siemens, Alstom and Mitsubishi, and of diesel engines like Caterpillar and MAN, it seems they all have left Pakistan market open to their competitors, as they have never offered equipment to the new IPPs. Now, Siemens is reported to be active for the supplies to be made for the forthcoming projects of KESC to which it is already a technical partner.

One observes with dismay that the human resources of WAPDA and its capacity and capability have depleted as a result of its on-going corporatisation and privatisation process, its thermal division having suffered most. Its top technical personnel have retired, having provided any replacement. Senior engineers have left Wapda due to uncertain future and despondency, having joined the new IPPs on hefty salary packages. There has been no induction of engineers since long, and it is only recently that fresh engineers are being employed, but on contract basis that does not promise career to them.

Thus, there may be serious reservations about project management capability of Northern Power Generation Co to strictly meet the schedules. Here, one is reminded that used four gas turbines of total capacity of 320 MW, which were gifted by the UAE government sometime in August 2004, have not yet been dismantled and transported to Pakistan by Wapda. One turbine of 80 MW capacity is to be installed at Shahdara (Lahore), while the other three of cumulative capacity of 240 MW are destined for Korangi (Karachi).

Also, Wapda would soon award contract for a 150-MW rental power facility to be located at its Piranghaib (Multan) Power Plant. Tender for the same has recently been advertised. Simultaneously, Wapda is at present negotiating with GE, USA to provide another rental facility consisting of 6x25 MW gas turbines to be located near Lahore.

The rented gas-fuelled power plants, to operate on ‘Base Load’ conditions, will be available for an initial period of two years, with the option to extend further to another two or three years.

The plants may be operational within five to six months according to international practices, in case arrangements for gas supply and power dispersal could be done by Wapda, in parallel. But will the power purchased be affordable? It is learnt, GE will charge three million dollars per month as fixed charges for the facility.

On the transmission and distribution side, action has been initiated by Wapda to import power transformers, circuit breakers and other equipment for various switchyards and grid stations. Additional auto transformers for 500/220 kV and 220/132 kV transmission are being procured for Tarbela and Mangla power stations costing millions of dollars. New grid stations in various regions are to be constructed.

Up-gradation of National Power Control Centre (NPCC) is on cards, which is to be financed under ODA loan. The project will also include installation of state-of-the-art supervisor control and data acquisition (SCADA) and energy management system (EMS).

Likewise, KESC will develop additional power generation capacity to the level of 600 MW on fast-track basis. Potential projects include extension of Korangi Thermal Power Station by 480 MW capacity, to be implemented in phases. First phase of 120 MW capacity is expected to be operational by April 2007, whereas the whole project will be completed by July 2007. The time estimates are too ambitious, to say the least, and can only be achievable if second-hand equipment is installed.

Perhaps, a barge-mounted power project is more reliable a solution under the circumstances, which needs due consideration by KESC, to meet immediate power shortage in Karachi. Revamping, modernisation and expansion of its transmission and distribution system is being undertaken by KESC simultaneously.

The government will be well advised to focus on timely implementation of projects under the revised short-term plan, particularly the IPP projects, and not to disturb medium-term and long-term plans at this stage. It may be recalled that Power Policy 2002, with the scope covering both private and public sectors, had drawn generation expansion plan consisting of short, medium and long- term periods, with indicative commissioning date for each project.

The plans were further updated subsequently when Wapda launched Hydropower Development Plan—Vision 2025. It was only recently that the government approved National Energy Security Plan that provides periodic break-up of additional power generation capacity to be created at national level until 2015. What is then the sanctity, or reliability, of such a plan if it needs to be revised within a year of its launching?

In fact, the short-term plan had priority on developing hydroelectric power projects. Wapda had envisaged installing three hydel power projects, at Allai Khwar, Khan Khwar and Duber Khwar in the NWFP, with a cumulative capacity of 323 MW, which were to be operational by June 2006. Likewise, Gomal project of 130 MW and Raised Mangla project of 180 MW capacity were scheduled to go on stream by December 2006. All these projects, currently under construction, have been delayed for completion by almost two years.

In private sector, power projects at Mangla (New Bong Escape, 79 MW), Rajdhani (132 MW) and Gulpur (60MW), all to be located in Azad Jammu and Kashmir, were scheduled to go into operation by the year 2007.

None of the projects however has achieved any physical progress so far, though the first two projects were sanctioned under 1995 Hydro Policy. The case of New Bong Escape project is cited here, for which the sponsors signed power purchase agreement with the government in April 2004, but the project could not attain financial close as yet. Shockingly, even the project consultants have not been appointed.

 

[Neo]

Interestingly, the framework of 2002 Power Policy has mandated the Private Power Infrastructure Board (PPIB) “to oversee implementation of the Policy” covering both private and public sector projects, through a committee headed by federal secretary, water and power. The board of directors chaired by the federal minister now assumes this role, though Wapda on-going projects have never been discussed at this forum.

