Pakistan Economy - News & Updates - Archive

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Tremendous investment opportunities in upcoming LNG, LPG projects: Jadoon
Tuesday October 17, 2006

ISLAMABAD: Federal Minister for Petroleum and Natural Resources Amanullah Khan Jadoon has said that there existed tremendous opportunities for local and foreign investors in the upcoming Liquefied Natural Gas (LNG) and Liquefied Petroleum Gas (LPG) projects.
He stated this while talking to a delegation from Dawood Group of Companies led by its chairman Hussain Dawood who called on him here on Monday to discuss investment potential in the oil and gas sector.

He said that the government was taking concrete steps to bridge the energy supply and demand gap by exploiting indigenous resources and through import gas from Iran, Turkmenistan, Qatar after 2010.

The minister said that in order to meet the growing economic needs the government was working on import of LNG and LPG fuels and invited the Dawood Group of companies to avail investment opportunities in these upcoming projects.

Chairman Dawood Group thanked the minister for this gesture and expressed his group?s willingness to participate in the LNG projects. He appreciated the governments? efforts for introducing investor-friendly policies in the oil and gas sector which has been helped to attract investment in the country.

Senior Joint secretary (Development) Jehangir Khan and Director general (Gas) Saeedullah Shah were also present during the meeting.

USAID Launches $11.5 Million Child Health Program in FATA

Islamabad: The U.S. Agency for International Development (USAID) has awarded a grant of $11.5 million for implementing a three-year program on providing child health services in FATA to Save The Children, a US-based nongovernmental organization.

Beginning October 1, 2006, the program will deliver a health package for FATA children up to the age of 5, covering immunization and treatment for lung infection, diarrhea, newborn care and nutrition.

The package will also strengthen the Agency Headquarter Hospitals (AHQH) and Agency Health Management Teams (AHMT) that are working to achieve quick and visible improvements. The program?s challenge will be to foster public support for further improvements in the region?s health system.

The main purpose of the USAID-funded program is to increase community acceptance of principles and practices essential to the health of the region?s children. It is targeting an estimated 1,512,00 women of reproductive age in FATA with activities to raise awareness of the importance of hygiene, nutrition, neo-natal care and other preventive measures for common ailments remain abysmally low among the locals.

The FATA Child Health Support Program is part of the $3 billion in aid that the U.S. Government will provide to Pakistan over the next five years to improve education, health, governance, economic growth and security.

 

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July-Sept workers remittances hit $1.233 billion

KARACHI (updated on: October 17, 2006, 19:13 PST): Pakistan received US $1,233.59 million as workers' remittances during first quarter (July- September, 2006) of current fiscal year, against $1,002.65 million in corresponding period of last fiscal registering increase of $230.94 million or 23.03 percent, the State Bank of Pakistan announced here on Tuesday.

The amount of $1,233.59 million includes $0.98 million received through encashment and profit earned on Foreign Exchange Bearer Certificates (FEBCs) & Foreign Currency Bearer Certificates (FCBCs), the SBP said.

In Sept 2006, Pakistani workers remitted $421.74 million as against $341.10 million in Sept, 2005 depicting increase of $80.64 million or 23.64 percent.

The inflow of remittances during first quarter (July - September, 2006) from USA, Saudi Arabia, UAE, GCC states (including Bahrain, Kuwait, Qatar & Oman), UK and EU countries amounted to $311.87 million, $242.79 million, $190.82 million, $173.47 million, $102.23 million and $36.43 million respectively as compared to $283.33 million, $174.32 million, $141.72 million, $130.79 million, $110.96 million and $26.85 million.

Remittances from Canada, Australia, Norway, Switzerland, Japan and other countries in the first quarter amounted to $175.00 million as compared to $128.51 million in corresponding period of last fiscal.

The monthly average remittances for July-September, 2006 comes to $411.20 million as compared to $334.22 million in same period of last fiscal.

The inflow of remittances into Pakistan from almost all countries increased last month as compared to Sept, 2005.

