Pakistan Economy - News & Updates - Archive

[Neo]

INTER-regional disparities are increasing, with Punjab province at one end and Balochistan and the NWFP on the other. Yet, within Punjab, education achievements and better infrastructure are leading the much better off central and northern districts to attract more investment and grow more rapidly than the southern districts.

These not- so- shocking but still highly disturbing observations have been made in a recent World Bank research paper.

And of course, the relatively depressed regions run the risk of their becoming perpetual basket case areas by failing to attract capital and skilled labour which otherwise find it more profitable to go to faster-growing and richer regions as has been in the case of Balochistan and NWFP.

The higher the inequality, the harder it is for growth to reduce poverty. Inequality reflects deeper distortions in access to markets, in the availability and quality of health, education and infrastructure services, and in rural urban distinction—all of which dampen growth and poverty reduction.

Highly unequal access to education means that talented children are denied the opportunity to invest in their human capital, the main determinant of long-run growth.

According the WB paper, rising inequality often implies capture of ethnic groups or castes that perpetuate disparities by providing private benefits to their own group rather than public goods that can help generate broadly-shared economic growth.

And rising inequality means sizeable populations are vulnerable to falling deeper into poverty because they lack assets like land or livestock or the human capital that can be used to cope with shocks. Because a large section of the population tends to be clustered around the poverty line, even a small shock can push many down into poverty.

Rising inequality can thwart reforms. Market- oriented, pro-growth policies that temporarily increase inequality can generate a political backlash, leading to backsliding and policy distortions that slow growth.

Finally, rising inequality breeds conflict. Left unaddressed, disparities create social tension and perception of alienation and neglect, sowing seeds of domestic conflict. The rising insurgency in Balochistan is cited by the WB paper as being the result of lack of development.

Quoting international experience the paper says that the quickest route to slow economic growth is complacency during periods of high growth. Most countries with rapid growth in any one decade show marked deceleration of growth rates in the next. But in the opinion of the research paper, sustaining this growth over extended periods will mean having to buck the trend.

Pakistan has enjoyed a fairly reasonable growth rate since 2002, but one of its 10 children still dies before his fifth birthday and only 57 per cent of children complete primary school.

Indeed, every time this country has recorded an annual average growth rate of over six per cent over an extended period, its failure to arrest the resulting wide socio-economic gaps between regions, among sub-regions and between classes have not only choked growth but the associated tensions have led to massive damage to the national fabric to an extent that at times we have been categorized as failed or failing state. Therefore, the subject of growing inequalities needs to be studied not only in all its depth and width but as frequently as is possible.

It has been seen that during the decades of 1960s and 1980s when higher growth resulted in higher government incomes, temptation got the better of the rulers and they let themselves be dictated by populism and pandered to vested interests. This is happening once again. With an eye on the next election, the government is letting the rich to plunder without any check or hindrance.

These richer classes are amassing wealth by forming cartels and indulging in hoarding while those who are supposed to curb these activities are looking the other way on orders from political leadership at the top because it is these very moneyed classes who are expected to pay the election bill of the ruling party.

On the other hand, the government is launching rather haphazardly a number half baked, hastily planned and impossible-to-monitor projects to provide relief to the poorer sections. Such schemes in the past have only ended up lining the pockets of unscrupulous public providers and benefiting the affluent and in the process pushing up the rate of inflation further up.

This need not continue for the sake of the people and this country. Let us for a change leverage rapid growth to achieve distributive justice. This is, of course, easier said than done because while there are many bookish prescriptions and those that are dispensed by the multilateral aid agencies, so far nothing seems to have actually worked.

In the immediate post-war period and up until the advent of Mrs. Thatcher on the world scene and the rise of the Asian tigers, the World Bank and the IMF used to put a lot of emphasis on planned economy and the public sector. And since, the two institutions along with the Asian Development Bank have been promoting the idea of the ‘least government’ with the private sector serving as the engine of growth. But neither of the two prescriptions seems to have worked with any degree of perfection. If there were any successes here and there due to either of the two, those could only be attributed to chance.

Of course, there cannot be a perfect answer to such problems as growing economic inequality in a growing sea of plenty. Still, one can make some visibly sustainable progress by undertaking political and financial decentralisation of all development work, making the providers at the service delivery stage accountable and cleansing the judiciary of the corrupt.

If it is true that’ it is not the business of the government to be in business’, then it is doubly true that it is not the business of the private sector to be in public welfare. Let the private sector run schools, hospitals and make roads, produce goods and sell other services for profit. Let the private sector also make the most of the market forces and become ever richer. But let us make it pay its tax dues in full.

When only a little over a million out of 150 million people pay income tax, there is hardly anything one can do to achieve even a modicum of distributive justice. Let the government start fulfilling its national responsibility in the context of distributive justice from this point and not let the tax evading private sector fool the nation claiming that it is doing national duty by running profit earning schools and hospitals.

Let the private sector make money and leave the business of providing succour to the poor and the job of removing economic inequality to the public sector. Of course, the public sector is riddled with corruption, lack of capacity, inefficiency and low productivity. But all this can be taken care of to a large extent by setting up inbuilt systems of accountability and institutionalising oversight by relevant communities with stakes in schools, colleges, hospitals and public works.

All this of course would not make much of a dent in the existing inequalities immediately, but it could be a good starting point to build on progressively. Meanwhile, regulatory mechanisms with statutory powers and free from political interference need to be established to bring and sustain order in the market and keep prices and supplies within the reach of the most of the population.

 

[Neo]

Pakistan’s economy has been diversified over the years but agriculture still is the largest sector of the economy. With its present 22 per cent share in the GDP, it accounts for 44.8 per cent of the total employed labour force. It serves as the base sector for the country’s major industries like textile and sugar and bulk of the exports.

Agriculture also contributes to growth by providing raw materials, as well as being a market for industrial products. What happens, therefore, to agriculture is bound to have a substantial impact on the overall growth GDP.