Progress for development of all the private sector projects is regularly monitored at the PPIB and corrective measures adopted by the board. In case, there are long delays in project implementation, the investors somehow manage to avoid any punitive action against them, otherwise liable in accordance with the provisions of the policy, using their political connections.

Power Policy 2002, with recent amendments, is in place and provides for an effective mechanism for monitoring the progress of power sector projects. The problem lies with the attitude of the investors who have been exploiting the situation and are responsible, some directly and others indirectly, for creating prevailing power crisis.

Both— domestic as well as international investors— are resourceful and have access to the Presidency and PM Secretariat to influence government decisions on tariffs and incentives.

Still, many of them have not started physical work on the respective projects that otherwise have achieved advanced processing status. Their demands are never-ending it seems. There are many examples to quote, if at all there is such a need.

On the demand of investors to save time, Nepra had to prescribe an up-front tariff for thermal power plants based on primary energy sources of gas and oil, besides carrying out negotiations for tariff in other cases. A number of amendments were made by the ECC of the Cabinet, September 2005 onward, extending additional fiscal and financial benefits to the prospective investors. This too did not yield positive results.

In a desperate move therefore, Prime Minister Shaukat Aziz approved on December 2, 2005 processing of fast-track projects of 540 MW cumulative capacity by leading Pakistani business-houses, such as Shirazi Group, Mansha Group, which were to be commissioned by June 2008. The government allowed curtailing project processing procedures and a tariff with built-in incentives in capacity purchase price for the proposed projects.

Likewise, the government had asked in January this year all the existing Independent Power Producers (IPPs) to bid for creating by June 30, 2008 an aggregate capacity expansion of up to 775 MW. Though seven IPPs, including KAPCO, AES, HUBCO, Japan Power and Kohinoor Energy, indicated their interest in the proposal, only one of them has taken concrete steps. KAPCO plan to set up a new plant of 400 MW but that too not before the year 2009.

To complicate the matters, a number of these IPPs, at present operating their installed power plants on RFO, insisted on obtaining long-term supply of natural gas instead, knowing well that it was not currently available.

None of the fast-track power projects is therefore in the processing pipeline. The demand is for an average levelised tariff in the range of, say, for oil-fuel based plant, cents 12.85 per kWh (on gas turbine technology) to cents 12.45 per kWh (on diesel engine technology), compared to available up-front tariff of cents 10.35 and cents 7.23 per kWh, respectively, which is considered already on higher side as fuel cost remains a pass-through item.

Nonetheless, the plan to augment power generation capacity through the private sector is being pursued vigorously by the PPIB. Additional 5,000 MW electricity is to be generated in the private sector within a period of four to five years. Five thermal power plants namely Orient Power of 225 MW capacity at Balloki, Sapphire Power of 200 MW capacity at Muridke, Star Thermal of 123 MW at Jarwar Sindh, Saif Power of 200 MW at Sahiwal and Attock Gen of 150 MW at Morgah would commence operations by end June 2008.

In addition, a number of hydroelectric power plants of cumulative capacity of 5,724 MW are scheduled for operations by 2010-2015 and a series of coal-based projects of 1,550 MW capacity are scheduled to come on stream in 2012.

Timely completion of these projects is of prime importance.

 

[Neo]

THE paperwork has been completed, the systems are in place, the staff has been trained, helpline desks created, bank branches selected and application forms printed and distributed in the designated branches for the aspirants who qualify to avail this facility. Yet, the ‘Rozgar (employment) Scheme’ has not been launched. Why? No one in Islamabad seems to have a clue or so they pose.

The minister of state for finance Omar Ayub Khan in his June budget speech before the parliament announced this new initiative and promised before the nation to launch the Rozgar Scheme from July 1, 2006.

After a lapse of nearly two months when contacted over telephone Omar Ayub declined to give even a probable date of the launch. “I am in my constituency at the moment and am not aware of the date of the launch of the scheme”.

He mentioned the name of Sumera Malik, the federal minister for women development who he said was made responsible for the scheme and therefore would be in a better position to inform the press on the specific date of the launch. Several attempts to seek her comments on the issue from Islamabad proved futile.

It is not only the lady luck that seems to be dodging our underprivileged youth but the lady in-charge of the scheme is also too preoccupied to give attention to the plight of the unemployed young people of the country, at least so it seems.

Ashfaque Hasan Khan, advisor to the prime minister on economic affairs and official spokesperson of the government, who was referred to by the officials in the finance ministry, when contacted in Islamabad expressed his ignorance about the status of the scheme.

“Omar Ayub should be able to tell as he is the one who made this announcement”, he said. However, he said, he would try to contact the people concerned and share the probable date of the launch of the scheme with the newspaper. He was probably not able to get the expected launching date for he did not inform the Dawn as agreed.

Some seniors in the finance ministry associated with the banking sector when approached tried to give the impression that it was the bank and not the government that was responsible for the delay in the launch.