According to break up, Pakistan received workers' remittances during September, 2006 from USA ($108.28 million), Saudi Arabia ($77.45 million), UAE ($65.85 million), GCC countries - including Bahrain, Kuwait, Qatar & Oman ($58.05 million), UK ($32.85 million) and EU countries ($11.83 million) as compared to corresponding receipts from respective states during Sept, 2005 i.e. $94.40 million, $54.76 million, $48.70 million, $45.30 million, $38.57 million and $9.70 million.

Remittances from Canada, Switzerland, Australia, Norway, Japan and other countries in September, 2006 amounted to $67.25 million as compared to $48.50 million in September, 2005.

 

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22.5 million tons wheat production target fixed

ISLAMABAD (October 18 2006): The government on Tuesday fixed 22.5 million tons wheat production target for Rabi 2006-07, while production of 12.4 million cotton bales would be the first estimate for the out-going Kharif season.

The Federal Committee on Agriculture (FCA), which met with Federal Minister for Food, Agriculture and Livestock (Minfal) Sikandar Hayat Khan Bosan in the chair, reviewed production of Kharif corps, water situation and its availability for Rabi season, along with availability of inputs and production targets for Rabi crops.

The meeting was informed that overall growth of the agriculture sector was positive, but in some areas natural disasters like floods and monsoon rain destroyed the crops in two districts of Sindh and Punjab each.

Later, addressing a press conference at the Ministry, the Minister said that the government was focussing on the development of agriculture sector. He said, "We are also expecting good growth in livestock and fisheries sub-sectors". The first production estimates of Kharif crops would go up during second and third reviews, he added.

About surplus wheat, he said that currently the federal and provincial food departments have a surplus stock of nearly two million tons. The fate of this stock would be decided after Ramazan. However, the government would give priority to domestic consumers, he added. About urea import, the minister said that the Ministry would import nearly one million tons urea to meet domestic demand.

The production of sugarcane would be 51.8 million tons, which is 16 percent higher than last year's production, while rice production will maintain the record level of 5.4 million tons as of last year.

Similarly, cotton production, in the first estimate, would be 12.4 million bales, which would be almost equal to last year's production recorded in the national account, but it would be 1.4 million less against the fixed target of 13.8 million bales for Kharif season.

TARGETS FOR RABI CROPS 2006-07

WHEAT: The Ministry fixed a target of 22.5 million tons wheat production for the next season, with Punjab 17.8 million tons, Sindh 2.75 million tons, and 1.25 million tons for NWFP and 0.7 million tons for Balochistan.

GRAM: Total production of gram has been set at 706,000 tons, with Punjab 605,000 tons, Sindh 55 tons, NWFP 20 tons and Balochistan 26 tons.

LENTIL: It would be sown on an area of 47,000 hectares, with production estimate of 28,000 tons.

POTATO: The potato crops would be sown over an area of 114,000 hectares, with production of 2,000,000 tons.

ONION: The area target for sowing of this crop is estimated 126,000 hectares with production target of 2,103,000 tons for 2006-07.

WATER SITUATION: A representative of Indus River System Authority (Irsa), present in the meeting, informed the committee that water availability for Rabi would be 14 percent less than the normal availability of 36 MAF, but 3 per cent more than last year's availability.

The water storage situation as on October 17 was 5.28 MAF at Tarbela, 3.98 MAF at Mangla and 0.137 MAF at Chashma, with total storage of 9.36 MAF.

FERTILIZER POSITION: Availability of urea fertiliser would be 3 million tons against the requirement of 2.8 million tons, while 0.1 million tons urea will be imported during Rabi season while the availability of phosphatic fertiliser will be 1.5 million tons against last year's availability of 1.225 million tons.

SEED POSITION: Availability of seed in the country will be 217,357 tons, which is 21.56 percent of total requirement. Scientifically, wheat certified requirement is 20 percent.

HERBICIDES: Presently, 327 herbicides are registered for Rabi 2006-07 crops. The import of herbicides for the current Rabi crop is 20 percent more than the planned imports.