Pakistan has basic ingredients such as fertile land, irrigation water, hard working farmers and certified seeds. The need of the hour is to utilise these which can be possible through proper policy- making.

Good management suffers due to the shortage of technical expertise which mostly leads to the failure of our food policy. Previous experience shows that the majority of farmers failed in getting minimum ceiling price of wheat and this created a big gap between the demand and supply thus putting the country in the list of food deficient. Farmers have not proper storage, packing and distribution facilities.

Agriculture is facing problems like low productivity, unfit irrigation water, adulterated chemicals, non-availability of modern technology etc. Here the extension workers can play an active role if they carry out the following functions and duties:

* Convince the farmers to implement latest technology.

* Provide necessary information to farming community.

* Exchange and discuss problems and suggesting remedial measures.

Pakistan is a developing country and our farmers are yet to comprehend the advancements taking place around the world as they are illiterate. The extension worker should promote agriculture and its allied industry in line with the WTO rules and regulations.

Human resource development is the main tool for enhancing agricultural productivity. It will not only increase the resource base productivity but can also play a vital role in reducing the pre and post-harvest losses, judicious use of irrigation water, balanced fertilizers, and recommended doses of pesticides and insecticides. It will reduce per unit cost of output, vital for competing with other developed nations.

For creating awareness about the WTO agenda among farming community we need objective-oriented policies. They should know about different agreements related to agriculture and their responsibilities and how the new world trade order will affect their profitability and how to it can enhance the same. The role of extension workers need to be reorganized. The government should provide them with the facilities for performing their duties and allocate to them specific areas.

Suggestions: The following suggestions are necessary for the betterment of the present conditions of our traditional farmers through the efforts of extension workers:

* The role of institutions is very crucial in this case. The government should begin training programmes for extension workers.

* The government should monitor extension workers performing their duties.

* Facilities such as motorcycle, fuel and other requirements should be provided to them for visiting every farmer.

* Farmers should be persuaded to adopt the latest techniques. Extension workers should motivate them by estimating and presenting the profitability of new techniques.

* The ignorant farmers should be informed by the extension worker about the use of ISO-certified products and the rules and regulations of the WTO.

 

[Neo]

THE Private Power and Infrastructure Board (PPIB) has invited expressions of interest from potential investors for the development of integrated power project based on imported coal, on non-exclusive basis, proposed to be set up near Karachi. The two top ranking parties will be pre-qualified to install 1,000-1,200 MW capacity each power plant, with the provision of expansion in future.

But the project poses numerous issues, problems and challenges and the government of Sindh has already reacted sharply against it.

The development of a coal-fired power plant based on imported coal is a complicated and arduous process. The project may run into snags. Remember the Gordon Wu project of the 1994-power policy era?

The nation may end up losing opportunities presently available to it to develop domestic coal reserves, an activity which obviously cannot be undertaken in parallel to establishing a power plant based on imported coal. It is not consistent with the government’s committed policies.

The first and foremost concern is that the country would remain heavily dependent on imported coal source for power generation. The technology selected will depend on coal analysis and characteristics. For this reason, each plant is highly complex having custom-designed systems and as such the proposed plant can not be switched to using indigenous coal at any stage of operations.

The quality of local raw coal ranges from lignite to sub-bituminous, having calorific value of 5,219 to 15,801 BTU/lb, which is considered to be of good quality and suitable for power generation. Pakistan has proven coal resources to the extent of 185 billion tons, compared to total world reserves of 909 billion tons of lignite to sub-bituminous coal. According to recent estimates, there is a potential to generate annually about 20,000 MW electricity for forty years or so, based on available and mine-able domestic coal reserves.

Recently, the government has approved various power projects based on domestic coal to be set up in the private sector, while others are in process. After a Chinese company backed out almost a year ago, an American corporation plans to set up a 1,000 MW capacity integrated power plant near Thar coalfields that are viable for large-scale mechanised mining. Likewise, the LOIs have been issued to Pakistani investors along with foreign partners to establish a 200-MW plant at Sonda—Jherruk, a 200-MW and another of 150-MW capacity at Lakhra, all to be located at respective mine-mouth.

Already, there are indications by the American company not to develop Thar-coal based project. Instead it is instead seeking permission to construct plant based on imported coal. This will have far-reaching implications and socio-economic fall-outs also, as areas like Thar, Lakhra, Sonda and Jherruk will ever remain under-developed.

Second, it will be an expensive proposition to set up an integrated project on imported coal. It will result in high and non-competitive tariff. Indeed, coal is the most common fuel for utility and industrial energy generation worldwide, accounting for at present almost 40 per cent of world’s electricity. Globally, coal consumption is over five billion tons annually.

Supply of coal, in this case, known as thermal or steam coal (lignite and sub-bituminous), has to be secured from the international market. In order to ensure reliable, regular and uninterrupted supply of coal for the plant, the investors will be required to arranging and managing long-term coal supply contracts. This will not be possible to secure from international market, unless the investor, only a foreign investor in this case, would have his own lease of coalmines in one of the coal exporting countries. Still, the regular and reliable supply of coal could not be guaranteed for longer periods—-almost for 30 years of plant life span.

A power plant of gross design capacity of 1,200 MW will require approximately eight million metric tons of coal per year, depending on coal quality and technology adopted, which is translated into a daily supply of about 22,000 tons coal, or hourly supply of over 900 tons to the plant.

Such plants are designed on a large scale for continuous operation. Imported coal is bulky and expensive to transport. Coal price in international market is currently in the range of $34-$39 per metric ton for thermal coal of about 11,800 BTU with low to medium content of sulphur. Thus, the proposed plant, besides having high operating cost, will have a heavy and constant drain on foreign exchange resources.