“It is a national scheme involving a lot of preparation on the part of the bank responsible. It would only be fair to allow the designated bank ample time to prepare for the challenge of successful launch of the President Rozgar Scheme”, an additional secretary who declined to own his comments said. “We will announce it in a due course of time”, he ended the conversation.

The Rozgar scheme envisages to create 400,000 jobs for people in the age bracket of 18-40 at the cost of Rs12 billions to the exchequer. Under the scheme small loans of Rs5,000-100,000 will be extended to qualifying candidates for: (a) community utility stores, (b) community transport scheme, and (c) community communication centers.

The National Bank of Pakistan has been asked to handle the scheme. The government pledged to provide the requisite support to the bank to manage the scheme professionally without compromising the commercial viability aspect.

The loan tenure of utility stores and transport scheme will be five years with three months grace period and that of communication centre will be two years with three months grace period. The mark-up, according to a source in the NBP will be at the rate of one year KIBOR+2 per cent that at the current rate comes to around 12 per cent.

The NBP President Ali Reza was not available for comments. Amir Siddiqui, the head of retail banking at NBP, who is responsible for the scheme within NBP, agreed to share some details of the scheme but was not able to reply to the pointed queries by Dawn before the deadline. The questions that were wire mailed included details of terms and conditions agreed between the bank and the government, the logic to select NBP for the management of the scheme, besides salient features of the scheme.

He, however, did confirm that the NBP was ready since last one month and was waiting for the government to fix the date for the launch. Another officer at the bank closely associated with this new tool appreciated the government’s swift response and cooperation of relevant departments in designing of the scheme. “I was pleasantly surprised at the pace and quality of the support that was extended to the bank. Normally files take much longer to move in Islamabad”, he said.

Some branches of NBP visited confirmed that they have received application forms and have made internal arrangements to handle the Rozgar scheme at their level. “We have the paraphernalia ready. The staff has also been briefed. Some officers are specially trained to assist the loan seekers and to carry out the initial scrutiny”, a manger of a local branch told Dawn on the condition of anonymity.

However, a credible source in the banking sector said that the scheme will be launched shortly with fanfare by the President of Pakistan. Independent commentator and an expert on political economy of Pakistan felt that the geo- political situation was primarily responsible for the delay in the launch of the scheme.

“The government needs all the public goodwill it could muster especially in wake of its declining graph of popularity. The Supreme Court decision in the Pakistan Steel case, commodity market scams one after the other, rising current account deficit, adverse balance of trade, souring of relations with India, strong anti- US sentiments for its support to Israel against Lebanon and partnership of Pakistan with US in so-called war against terror, continuing problems in Balochistan, internal strife in PML(Q), troubles in WANA, sweet/sour relationship with MQM. And list can go on and on. It would, therefore, be logical on the part of the government to time the launch of scheme in a way that it gets the maximum media coverage”, she said.

For the government, the Rozgar Scheme may be a political whip to beat the opposition or a ploy to earn political support of masses. For unfortunate, frustrated unemployed youth it could mean hope and a future.

The prospective beneficiaries are waiting for the launch of the micro credit scheme for self employment. For them, it means more than politics. For some it could be an issue of life and death. At such a high rate of unemployment when according to an estimate every eighth person in the 18-40 age bracket is unemployed and the NBP is ready, it would be unadviseable to delay the launch of Rozgar scheme any longer.

 

[Neo]

WHILE the State Bank of Pakistan has been tightening its monetary instance, inflation continues to remain a threat. Despite a decline in the consumer price index (CPI) from 9.3 in 2004-05 to eight per cent in 2005-06, the GDP deflator — the broadest inflation measure — witnessed an increase of 10.3 per cent in 2005-06.

The wholesale price index (WPI) had, also, jumped to 9.1 on year on year (YOY) basis in May 2006 from 8.1 per cent in April 2006.

Weekly wholesale prices of selected items, reported in the press showed that prices of wheat, pulses and rice had continued to show an upward trend in July and August, while media reports had revealed that prices of a number of other items such as vegetable ghee, edible oils, meat, fruits and vegetables etc. had also gone up during the last few weeks.

The price increases are being attributed to the advent of the holy month of Ramadan, which is only a few weeks away. Besides, the monsoon rains and floods had also contributed to the upward trend in prices by causing interruption in supplies of items of daily use and pushing up the transportation cost in certain cases.

In addition, this is off season for sugar, since the new crushing season normally starts in October. This may be the reason for the higher prices of the item in the open market, despite liberal imports and sales at subsidised prices through the utility stores. This is the off season for rice also, which is harvested in December. As a result, prices of certain varieties of rice have registered an increase in the wholesale market. Another reason for the increase in the prices of rice is that the export of rice is expected to go up to a record $1.5 billion during the current year.

The situation can, no doubt, be remedied by boosting the production of wheat, rice, pulses, potatoes, onion and all other agricultural products and streamlining the distribution of items of daily use.