CREDIT: Last year's credit target was Rs 130 billion, against which Rs 137 billion was disbursed. For the current year, the target is Rs 160 billion. At present, there are 1.6 million borrowers and the number could increased to 3 million borrowers. Weather situation: The Meteorological Department forecast 25 percent more rains and snowfall during coming Rabi season.

 

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Pakistan's economic growth more vulnerable than India and China: World Bank

M ISRAR KHAN & SAQIB FAROOQ
ISLAMABAD (October 18 2006): The World Bank on Tuesday said economic growth in Pakistan is more vulnerable than India and China, as it has few cushions (reserves) to finance external shocks compared to these two important countries of the region.

John Wall, the World Bank Country Director, Pakistan said on the occasion of presentation of report 'Can South Asia End Poverty in a Generation?', "Growth in Pakistan is more vulnerable than India and China" he said this in the context of financing increasing trade and budget deficits.

He further said though Pakistan has made major changes in its policies in last 15 years, yet investors trust has to be developed to enhance inflow of private direct investment and ultimately sustaining growth.

Commenting on low tax-GDP ratio, Wall said that Pakistan has the potential to increase it by 5-6 percentage point if it manages to broaden the tax base.

He also said that in Pakistan nobody is serious in paying taxes and asked is there any example of punishment to tax evader in whole of South Asia? In USA, if some one is found guilty of tax evasion, he is liable to maximum 15 year imprisonment.

Infrastructure deficit in Pakistan is hampering growth and its fiscal space which is growing less than four percent annually is too little to finance this deficiency, he added.

Shekhar Shah, Chief economist from Delhi and author of the report during his presentation said that despite sizeable economic growth, south Asia is still 30-40 years well behind East Asia. East Asia experienced high economic growth on account of high FDI inflow while South Asian economies depend mainly on remittances.

Shah said even when poverty is defined in absolute terms, such as people living on less than $1 a day, reducing the number of people living below this level to zero cannot in any sense be considered as "ending" poverty.

"The deprivation suffered by people who live on two dollar a day-or even $10 a day-is so severe that they too should be considered poor.

Furthermore, as codified in international declarations such as the Millennium Declaration, poverty has many dimensions, including ill-health, illiteracy, unsafe drinking water, sanitation and environmental degradation", he added.

While responding to a question, he said that the increasing fiscal and trade deficits are not related to the economic growth rate directly but have to be managed and reduced with the passage of time.

The inflow of FDI and NGOs work as incubator is a temporary and initial help. Presently, higher growth rates of 8-9 percent are required to reduce the inequality gaps, which is on the rise and benefiting the rich class mostly.

However, higher growth rates have its impact on the overall situation, and the benefit reaches to the poor also though not proportionately, he maintained.

 

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UN Development Fund: Pakistan urges raise in allocation

UNITED NATIONS (October 18 2006): Pakistan has called for a "fair increase" in the allocation for the UN's Development Account set up in 1997 to fund technical co-operation projects for the benefit of developing countries.

Speaking in the General Assembly's budget committee, Pakistan's delegate Bilal Ahmad Virk wondered whether the current level of the account - 67 million dollars realised over five bienniums - justified declaring development as one of the UN's key pillars of activities.

"It becomes stark when compared with over 5 billion dollars that the UN spends on maintenance of peace and security, the crisis which often arise from the 'politics of scarcity', inadequate attention to socio-economic development and poverty eradication," he added.

Virk, who is a member of the National Assembly, was participating in a debate on the financing of the Development Account and construction of additional UN facilities in Addis Ababa and Vienna.

He called for a "quintessential increase" in the Development Account so as it can make a meaningful and significant contribution to member states' national efforts to implement the Millennium Development goals (MDGs) and other internationally recognised targets in the fields of human rights and sustainable development.

The Pakistan delegate said the Account's core objectives were capacity-building via individual economic and technical co-operation projects at the sub-regional, regional, and inter-regional levels, and it was a valuable complement to, and not a substitute for, other development activities.