Again, the logistics are to be created to receive and handle transportation of imported coal of this magnitude to the power plant efficiently. In fact, sea transportation cost accounts for almost 70 per cent of the delivered coal price internationally. For economic reasons, cargo ships are commonly used for carrying minimum 40,000-50,000 tons of coal, which takes several days to unload.

This essentially requires a deep-water jetty and other infrastructure, the construction of which is yet another expensive proposition in comparison to mine-mouth projects. The proposed plants are to be located near a seaport, so as not only to facilitate coal delivery through conveyors, but also to meet large requirements of cooling water. Water requirements for the plant of this size are estimated to be over two billion gallons per day at full load.

Inter-connection and transmission infrastructure is to be created for dispersal of power generated by the proposed plant. Wapda, the power purchaser, is therefore responsible to construct high voltage transmission system at its cost, for which a detailed study needs to be conducted. One wonders why the government is promoting costly, and, more importantly, risky power project in spite of comparative advantages of using indigenous coal.

Many within the government discourage cheaper power projects, like hydroelectric and indigenous coal, to promote imported fuels. The government has recently decided to unbundling of Thar coal project into mining and power generation that would now be developed as separate projects. This methodology will attract additional investment in setting up projects based on indigenous coal.

Third, project is primarily aimed at international investor specialising in power project based on imported coal, as pre-qualification conditions are too stringent for a domestic investor to comply with. Potential investors need to have total net worth of not less than $125 million in case of corporation/consortia, whereas main sponsor of the consortium should have net worth not less than $50 million.

They are also required to have minimum ten years experience of developing and/or operating similar projects of not less than 300 MW capacity in any country. AES Corporation of the USA and Malakoff Berhad of Malaysia have already shown interest in developing the project.

It amounts to encouraging foreign investors and discouraging the domestic business. First, the IPPs should not be concentrated in the hands of a few foreign investors, for obvious reasons, and therefore present trend of monopolistic approach need to be arrested instead of promoting it further. Currently, International Power of UK, to quote as an illustration, owns and/or operates almost 60 per cent of total installed power generation capacity in private sector in the Wapda system. Likewise, operations of the KESC are in the hands of the consortium dominated by foreign investors.

Foreign investors are allowed to repatriate profits/dividends, which are large and growing in the power sector. Over the years, outflow of foreign exchange in large amounts would further strain the critical balance of payments position. Just in the month of July 2006, the foreign direct investment (FDI) inflow in thermal power was to the level of $22.7 million.

It will take at least six years from today for plant based on imported coal to go on stream and thus it will not serve the purpose of bridging the demand-supply gap in near future. The viability of proposed plant, which could achieve commercial operations in the year 2012, becomes questionable.

A sizeable investment in power generation by the IPPs may create additional 3,826 MW capacity by then to the existing Wapda system, whereas Wapda itself will add to its present power generation capacity in the range of 3,000 MW. Likewise, KESC plans to establish its own power plants and does not show interest to purchase electricity from the IPPs to be located in its licensed area.

As a first step, a detailed bankable feasibility study will require to be conducted for the integrated project based on imported coal. The study will address evaluation of imported coal usage, selection of power plant technology, plant location, load flow study, plant conceptual design, infrastructure and interfaces including transmission interconnection, environmental impacts, project schedule, cost estimates, preliminary financial evaluation and project finance-ability.

This will also require soil, geological, seismic and hydrological investigations and studies related to construction of jetty and other infrastructure required for the plant.

PPIB has recently decided to engage consultants for preparation of detailed terms of references (TOR) for the project feasibility study that is required to be undertaken by the pre-qualified investor at his own cost, expense and risk.

The preparation of the requisite feasibility study will ideally take about 16-18 months and cost millions of dollars. Thus, the studies entail substantial capital and other resources at risk on the part of investor, without guarantee of project being commercially viable.

Only on the completion of the feasibility study, the activities can commence for engineering and preparing design specifications for procuring the long lead plant machinery, primarily consisting of a pulverised coal boiler and one steam turbine generator required for each battery of 500-600 MW capacity.

About six months are required for preparation of the engineering, procurement and construction (EPC) specifications, firming up the source of coal supply, bid preparation by the EPC contractor, EPC bid evaluation, preliminary contract negotiations and contract award by the project sponsor.

From start of project engineering to installation, erection, commissioning and test running of the plant, a period of 50 months is considered achievable. This includes a 40-month construction period beginning with civil works for the foundation, and simultaneously, for jetty and other infrastructure, and ending at the substantial completion of installation work.

Thus, based on a practically reasonable EPC schedule, the power plant can be commissioned not earlier than six years from the date of issue of the Letter of Intent by the government, of course, subject to the investor’s will and commitment.

It is assumed that project funding could be arranged and other project development activities such as power purchase agreement and licensing could proceed concurrently. However, not a single power project, whether in public or private sector, has ever attained commercial operations in stipulated time period.

Finally, the proposed plant is focused for location near Karachi, within 100 km along length and breadth of the metropolis. There are a number of factors however unfavourable to the proposed location. As explained above, deep seawater is required for construction of jetty to facilitate berthing of coal-carrying ships of 60,000 to 80,000 Dwt capacity.

There is no feasible location near Karachi. Bin Qasim will not be an option since required land for the project—- minimum 1,000 acres—- is simply not available even if investor would be willing to pay high market price. Keti Bandar and Sonmiani are shallow seawater locations and thus not suitable for selection as the project site.

Environmental issues, affecting further de-gradation of highly polluted Karachi city, are of paramount importance. The operation of a coal-fired power plant emits massive amounts of greenhouse gases including carbon dioxide, nitrogen oxides and sulphur dioxide.

A standard 1,200 MW plant generates daily about 2,000 tons of carbon dioxide. Plant emissions also include radioactive elements, more radiation than a nuclear power plant. Coal burning also produces very large quantities of ash, some 400 tons of ash per day out of a plant facility of this size, which poses enormous dust control problem, in spite of developing the requisite ash disposal.