The distribution system can be improved by substantially increasing the number of utility stores. Under the Rozgar scheme, reportedly being launched from the next month, more utility stores can be opened by those granted loans loan for the purpose.

Although a multi-pronged strategy may be required to bring the inflationary pressure fully under control, the tightening of the monetary policy by the SBP is necessary to deal with the demand-pull inflation due rise in family incomes from home remittances and liberal credit policy of previous years.

After the announcement of its monetary policy for July-December, 2006, the Pakistani rupee has remained stable vis-à-vis the dollar, both in the inter-bank and open market. A press report on August 16 said the food inflation had shown a decline of 0.34 percent in July 2006 as compared to June 2006. However, it is feared that prices may generally remain under pressure until the end of the current monsoon season and the holy month of Ramadan.

The trade deficit of $1.23 billion in July 2006 shows that the demand for imported goods continued to remain at a high level. It appears that the latest SBP measures would take some time – three to six months – to make their impact felt on the economy.

Tightening of the monetary policy – also called inflation targeting – has been followed around the world since long. To quote an instance, the US broad inflation rate exceeded 10 per cent in 1980-81. Paul A Volker, who was the Chairman of the US Federal Reserve at that time, raised the federal rate to as much as 19 per cent with the full backing of the then President Reagan. The policy worked and the inflation rate came down to three per cent by 1983.

Later, in the same way, Alan Greenspan – former Chairman of the US Federal Reserve – raised the federal rate to 9.75 per cent in February 1989 to bring down inflation from its higher level. The initiative worked, but the US economy slipped into a mild recession in July 1990, that lasted until March 1991. The action was taken by the US Federal Reserve, although the country dos not target formal inflation rates.

The reduction in the rate of inflation is necessary not only to protect the macro-economic stability but also to safeguard the long-term growth prospects of the economy.

To make the monetary policy work, the government should take necessary steps ensuring the success of the counter-inflationary measures introduced in the federal budget, 2006-07 (sale of items of daily use through the utility stores and appointment of price magistrates).

At the same time, the government should make all possible efforts to bring down the trade deficit from last year’s over $12 billion to $9.4 billion as envisaged in the current year’s trade policy, announced in July.

It would be desirable to be content with modest growth, while protecting the macro-economic stability and safeguarding the long-term growth prospects of the economy than to boost the short-term GDP growth through higher public and private spending, allowing inflation and fiscal and current account deficits to go up to a point, from where they could cause irreparable damage to the economy.

 

[Neo]

How close are the millennium development goals?




AS on other fronts, Pakistan is sanguine about its progress towards the millennium development goals (MDGs). The UN member countries had adopted eight MDGs in September 2000.

These include, a) halving the proportion of people living on less than $1 a day and those who suffer from hunger by 2015,b) ensure that all boys and girls complete primary school by 2015, c) eliminate gender disparities in primary and secondary education by 2005 and eliminate all gender disparities by 2015,d) reduce by two-thirds the mortality rate among children under five by 2015,e) cut by three-quarters the ratio of women dying in childbirth by 2015, f) reduce by half the proportion of people without access to safe drinking water by 2015.

The other MDGs seek significant reduction in HIV/AIDS and other diseases, improvement in the lives of slum dwellers, sustainable development, and a global partnership for development.

This article explores whether or not Pakistan is approaching the MDGs. It also explores whether MDGs can possibly be attained through the prescription of global partnership for development.

As for poverty, population below $1 a day in Pakistan was 17 per cent in 2001 as well as in 2002 according to the latest Word Development Report and World Development Indicators of 2006. Pakistan shows per force reduction in poverty on the basis of calorie intake which gauge too is disputed. How poverty on the basis of population below $1 a day will be halved actually and not statistically by 2015 is unclear.

One can only hope that this figure is not massaged in calculations to show the results on paper and then breath, ink, and time are wasted on contending, proving, and disproving it.

The target of all boys and girls completing school by 2015 cannot be gauged as data on enrollments is available but not on graduation. The drop out rate is high which is not captured in the indicator used to measure progress in education. Stock is taken of enrollments and performance on education is assessed thus. Although primary completion rate is available for most countries, it is not available for Pakistan. Even if we assume that this rate will be available by 2015, will all boys and girls be completing school by 2015?

Net enrollment ratio of children of official school age was 66 per cent in 2004 up from 33 per cent in 1991. In 13 years, it increased by 33 percentage points. In the next 11 years, it might increase by another 33 percentage points on an optimistic note. Even if primary school enrollment reaches 99 or even 100 per cent, the target of 100 per cent primary completion rate for boys and girls will still not have been achieved if the dropout rate continues to remain high and gender disparities persist. The dropout rate is intricately linked to the score on poverty, amongst other factors.

Poor parents are not inclined to send their children to school due to high opportunity cost. Poor children are less likely to perform in school due to a lack of enabling home environment. So, if primary school enrollment and completion rates do not converge but poverty is made to take a nosedive, officially stated poverty reduction will lack credibility.