Virk said it was vital to identify predictable financing, as many projects ended up orphaned. He reiterated that savings should not come at the cost of normal programme activities or result in unnecessary downsizing, although all United Nations departments and offices should continue to enhance efficiency in delivering their mandated programmes and services with the target of $200 million for the Development Account in mind.

He also expressed support for construction of additional office facilities for the Vienna International Centre and the Economic Commission for Africa (ECA).

 

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New Islamabad airport design not yet approved

RAWALPINDI (October 18 2006): The Government has not yet approved the design of the New Islamabad International Airport (NIIA) submitted by five international construction companies to Managing Board of Civil Aviation Authority (CAA).

The CAA Managing Board has not so far held the meeting for final approval of the design which would also be presented to Prime Minister Shaukat Aziz for final approval, said a sources in the CAA while talking to Business Recorder.

These companies have presented the designs in a meeting of the board and representatives of these companies briefed the meeting about their designs of NIIA, the source said and added that the company, whose would design got approved, would be appointed as consultant for this Rs 30 billion mega project.

The sources said that the initial work of airport has been kicked off and by the end of this year groundbreaking ceremony would be held. Now so much work has been done that can't be reverted, the sources maintained. They said that the requisite land for the project has been acquired and full payment was made to landowners.

 

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Hungarian firms eager to invest in Pakistan

ISLAMABAD (October 19 2006): Hungarian Ambassador to Pakistan, Bela Fazekas said a number of leading investors from his country are interested to invest in various areas in Pakistan taking advantage of investment friendly atmosphere available here.

He was talking to Federal Minister for Privatisation and Investment, Zahid Hamid here on Wednesday. Fazekas said liberal policies in the region, excellent investment climate and unlimited potential had made Pakistan an attractive destination for the investors.

He said Hungarian investors were ready to enter into joint ventures with Pakistani companies. The ambassador said that Pakistan was an important export destination for Hungry with a huge market for the cellular mobile sets of Nokia among others.

The Federal Minister briefed the Hungarian envoy about the investment and privatisation scenario in Pakistan.

 

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Vast investment scope for Norwegian firm in Balochistan: Ghani

QUETTA (October 19 2006): Balochistan Governor Owais Ahmad Ghani has said that there are tremendous opportunities for investment in different sectors of activity including Gwadar. While speaking to a delegation of foreign investors here on Wednesday, he said, "We would not only welcome foreign investment in the province but would also encourage them.

The delegation comprised Norwegian Company Aqualyng, Green Energy Development based at Dubai and Micro Vision Company representatives. The delegation told the Governor that purpose of their visit was to view opportunities of investment in various sectors in Balochistan, adding that they were interested in mining, minerals, electricity and supply of water cleaning plants.

The Governor apprised the delegation of steps so far taken in these sectors and further opportunities, and said: "We would welcome foreign investment in these sectors." He said steps were underway to make Gwadar a modern port and planning was being made for coming 50 years. He said the work on building a new modern airport for Gwadar would also be started soon.

 

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CDWP to consider 36 projects costing Rs 269 billion

ISLAMABAD (October 19 2006): Following the directives of Prime Minister Shaukat Aziz, the Ministry of Industries has finalised a plan for expanding the network of Utility Stores Corporation (USC) by establishing 16 distribution centres and 440 new outlets costing Rs 812.17 million.

In this regard, the Ministry has submitted PC-1 to the Planning and Development (P&D) Division, which will be considered by the Central Development Working Party (CDWP) in its meeting on Thursday.

The CDWP meeting, which will be presided over by Planning Commission Deputy Chairman Dr Akram Sheikh, will consider a total of 36 projects valuing around Rs 249 billion. In the energy sector, the planning body, which has the power to approve projects valuing Rs 500 million and refer the schemes above this amount to Executive Committee of National Economic Council (Ecnec), will take up eight projects.