Though installation of emissions control devices, such as electrostatic precipitators, scrubbers and filter bags, are essential component of the coal-fired power plant, the flue gases that contain reasonable amount of emissions are dispersed into the atmosphere, in practice.

In conclusion, the government needs to review its strategy, carefully taking into consideration merits and demerits of the proposed project that is not even included in the National Energy Security Plan, and to rely on domestic coal. The government should accelerate activities related to exploitation, mining, processing and utilisation of indigenous coal, primarily for power generation.

 

[Neo]

HOME remittances touched a record $4.6 billion in the last financial year. And in the first two months of the new financial year (July and August) the remittances increased by 22.72 per cent over the same period last year or by $150 million to $811.85 million.

In August, the amount remitted through the banking channels was $435 million or 24.81 per cent over the same month in the previous year. Clearly, the amount sent home by overseas Pakistanis is on the rise constantly since 9/11 when it had dropped below a billion dollars.

This is happening despite the decline in the number of workers overseas. More money is coming from the US than from any other single country including Saudi Arabia and UAE. Workers abroad now prefer sending their earnings/savings home rather than retain them in foreign countries and get that frozen on one account or another by foreign governments.

The country’s finance managers are delighted as this inflow helps to reduce the negative balance of payments, which peaked at $5.5 billion last year. The country is facing a trade deficit of over $2.2 billion in the first two months of the current financial year.

But one powerful department of the government is not happy on tax exemptions on the sustained rise in home remittances though that helps the economy a great deal, particularly its external account. That is the Central Board of Revenue and its Chairman Abdullah Yousaf is very vocal about its concern in its area.

He is convinced, as are many others that some of the remittances represent tax evaded income sent abroad through the hundi system and then repatriated through the banking channels as home remittances. In fact, bringing the money home as workers remittances is regarded as a patriotic act.

Some of this could be tainted money of corrupt officials at home(or even ransom money) which could not be declared or revealed here as that could bring their conviction after they are sacked from their top jobs. So when the money returns home, that is all white and can be spent lavishly and openly.

It is difficult to check the money as it comes in as foreign companies may not issue certificates of payment. Nor can our labour attachés certify the authenticity of our earnings. If the government insists on such certificates, the senders of the money can produce fake or forged certificates and the whole exercise will be futile.

What could be possible, if at all, is checking the money going out of the country first through the hundi. But that is too tough an exercise as among the senders are senior corrupt officials including from the police and intelligence services, and they know their hundi system pretty well. It is an old, well anchored institution whose secrecy is well guarded.

So, if the money cannot be checked as it goes out, it cannot be verified as it comes back as earnings or savings of Pakisani workers overseas. So the practice may continue as long as we desperately need foreign exchange to balance external payments or reduce the current account deficit.

Once cleaned up through such a monetary u-turn, the money can be invested in several tax-free enterprises, particularly for real estate deals as has been happening in recent times. The rising inflow of remittances has pushed up the price of real estate in the country, particularly in the Defence Housing Authority of Karachi and other Defence housing societies which are increasing in number. It goes into the stock market for profitable speculation with too little tax paid. Clearly such money has a long tax- free run while the CBR looks at it helplessly and protests in vain.

The ill-gotten or untaxed money is sent abroad and used to bring in a great deal of goods tax-free or at concessional rates which is sold in the local market at high prices.

But many of the overseas Pakistanis complain on return, that the prices of many such items are low in Pakistan, it is no longer rewarding to bring in such goods for sale.

And yet, recent reports said the government was adding 700 more items to be brought in by overseas Pakistanis duty- free or at concessional rates. But will they be able to compete with the cheap Chinese goods in Pakistan?

All that is too frustrating for the CBR chairman who wants to be as rational as possible, more so when the World Bank and the IMF urge the CBR to raise the low-GDP ratio now at 10 per cent.

The CBR cannot urge the government to scrutinise the sources of remittances diligently and weed out the tax-free or tax-evaded money coming back continuously as honoured home remittances. If the government tries to do that, such money will not return through the banks or the inflow of such money may be stopped until safer times return.

The larger picture should be seen clearly. As crimes increase and kidnapping for ransom becomes more common, the money earned through this process has to go out or be obtained abroad to ensure the culprits security.

Similarly, as corruption spreads wider, and the sums involved becomes larger, the money has to be sent out or obtained in countries other than Pakistan to ensure the culprits’ safety. Similarly, if a person has a large tax evaded income, he prefers to send that out and receive it later as home remittances of some relative living abroad.

So such crimes within the country have to be checked and the widespread corruption come down. The tax evasion should curbed to check the informal economy becoming larger and larger.

Even otherwise, the efforts of the CBR to increase the revenues in a big way by enlisting the services of other agencies in anti-smuggling operations have been a failure. It had given anti-smuggling powers to the army, navy, coast guards and Frontier constabulary and Rangers. As those powers did not produce any great results, they were withdrawn six months ago.

And now the CBR has Rs950 million to acquire speed boats to check smuggling by the sea. But for spending that much money, the CBR wants a proper study of the anti-smuggling performance of the coast guards using its own speedboats. If the results of the study were not found very encouraging, the CBR may not deem it wise to spend Rs950 million on acquiring speed boats for its own anti-smuggling operation.

The CBR finds its permitted areas for raising revenues limited. But it sees plenty of opportunities for far larger tax collection if permitted which it is not. That makes the CBR to tax the taxed even more and face a storm of protests.