Further gender parity ratio was 71 per cent in 2002/03 in primary and secondary schools. That is female gross enrollment rate to male gross enrollment rate ratio was 0.71. This shows girls trailing behind boys in terms of enrollment not disaggregated for the primary school level and not available for the official school age girls and boys. Non-availability of data will inhibit measurement on this score. Girls’ secondary status on this count is well-known. Boys are given preferential treatment in both the areas of education and health.

However, the MDG to eliminate gender disparities in primary and secondary education by 2005 is missed as the ratio of 0.71 in 2002/03 could not have been increased to 1.0 in two years’ time only.

Secondary status of women is further evident from the adult literacy rate with women’s significantly behind men’s. In 2002, male adult literacy rate was 62 per cent whereas that for women was only 35 per cent——slightly better than half of what it was for the male population.

Against this backdrop, elimination of all gender disparities by 2015, as required under the MDGs, is a dream not likely to be realised by 2015 in our male-dominated society where women too lack awareness about their own status and cannot stand up for their rights in individual capacity also leave alone organizing for the purpose.

The under-five mortality rate was brought down in Pakistan from 130 per 1000 in 1990 to 101 per 1000 in 2004 (World Development Indicators, 2006). That is, in 14 years, it did not even reduce by one-third. Can it go down by two-thirds in ensuing 11 years when health expenditure was as low as 2.4 per cent of GDP in 2003 and there were 0.7 physicians per 1000 people, 0.7 hospital beds per 1000 people, and 1.1 health worker density index, that is, medics and paramedics per 1000 people which figures are not likely to take a quantum jump any time soon?

Can maternal mortality reduce by three-quarters by 2015 when births attended by skilled health staff increased by a mere one-fifth in 13 years until 2003? As for access to drinking water, a proxy is used to measure performance by gauging access to an improved water source. Progress on this indicator is impressive as access to a better water source improved from 83 in 1990 to 90 per cent population by 2002.

But improved water source is not the same as safe drinking water and the definition of “access” too is not clear. For, people should receive clean running water in their homes 24 hours a day which is a major problem even in the best of urban areas in Pakistan.

The MDGs are ambitious. They are difficult targets primarily because national governments are driven towards conventional economic indicators such as the GDP growth rate and per capita income. If these traditional economic indicators improve, governments have a reason to pat themselves on the back. However, they acknowledge the importance of MDGs. But, these are not integrated in national development goals and strategies which is why emphasis is on growth and per capita income but not on distribution.

Until such time that distributive aspects are woven into national economic strategies, MDGs will be viewed as add-ons rather than a logical outcome of the process of development. The approach will then be activity-centred seeking local-maximum rather than global-optimum. In the case of Pakistan, even the attainment of a local maximum appears like a distant possibility.

The UN attempts to help by advising governments to cooperate in the effort towards the attainment of MDGs. However, the advice is based on an “open trading and financial system” that the UN thinks will facilitate progress and commitment to the MDGs through good governance, development, and poverty reduction. The underlying premise is an opening up of the economies that will enable the attainment of the above goals. This may not necessarily be true if the international trading system already benefits the more developed more than the underdeveloped.

Further opening of trade has been working more in the interest of those who already are ahead in trade. Examples of East Asian countries are cited on the basis of their recent history alone and not fuller history which must be studied to know how these countries first achieved intra-country integration before aiming at integration with the global economy.

The MDG framework lays down the above paradigm that must be followed to achieve the MDGs. This paradigm is neo-liberal that focuses on growth and not on inclusive development. Other goals then fall on the wayside whose importance the MDG framework tries to restore but primarily through the same neo-liberal paradigm that does not place poverty, education, and health at the centre stage.

With national governments believing in the defunct “trickle-down” and the global partnership aiming towards the MDGs through the neo-liberal outlook, these goals appear elusive at this stage.

 

[Owais]

Auto industry offered tariff incentives

ISLAMABAD (August 22 2006): The government has offered the automobile industry an eight-year pre-announced tariff policy, including establishment of a fund worth Rs 6 billion for competitiveness, technology acquisition, research and development and two auto clusters in its plan to develop the sector on sustainable footings, sources told Business Recorder on Monday.

Informed sources said the non-tariff policy incentives included productive investment incentives, an auto industry development committee, establishment of funds for the auto industry competitiveness, research and development, technology acquisition and a policy that has incentives for export.

The pre-announced eight-year tariff policy for the CKD and CBU proposes constant duty structure for the first three years followed by a variable duty structure for the next five years depending on the engine power of cars to enable OEMs and vendors to make long-term investment.

It is also proposed the two auto industry clusters-one in Karachi and other in Lahore-would be established to enhance inter-firm co-operation and encourage innovation and specialisation in the production and supply chain.

Moreover, the proposed plan also offers Rs 6 billion fund on matching grants for the industry's competitiveness, research and development, and technology acquisition (TAF).

It is also proposed that government technical institutes should be attached with the automobile companies for practical training, similar to "house job concept" in medical profession.

It is also proposed the government may waive the tax liability on the cost of training, which will be based on quality and the number of persons trained by these institutes.

To take care of the road quality and safety standards, a Motor Vehicle Act, jointly managed by the private or private-public management, is also proposed. Similarly, the government will announce Emission Control Regulation that offers tax incentives for car manufacturers for producing hybrid vehicles or those operating with non-hydrocarbon fuels.

It includes a matching fuel policy (sulphur, benzene and lead-free fuel) along-with physical infrastructure and to encourage the use of catalytic converters.

The programme has been prepared keeping in view shortage of vehicles and also setting a year-wise target in 2006-07 for the production of 248,000 cars/light commercial vehicles (LCVs) and raise it to 276,000 units in 2007-08.

The target for 2008-09 is 348,000 units and for 2009-10, it is envisaged that the industry needs to enhance it production capacity to 413,000 cars. Similarly, the production target for 2010-11 and 2011-12 is set at 503,000 and 516,000 cars, respectively.

 

[Owais]

SECP rescinds KSE decision

KARACHI (August 22 2006): The Securities Exchange Commission of Pakistan (SECP) has overturned the decision of Karachi Stock Exchange (KSE) removing ban on short selling in futures contract. According to a letter issued by the regulator to KSE.

It has been asked to furnish comprehensive rationale for each of the decision taken by the KSE board of directors in the subject meeting in relation to the temporary measures implemented earlier, through notice issued on August 14, 2006.

Detailed justification supported by necessary statistics for the measures recommended to be reversed and/or to be continued may be provided at the earliest to enable the commission to convey its decision on the said measures.

It is reiterated that the above decisions of the board shall not be implemented prior to the approval of the commission as the same inter alia amendments in the regulations of the exchange which necessitate the approval of the commission under the Securities and Exchange Ordinance 1969.

 

[Owais]

CBR move to unearth tax evaders


ISLAMABAD (August 22 2006): A large-scale exercise has been started to identify tax evaders through cross-matching the capital value tax (CVT) data on income tax statements, which contains information about purchase of vehicles and transfer of property with the income tax returns.

Tax authorities have also chalked out new guidelines for provincial governments to standardise the procedure for collection and payment of the CVT on property transactions in districts across the country.

Sources told Business Recorder on Monday regional commissioners of income tax (RCITs) have launched the exercise on the directives of the Central Board of Revenue (CBR).

According to the decision, the RCITs are vigorously monitoring the implementation of filing of income tax statement on the transfer of immovable property in urban areas and collection of the CVT on such transactions.

In this connection, it has been decided the data pertaining to properties and vehicles would be cross-matched with the information available on the income tax returns to unearth cases of tax evasion.

It has also been decided to strictly deal with delinquent taxpayers, who were deliberately concealing vital information by not mentioning the same in their tax returns. On the other hand, statements have disclosed the same information, which was also required to be specified on the returns.

Tax authorities have also formulated new guidelines for provincial governments to standardise payment/collection of the CVT at the district level. For this purpose, income tax statement of the CVT would be amended keeping in view provincial governments recommendations.

The Faisalabad zone has been declared a pilot project area, which will keep a close liaison with registration authorities responsible for the collection of the CVT, sources added.

 

[Owais]

Tenders for gas fields in Sindh cancelled


ISLAMABAD (August 22 2006): After formal approval by the board, the Oil and Gas Development Company (OGDC) has withdrawn its controversial tenders floated for Tando Allah Yar and Singoro gas fields and conveyed the decision to M/s Petrosin.

Sources said the OGDC informed M/s Petrosin in writing last week that it withdrew the tenders issued for Tando Allah Yar and Singoro gas fields due to some inevitable reasons and the Letter of Intent (LoI) issued to it sometimes back now stands null and void.

The OGDC board had taken up both the tenders in its meeting held on August 16, here and after in-depth discussion it directed the management to cancel the entire process of tenders, including the LoI issued to M/s Petrosin and float new tenders at an appropriate time through the press.

Sources said negotiations between M/s Petrosin CEO Saeed Wahla and ADOS International chief Jamal Ansari was the basic reason for the cancellation of tenders.

Saeed Wahla had prepared video and audio taps of his series of meetings with Jamal Ansari and presented its copy to President General Pervez Musharraf for investigation.

The matter, as was evident, could not go unnoticed. The President referred the matter to Prime Minister Shaukat Aziz for action. His directions were followed in letter and spirit and the matter was investigated at the appropriate level that proved the allegations.

The other side of the story is that former OGDC managing-director Raziuddin had overruled departmental procedures and issued LoI in favour of M/s Petrosin without taking the case to the board for approval on April 18, the last day in his office as managing-director.

The timing was critical and it linked other events to take them to the conclusion. He also did not take other joint venture partners-government holdings and OPI-into confidence. His solo flight made the entire process dubious.

The National Accountability Bureau (NAB) is already investigating various cases approved by Raziuddin, including Tando Allah Yar and Singoro fields. NAB authorities are also investigating the role of OGDC officials, who were directly or indirectly linked to the matter.