 

[Neo]

25 September 2006



ISLAMABAD — The World Bank has advised Pakistan to rationalise tariffs especially those of power and gas with a view to adequately facilitate foreign direct investment (FDI) in the country.
One of the failures of the present government, the Bank believed, is its inability to reduce the cost of doing business in Pakistan by not providing inexpensive and timely the local and foreign investors.
According to one safe estimate, also approved by some government officials privately, FDI could double within one year if various hurdles and impediments in the way of businessmen are removed by the government.
However, the concerned government officials frequently quote the new report of World Bank/International Finance Commission (IFC) which says "doing business became easier in India and Pakistan in 2005-06", adding that five reforms in India and two in Pakistan reduced the time, cost, and hassle for businesses to comply with legal and administrative requirements.
No other South Asian economy improved its business regulations in 2005-2006, ranking the region last in the pace of reforms.
India, as leading reformer in South Asia, has taken over the top spot from Pakistan in last year's report. India cut the time to start a business from 71 to 25 days and reduced the corporate background discussion with some officials revealed that the government urgently needs to simplify business registration,
cross-border trade, and payment of taxes, as well as easing access to credit and strengthening investor protection without which no meaningful investment could take place in the country.
"The problem is that we have too many laws, our bureaucracy is non cooperative and our tariffs, especially those relating to customs, are still high compared to other countries. Then we do not have proper infrastructure which is particularly in bad shape in transport sector. All these things have become a big hurdle in the way of the investors", an official said when approached.
He also said that while power rates were still high, the frequent electricity breakdown was further causing problems to the industrialists. He quoted an example of an investor from Libya who recently came to Pakistan and despite making all efforts, he could not get the required support to set up his business from the Board of Investment (BoI). "Later, he came to us and we helped him to some extent", he said adding that BoI needed to be made a vibrant organisation in a bid to providing all possible facilities to the investors in the country. Like Dubai and China, Pakistan should also provide instant infrastructure facilities to the investors under one roof if at all real local and foreign investment was to be attracted, he said.
A former senior official of the Planning Commission said that World Bank/IFC report has shown some improvement as far doing business in Pakistan was concerned. According to the report, he said, Pakistan was on 74 position in terms of providing infrastructure facilities to the investors which meant that, "we are still far behind and need to do some thing concrete to remove various hurdles being faced by the investors." He said an investor faces lot of problems in getting electricity, gas and water connections for establishing his factory. Moreover, the cost of the land has become so expensive that it was becoming more and more difficult to set up new industries in the country.
He said that the government must undertake second generation reforms to address various serious issues with a view to lowering the cost of doing business in Pakistan.
People sitting in the local offices of donor agencies also believed that cost of doing business in Pakistan was still very high and was causing frustration to the investors. They have proposed that so-called 'one window operation' should be made possible with a view to offer timely and inexpensive infrastructure facilities to the local and foreign investors.

http://www.khaleejtimes.com/Display...usiness_September805.xml&section=business&col=

 

[Owais]

Canadian firm to invest $5 billion in coal gas project


NEW YORK (September 26 2006): Pakistan and a Canadian oil and gas company have signed a memorandum of understanding (MoU) here at the Roosevelt hotel on Monday relating to the exploration, development, production and commercialisation of coal bed methane (CBM) in Sindh.

The company expects to bring foreign direct investment of around $2.05 billion for the initial production phase and an ultimate capital outlay exceeding $5 billion. Cathy Oil and Gas Limited executive chairman Robert Muller and Pakistan ambassador Mehmud Ali Durrani signed the MoU. President General Pervez Musharraf presided over the MoU signing ceremony.

Speaking on the occasion, the President hoped the maturation of the MoU would bring relief to the people of Thar desert, who were deprived of the basic necessities of life. He said Pakistan would provide all support to the company and facilitate in their work.

The President in a lighter vain said this would be the second CBM after the one he had initiated in Havana at his talks with Indian Prime Minister Manmohan Singh. "I hope the two CBMs succeed." In this context of this MoU, the CBM stands for coal bed methane.

Muller in his brief speech said the three-stage project involves preliminary airborne reconnaissance survey across the Sindh province, including the use in Asia of the US-restricted airborne gravity gradiometer technology. He said this data will be used to develop a geological model of the Indus Basin to identify areas for exploring coal bed methane (CBM).

Cathy expects to spend over $200 million on one of the largest CBM exploration programmes by global standards involving seismic lines and exploratory drilling over extensive areas to identify second stage exploration targets.

The final exploration stage of the project involves additional drilling, detailed geological surveys by global standards over an extensive area. The last stage--production--involves setting up the CBM production wells and gathering systems.

Gas produced will then be fed into Gas to Liquid Plants (GTL) to produce value-added products such as diesel and jet fuel. Muller said another company--Jacobs Engineering--will design and fabricate GTL plants of 10,000 barrel per day capacity for Cathy.

He said Cathy expects a combined capital outlay of around $2.05 billion for the initial production phase and an ultimate capital outlay exceeding $5 billion.

He said the project would bring direct employment to 50,000 people and more than 100,000 people would be employed in the connected downstream industry.

He said the project would bring immeasurable economic and technological benefits to Pakistan. In addition to contributing to raising the value of annual tax revenues, the project and the value of the CBM extracted ($10 billion) will have a significant impact on Pakistan's balance of trade, especially its energy deficit.

He said Cathy's initial investment of $2.05 billion, which represents over two-third of Pakistan's current foreign direct investment rate, will also lead to direct and indirect employment.

"The company estimates that total and support employment in both the gas processing and gas plant manufacturing will be around 50,000. This could result in an additional 100,000 indirect jobs."

Muller said as part of this project, Cathy will also establish a centre of excellence in the geo-data management and remote sensing and train the department of mining staff in advanced technologies for groundwater management, geological hazards identification, agricultural prioritisation, environmental hazard analysis and mineral and petroleum exploration. He said these skills will be used by Pakistani geo-scientists for both the domestic and international projects.

Extraction of the CBM from the Indus Basin coal is expected to produce an average 20 barrels of oil for every barrel of synthetic diesel or jet fuel produced.