Since the rules were not followed in this case, his successor, Arshad Nasir, took the matter to Prime Minister Shaukat Aziz for guidance. He informed the Prime Minister in a presentation about the wrongs done in the process of Tando Allah Yar and Singoro tenders. The managing director told the Prime Minister that his predecessor did not follow rules and procedure in the issuance of LoI to M/s Petrosin.

The Prime Minister expressed his serious concern over the development and directed him to review the case and take all possible steps to ensure transparency in the OGDC working, in particular, awarding of tenders for development work to ensure competition.

The Prime Minister emphasised protecting the national interest in award of contracts for OGDC works at all costs.

The OGDC has gone through a tedious job before withdrawal of the tenders. It constituted a three-member committee to review all cases of development works, including Tando Allah Yar and Singoro projects to identify those wherein rules and procedures were not followed.

The committee took almost three months to complete the job. It submitted the report to higher authorities, which mentioned a number of wrongdoings in the projects' process.

The committee was of the view the OGDC has the right to stop the process for its any tender when and where required if necessary to protect its interests.

Then OGDC hired Khaleeq-uz-Zaman as legal consultant to seek his opinion before placing the tenders before the board for cancellation.

In a 50-page report, the legal consultant said the OGDC can withdraw its tenders floated for Tando Allah Yar and Singoro gas fields and re-tender them through the press with new terms and conditions.

The report said the OGDC has the right to cancel the process at any stage before signing the agreement for award of contracts. It added the Letter of Intent (LoI) issued to M/s Petrosin consortium was not mandatory for the OGDC to sign a final agreement. It added Petrosin can not make LoI a base for litigation with the OGDC.

The legal flaws pointed out by the consultants in Petrosin consortium's bid make a strong case for the OGDC to withdraw the controversial tenders.

The legal consultant opined that Petrosin consortium could not comply with section 4.5(b) of the instructions to bidders, which required one of the partners was to be nominated as being in-charge and his authorisation was to be evidenced by a power of attorney of legally authorised signatories of all partners and certified by a notary public.

According to the consultant, the OGDC can reduce or eliminate the likelihood and the extent of possible adverse consequences and challenges by withdrawing the invitations to tender, annulling the bidding process and rejecting all bids prior to award of contracts.

The consultant quoted section 9.1 of the tenders, which states that the OGDC reserves the right to cancel or withdraw tenders at any stage or at any time prior to award of the contracts/agreements.

Sources said the withdrawal of Tando Allah Yar and Singoro fields tenders will help the OGDC discourage underhand practices to give favour to any party in future.

They said the OGDC took the President and Prime Minister's orders to ensure transparency in its working to protect the national interest through openness and transparency.

The President and Prime Minister have been stressing the need of complete transparency to establish good governance in the working of all government departments.

The OGDC and its board's decision to withdraw tenders for Tando Allah Yar and Singoro will prove the organisation was taking the direction of the top brass in letter and spirit to save public money.

Sources said the OGDC plans to issue international tenders for these projects and it will invite many multinational companies to compete for the job through a transparent process.

 

[Owais]

NBP profit swells by 83 percent


KARACHI (August 22 2006): The profit of the National Bank of Pakistan (NBP) recorded a tremendous growth of 83 percent in the six months ended June 30, 2006. The National Bank announced financial results for the first half of 2006.

It posted an EPS of Rs 11.31. In the first-half 2006, the PAT of the bank surged to Rs 8,016 million against Rs 4,394 million posted in the corresponding period last year, depicting an increase of 82.4 percent YoY.

In the 2Q'06 alone, the bank posted a PAT of Rs 4,404 million (EPS: Rs 6.21) as against Rs 2,509 million (EPS: Rs 3.54) reported in the same period last year, showing an increase of 75.5percent YoY.

The National Bank did not announce any cash dividend or bonus issue for shareholders. The growth in profitability is on the base of strong growth in the core mark-up/interest income. The net mark-up/interest income of the bank surged to Rs 14,373 million from Rs 9,873 million reported in the corresponding period last year, showing an increase of 45.6 percent.

Non mark-up income of the bank for the period under review was Rs 4,890 million as against Rs 3,708 million reported in the comparable period last year, depicting an increase of almost 32 percent.

Net mark-up income as percentage of total revenue surged by 190 bps from 72.7 percent in 1st HY05 to 74.6 percent in 1st HY06, indicating the healthy mark-up spread which as per our estimates rose to 725 bps-750 bps during the half year from 650 bps recorded in the entire FY05.

Non mark-up expenses, which comprise mainly administrative expense, recorded only a marginal increase of 9.5 percent. Provisioning against advances and investments recorded a minimal decline of 0.2 percent. Thus the controls on the 'expense side' also continued towards the healthy growth in profitability.

An analyst from Noman Abid & Co, said overall the bottom line of the NBP recorded an increase of 82.4 percent, surging to Rs 8,016 million (ESP: Rs 11.31) from Rs 4,394 million (EPS: Rs 6.20), reported in the same period last year. The reported PAT was only 0.79 percent lower than our estimated PAT of Rs 8,081 million (EPS: Rs 11.40).

Besides the rise in mark-up spreads, the other reasons behind the very significant jump in the bottom line include the following: decline of 0.2 percent in provisioning (for doubtful debts), disproportionately lower increase in administrative expenses, 338 basis points decline in effective tax rate. The effective tax rate declined to 34.7 percent from 37.7 percent in first half 2005.

 

[Owais]

Pakistan requires world-class infrastructure: Prime Minister

ISLAMABAD (August 22 2006): Prime Minister Shaukat Aziz on Monday said with the growing economy and increased trade and investment activities, Pakistan requires a strong and world-class infrastructure in services sector including the hotels.

He was speaking at the groundbreaking ceremony of a 45-storey `Grand Hayatt' five-star hotel being constructed near the Convention Centre in federal capital with an investment of US $260 million.

The Prime Minister termed the hotel project 'very important and historic development' for Islamabad, which surrounded by beautiful mountains with lush green landscapes and good climatic conditions, has many reasons to become the hub of tourism and international conventions and conferences in the region.

He said, Pakistan being at the crossroads of South Asia, Central Asia and the Middle East, having six out of world's 12 peaks, rich culture and the growing economy offers lot of attractions for tourists as well as for investors.

The Prime Minister said, to become a true hub of international conferences and conventions there must be all world class facilities of a modern city.

He said, with several technical companies and IT parks operating in the federal capital, Islamabad is fast becoming an IT capital.

Prime Minister said, Islamabad will soon have an international standard airport, having connectivity with the Motorway, adding, we will allow operation to more airlines.

He said, the services sector has the largest potential of job opportunities and mentioned that the new hotel-to be opened by the end of 2009, will provide jobs to 2600 people directly, with several people getting indirect jobs as a fall-out of the project through supply, shops, allied businesses etc. The Prime Minister said, "We need several international hotels not only in Islamabad but in other major cities and metropolitans."

 

[Owais]

Market treasury bills worth Rs 12,000 million sold


KARACHI (August 22 2006): The State Bank of Pakistan (SBP) sold a total of Rs 12,000 million of Market Treasury bills on Monday in a five-day and 10-day repo operation to mop up funds from the money market.

The Rs 8,000 million Market Treasury Bills were sold in a five-day repo operation at 8.49 percent, while Rs 4,000 million Market Treasury Bills were sold in a 10-day repo operation at 8.50 percent.

 

[Owais]

Musharraf for accelerating installation of water plants

RAWALPINDI (August 22 2006): President General Pervez Musharraf on Monday directed the authorities to accelerate setting up of water purification plants utilising affordable, reliable and cost-effective modern technologies to ensure provision of safe drinking water to people across the country.

He made these observations while chairing a meeting to review progress on the safe drinking water initiative under which the first phase will be completed by the end of the current year. The government is aiming to provide clean drinking water by the end of 2007 under a comprehensive plan, where water purification plants will be installed right down to tehsil and union council levels.

While reviewing the progress, the meeting was informed that some 300 plants have already been installed in collaboration with the private sector while 110 such plants are in the process of being made operational.

Private sector and multinationals have also shown their keen interest to supplement this important initiative of the government by introducing latest technologies which will not only be cost effective but would also ensure the quality of water supply. Federal Minister for Environment, Syed Faisal Saleh Hayat, Minister of State for Environment, Malik Amin Aslam and senior government officials also attended the meeting.

 

[Neo]

PESHAWAR (August 22 2006): NWFP Senior Minister and MMA leader Siraj-ul-Haq has asked the Overseas Pakistani businessmen to avail the abundant investment opportunities in NWFP in backdrop of its geographical importance and vicinity with central Asian Republics.

Talking to a delegation of expatriate Pakistanis businessmen at London during his UK tour, Siraj said the Muttahida Majlis-i-Amal government was endeavouring for speedy social and economic progress of the province and prosperity of its poor masses.

He said the peace and security of life, honour and property of each and every citizen including the minorities and foreigners were ensured at the earliest while drastic steps were taken for exploiting the tourism, minerals and hydle power generation potentials of the province.

He invited the foreign and overseas investors to take benefit of these precious natural resources and cheap available manpower assured that a congenial atmosphere had been created for boosting trade and commerce activities in North West Frontier Province.

The senior minister Siraj-ul-Haq said the provincial government was faced with financial constraints and hence it could not develop the resources potentials alone to convert backwardness of the province into prosperity. However, Siraj-ul-Haq expressed the confidence that miracles were expected with joint efforts of the private sector and overseas investors.

Siraj-ul-Haq in respect of providing Gadoon like incentives and easing Pak-Afghan border trade, assured the delegation for its sympathetic consideration and approaching the centre for that purpose.