Gas production for a single 10,000 barrel per day capacity GTL plant is expected to produce some eight million gallons of water per day. This water will be available for a wide-range of uses in Pakistan. In the southern region of the exploration, it would be brackish and in the northern it would be potable, Muller said on a query from President Musharraf.

 

[Owais]

July-August portfolio investment down 50.9 percent



ISLAMABAD (September 26 2006): Though foreign direct investment (FDI) in Pakistan during July and August 2006-07 soared by 62.65 percent to $375.4 million, the withdrawals from portfolio investment were on the rise that dipped by 50.9 percent ($33.1 million) to $31.9 million from $65 million recorded in corresponding period of last fiscal year, the State Bank of Pakistan (SBP) reported on Saturday.

The most depressing thing of the State Bank data was that investors withdrew about $29.6 million from portfolio investment. Singapore was the only country which brought in $43.6 million portfolio investment.

During the first two months of the current fiscal year, the amount of FDI rose to $375.4 million against $230.8 million of 2005-06, but portfolio investment declined to $31.9 million against $65 million in corresponding period of last year. Therefore, on balance, total foreign private investment (FDI and portfolio investment) in two months increased by 37.7 percent to $407.3 million from $295.8 million in corresponding period of last year.

The central bank in its third quarterly report, released a few months back has also warned the government of surging portfolio investment because of its high volatile nature as its sudden withdrawal was not only depressing the stock prices but also reducing central bank of the recipient country's ability to maintain its currency value.

"The surge in portfolio investment is always seen with concern due to the high degree of volatility attached to these flows since its sudden withdrawal depresses the stock prices", the Bank says.

The Bank in its report has also expressed concern over the utilisation of privatisation proceeds for financing non-developmental expenditures and its inclusion in Foreign Direct Investment (FDI), suggesting to the government to focus on non-privatisation FDI for bringing in new technology and market access to accelerate growth.

According to the break-up of investment by region, developed countries made total investment of $262.4 million including FDI $263.9 million and withdrew portfolio investment of $1.5 million. The developing economies invested $111.6 million (FDI $78.5 million and $33.1 million portfolio investment).

Among developed countries, Western Europe made total investment (FDI and portfolio) of $117 million and European Union, $102.5 million against $89.8 million and $59.1 million last year. Besides, under unspecified head (investment by IFIs) was $33.2 million. This included FDI of $33 million and portfolio investment of $0.2 million.

Among developing economies, Caribbean Islands invested $2.8 million in FDI and withdrew $0.5 million portfolio investment during the period under review. Africa, including Libya, Egypt, Mauritius, South Africa and other African countries invested $13.1 million FDI, among which only Mauritius made direct investment of $12.7 million. However, African countries made zero portfolio investment in Pakistan during the period.

Asian countries (West Asia, South, East and South East Asia) made total investment of $96 million including $62.4 million FDI and $33.7 million portfolio investment.

The break-up of investment further says that United States was the biggest investor in Pakistan totalling $122.3 million with $117.1 million FDI and $5.2 million portfolio investment. United Kingdom (UK) was next with total investment of $67.5 million, including FDI of $65.4 million and portfolio investment of two million dollars.

However, in terms of direct investment, United Arab Emirates (UAE) was third ($48.2 million) followed by Switzerland with $20.8 million, Netherlands $15.8 million and Luxembourg with 170.6 million dollars. Saudi Arabia withdrew $3.4 million FDI.

 

[Owais]

Japan pledges $207 million ODA for two projects


ISLAMABAD (September 26 2006): The Japanese government on Monday pledged $207 million Official Development Assistance (ODA) for two projects pertaining to road construction and power transmission. Among this ODA amount (normally soft loan), $174 million would be spent on Indus Highway Construction Project (Phase-III) and remaining $33 million on Dadu-Khuzdar Transmission System Project.

Japanese Ambassador to Pakistan Seiji Kojima announced this here in a meeting with Minister of State for Economic Affairs Hina Rabbani Khar. The transport is an important sector of the economy. In Pakistan, road transport accounts for 89 percent of passenger traffic and 96 percent of the freight traffic.

It is, therefore, of great significance for the best use of the road network that it should not only be maintained but also be widened and rehabilitated.

The Indus Highway (N-55) is shorter than the existing National Highway (N-5) by 500-km, but it being unfinished has overloaded the Indus Highway with traffic, which is one of the major bottlenecks in smooth flow of traffic.

The Indus Highway is the key route for domestic distribution that connects Peshawar with the main seaport of Karachi. In comparison to N-5 that starts from the east shore of the Indus River, the Indus Highway starts in the west shore.

The completion of the Indus Highway (N-55) would be instrumental in bringing socio-economic progress to less developed areas. Larkana and Dadu in the northern Sindh that are famous for the production of rice is the central part of the third phase of Indus Highway. The completion of the third phase will contribute to the economic development of Sindh, it will significantly help in improving the transportation of agricultural goods to Karachi that is the main port city. The improvement in the market access will result in an improvement in the business and economic activities.

The power consumption in the agriculture sector is large as it is mainly used for pumping underground water. In addition, the electric power demand has also risen in the refrigeration storage of farm products, in the raw cotton industry and in the mineral industry. Almost no or insufficient power supply through the main line expanding from Gudu in Punjab hinders the development of agriculture and other industries.

The construction of the hydropower plant is difficult because the amount of the rainfall is very little in this province and the thermal power plant construction is also difficult. So the demand for transmitting the electric from another areas is high in this region.
​

 

[Owais]

Accord on trade with US soon: Musharraf


NEW YORK (September 26 2006): President General Pervez Musharraf has said that agreement on bilateral trade and market access with the US will be finalised soon. He said this while speaking at a dinner, organised to raise funds for the National Commission for Human Development Fund at a local hotel on Sunday.

Referring to Pak-US relations, the President said that progress in discussion on bilateral trade and market access was likely to materialise soon as the talks had paved ways to success. He said that Pakistan had reached agreement of F-16 deals, and added: "Best possible deal is given to us."

He said that there was complete unanimity of opinion between President Bush and himself on issues of mutual interest. "We have confidence and trust in each other and are determined to fight together against evils."

The President, addressing the Pakistani community, gave details of Pak-US relationship, state of Pakistan's economy, situation in Balochistan, fight against terrorism, fear of the process of Taliblisation, responsibilities of Pakistani's living abroad and needs for healthcare, education, poverty alleviation and unemployment.

President Musharraf said that Pakistan's internal and external policies were in the right direction. He said he would get the women empowerment bill passed by parliament. The President, in his more than 120-minute extempore speech, stressed the need for deal with national and international issues with prudence and keeping the national interest supreme.

He said that Pakistan's literacy rate had gone up, the gross domestic product (GDP) had doubled and per capita income had gone up, investment was coming in and the economy was booming.

He said that Pakistanis, living in the US, should adopt this country and abide by its rules. He said that good conduct of Pakistanis would create an image of their country of origin and its advantages would be many. He said that he was a soldier and "a man of field."

"My army has confidence in me and follows me," he said, and added that it was necessary that people should be optimistic about their future. He said: "I assure you Pakistan is on the path of progress."

 

[Owais]

Pakistan seeks joint ventures with Bahrain


ISLAMABAD (September 26 2006): Pakistan is hoping to cash in on Bahrain-US Free Trade Agreement (FTA) by encouraging its business community to strike up joint ventures. Pakistan embassy deputy head of mission Shaukat Ali Mukaddam said, there are good opportunities for joint ventures between Bahrain and Pakistan business communities, especially in the textile and food industries, private TV News channel reported.

A clause in the FTA will allow over the next 10 years for 60 million linear meters of textiles to be imported to Bahrain and then after production exported to the US.

He said, business communities in Bahrain and Pakistan should take full advantage of this. "Pakistan is the third largest textile exporting country in the world and our leather industry is advanced, so we could take leather from Pakistan and items could be manufactured in Bahrain," Mukaddam added.

"Also, we are one of the largest fruit producers, so we could bring fruit to Bahrain and they could export canned fruit and juices. There are a lot of opportunities," he said. Mukaddam said, they would be highlighting Bahrain at an investors' conference for expatriate Pakistanis in Islamabad in mid-December.

The Joint Economic Committee, which seeks economic, trading and investment co-operation between Pakistan and Bahrain, will also hold its next session in Islamabad in the first quarter of 2007.

Mukaddam said, "We want to invite the Pakistani investors to come to Bahrain, we have informed the community in Pakistan and are waiting for feedback. We hope our businessmen will cease the opportunity."

 

[Owais]

Rising steel prices disappoint local importers


KARACHI (September 26 2006): Chinese galvanised steel prices have shot by $30 per tonne during the last week due to price spike of zinc at London Metal Exchange (LME), trade sources said on Monday. They said that Chinese prime material of galvanised coil has become costlier by $30 per tonne to $750 per tonne, during last week, as the rising zinc prices at LME pushed steel prices upward.

"The rising steel prices on the international front have extremely disappointed the local importers, who were anticipating a steep decline in the world's steel prices during this month (September)," said a Karachi-based importer.

Importers are of the view that steel prices, after touching peak, are coming back to previous levels and no one wants to take a major risk in that situation. Senior traders said that a few importers had hardly booked a meager quantity at the rate of $750 per tonne and majority of them was currently sidelined and meticulously monitoring the international trend.

"I think around 2,000 to 3,000 tonnes of galvanised coils have been booked," a trader said. They pointed out that the recent price hike of galvanised steel coils is for November shipment. "Our (importers) earlier placed orders at the rate of $720 per tonne are now on the way to Karachi port and the booked commodity would be arrived here shortly, so we prefer to stay idle for some more days," said another importer.

He further said that the importers intend to start placing their orders in October as they are expecting the market to get settled by that time. "If market gets settled, then we would try to bring Chinese material here and we are still optimistic that galvanised coil prices would be cut down by $50 per tonne to $700 per tonne in the next few weeks," he added.

"We are not in a hurry," said a leading importer, adding that construction activities across the country are dormant these days and people usually avoid starting construction of their houses or any other project, therefore, we would import the material when the prices would decline.

He dispelled the impression that the country could witness shortage of the commodity due to lesser steel imports, and said that previous contracts were being actualised and the already booked material was in the pipeline.

The importer said that steel trade would be viable for local importers when international prices of hot-roll material would come down to $425 per tonne, and of galvanised coil rates to $700 or $710 per tonne.

"Hot-roll coil is, in fact, the base material for us and if its prices cut significantly then it would put a positive impact on the prices of other materials," he added.

 

[Neo]

NEW YORK (updated on: September 26, 2006, 17:33 PST): US Senator John Kerry has called for increasing US development funds for Pakistan as part of the strategy to counter extremism.

"(We) must use economic leverage to ensure the Taliban no longer finds sanctuary and recruits in Pakistan", he said in an op-ed article in The Wall Street Journal.

Noting that Washington gave Pakistan only $300 million in economic support last year. Kerry said the amount was insufficient as that's "what we spend in a day in Iraq."

"We need to give more in development funds earmarked for specific projects that help undermine radicals and demand more in return from (President Musharraf) government," he said.

Kerry said that US seemed to have forgotten Afghanistan. "It is clear the Taliban and al Qaeda have not," he pointed out.

"We cannot afford to repeat the mistakes of the past," Kerry said. "The US must not cut and run from the real frontline in the war on terror. We must recommit to victory in Afghanistan".

 

[Neo]

MOSCOW (September 26 2006): A Russian company is in talks to supply electricity to Pakistan over a 30-year period in a deal worth up to $90 billion (70 billion euros), business daily Kommersant reported on Monday.

Electricity would be supplied by Russian export monopoly Inter-RAO from plants under construction in Tajikistan and Kazakhstan, the company's deputy general director Alisher Kalanov told the newspaper following negotiations with the Pakistani government last week. Exports could begin within six years and would require investment of several hundred million dollars, he told the paper.

The deal would be worth between 2.5 billion and three billion dollars per year over 30 years, supplying 50-60 billion kilowatt-hours per year to Pakistan, whose current annual production is 82 billion kilowatt-hours, the paper said.

Last year Russian electricity monopoly Unified Energy Systems, which controls 60 percent of Inter-RAO, said it was looking into the export of electricity from two hydro-electric plants under construction in Tajikistan and a thermal power plant being built in Kazakhstan, all due to come on line in 2009, the paper said.

However, exporting electricity from the plants to Pakistan in a cost effective manner would require the building of electricity cables across Afghanistan, a geopolitical complication that could undermine the viability of the project, local experts told the newspaper. The delegation also discussed the possibility that Inter-RAO could help build an electricity plant in Pakistan, Kalanov said.

http://www.brecorder.com/index.php?id=480349&currPageNo=1&query=&search=&term=&supDate=

 

[Neo]

KARACHI, Sept 25: Foreign private investment in Pakistan’s stock market has suddenly jumped in September. Almost all the investments came from the United States and the United Kingdom.

Official figures released by the State Bank showed that up to September 22 this year, an investment to the tune of $42.096 million flew into Pakistani stocks. It was much higher than the portfolio investments made in July and August that totaled $31.9 million.

The figures showed that only investors from the US and the UK were active while the usually active Singapore, the UAE, Saudi Arabia and some European countries remained on sidelines. The US invested $26.730 million and the UK $16.371m in September.

Experts said most of the investments went in the oil sector, while telecommunications and cement also attracted some investments. Analysts said if the pace of portfolio investment continues for the whole year, it might cross the last year investment. During 2005-06, a total of $351.5 million was recorded as portfolio investment.

The inflow of foreign direct investment (FDI) also went up significantly during the first two months of the current fiscal year. During July-August 2006-07, FDI reached $375.4 million against $230.8 million during the corresponding period last year, showing a rise of 63 per cent.

Pakistan had received a record FDI of about $3521 million during 2005-06, including the privatisation proceeds. It had been the biggest help to the government struggling to meet the record trade deficit.

The rising import has threatened the balance sheet of the country’s foreign exchange account and the government’s effort to increase exports and reduce imports remained failure for the last couple of years.

The fear of further widening of trade deficit has compelled the State Bank to take care of the situation. The SBP advised banks to improve their efficiency to increase the Pakistani workers’ remittances. The SBP has set a target of $6bn for the current fiscal year remittances, while last year it received a total of around $4.3bn.

The analysts said the high portfolio investment would improve the country’s image abroad and the higher FDI was a sign that the country had potential for the foreign investment.

However, they say FDI would increase with the privatisation of government’s stakes in oil companies like Oil and Gas Development Company. They were of the view that the telecom sector had already received maximum FDI and no significant investment in this sector looked possible.

The analysts said for the last seven years there had been an effort on the government level to attract Arab country’s wealth but could hardly sell PTCL and KESC.

However, fresh investment from the Middle East has started coming into the financial sector, real estate and construction. The analysts believe that the real estate and construction had tremendous potential of growth and had great attraction for the Arab countries’ investment.

 

[Neo]

ISLAMABAD: Prime Minister Shaukat Aziz on Monday said that Pakistan was geared to become the regional hub for Information Technology and Telecom business due to the deregulation and privatisation policy, opening up of telecommunication sector, the competitive and comparative advantage due to the availability of highly skilled human capital, world-class infrastructure and reduced cost of doing business has stimulated phenomenal growth as well as attracted investments.

Prime Minister was talking to a delegation of Ericsson headed by Ragnar Back, Chairman Ericsson Operations in Central and Eastern Europe, Middle East and Africa who called on him at the PM's House here Monday.

The prime minister said, "Telecommunication, today, is the fastest growing sector of the country with 27 per cent teledensity and he country has 37 million cellular phone subscribers and the number is fast growing".

He said the use of cellular phones among low-income subscribers was growing. In rural areas the government was providing the facility of phones through the system of wireless local loop. Prime Minister said Pakistan has come a long way in developing the Information Technology industry.

He said the total size of Information Technology business in Pakistan has reached about $ 2 billion with 50 per cent growth per annum during the last three year and this includes domestic industry, hardware and export of software and Information Technology enabled services.

He said government was in a process of setting software technology parks at Karachi Lahore and Islamabad. Islamabad, the Prime Minister said is rapidly growing as an Information Technology and telecom hub.

Chairman Ericsson Operations in Central and Eastern Europe, Middle East and Africa Ragnar Back apprised the Prime Minister of the plans of Ericsson to expand business in Pakistan. He said presently the company has employed about 700 professionals in Pakistan and the number will increase to 1000 by the end of this year. Ragnar Back emphasized the strategic importance of Pakistan and said deregulated markets such as Pakistan are experiencing exponential growth and competition. Ericsson continues to focus on strategic partnerships in these growth markets. Ragnar Back said Ericsson in collaboration with Higher Education Commission and Government of Punjab is working towards the launch of University of Engineering Science and Technology, at Sialkot in 2008. The delegation including Bo-Erik Dahistorm, President of Ericsson Middle East and Zibber Mohiuddin, President and CEO of Ericsson Pakistan praised Pakistan's favourable policy framework. They presented felicitations on the phenomenal growth and development of telecommunications sector in Pakistan and said it is due to dynamic and visionary leadership of President Pervez Musharraf and Prime Minister Shaukat Aziz. The Ericsson delegation reassured the Prime Minister that Ericsson's top priority in Pakistan was to continue developing the Telecom industry of Pakistan.