PROMINENT AMONG THESE SCHEMES ARE: Rs 57.6 billion land acquisition of Kalabagh dam; Rs 27.8 billion Basha dam project land purchase; Rs 0.8 billion for detailed engineering design and tender document; and Rs 67 billion for land acquisition of Akhori Dam project; Rs 1.6 billion for second rural electrification project in Balochistan; Rs 150 million for allocation of funds for the feasibility studies of six additional sites for nuclear power plants; and Rs 4.7 billion for development of renewable energy projects in NWFP.

Sources told Business Recorder that most of the projects in the energy sector were deferred in the last meeting of CDWP, which were again included in the agenda while keeping in view their importance in economic development.

In water resources, the CDWP will take up Rs 229 million NWFP schemes ie construction of Maidani Dam in Kurram Agency; Rs 1.08 billion ground water recharge of Quetta, Pishin, Mastung and Mangochar valleys; and Rs 6.3 billion detailed engineering and tender document of Nai Gunj Dam Project.

The CDWP is also expected to approve the Ministry of Railways' land acquisition project for setting up dry port at Prem Nagar in Punjab. Rs 657 million project of formulation and core and search teams of interior division will also come up for the consideration.

In culture, sports and tourism sector the project of preservation of restoration of Derawan Port, Cholistan, with cost of Rs 165.47 million. In health sector, the important schemes include Rs 5.29 billion construction of medical tower at Pakistan Institute Medical Sciences (PIMS), Islamabad, and Rs 410 million construction of two trauma centres in the country.

In transport and communications sector, the CDWP will consider the project of constructing bridge over River Indus connecting Larkana and Khairpur districts at a cost Rs 4.8 billion. Rs 12.3 billion scheme of constructing additional carriageway of National Highway N-55 Sehwan Ratodero section will also come up for the consideration.

 

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'Surgical industry capable of earning $300 million annually'

SIALKOT (October 19 2006): Surgical Instrument Manufacturers Association of Pakistan (Simap) Chairman, Aamir Riaz Bhinder has said the surgical industry is capable to earn at least 300 million dollars annually within three years time but it needs extra-ordinary attention of concerned government departments.

Talking to newsmen here on Tuesday, he said that the world market of surgical industry was around 30 billion dollars whereas the share of Pakistan was hovering between 180 to 200 million dollars for the last two decades.

Individually, in their limited business capacity, the exporters are already trying to bring in new techniques, technologies and products in the field of surgical. He foresees that currently there was no threat of global competition especially in Asian region for Pakistan adding that Pakistan was the largest supplier of medical instruments to America, Central European Countries Japan etc, he said.

Simap chairman said that the major problem of surgical industry was lack of proper liaison between the industry and government. The authorities prepare policies without prior consultation with relevant industry and then expect from the business community to mould according to the policy.

Aamir Riaz Bhinder further said that lack of brand development was another major issue concerning to this industry. Brand development was such an exercise that could not be done by a company due to the fact it requires huge resources and expertise and support of the government is direly needed in this regard.

The businessmen engaged with surgical industry in Germany, Japan, UK, USA etc, were enjoying full support of their governments in shape of technology up-gradation, training, export marketing strategies, linkage with academia etc, while Pakistani surgical producers have no such support.

The setting up of skill development center, common facility center, R&D support, brand development and promotion, export marketing strategies, direct linkage with universities and institutes were the need of hour for tracking the surgical industry on modern and scientific lines and its global acknowledgement, he said.

The Simap had prepared an outline and proposals for presenting the government for the development of the industry, he said.

 

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EDB urged to work on developing engineering sector

ISLAMABAD (October 19 2006): Industries, Production and Special Initiatives Minister Jahangir Khan Tareen has called upon the Engineering Development Board (EDB) to work more aggressively for the development of the engineering sector.

He stated this while addressing the officials of the EDB here on Wednesday. The minister said the government was committed to developing the engineering sector, and the EDB has a vital role to play in this regard.

Jahangir Khan Tareen appreciated the development of new ginning machine, transport, tariff, etc and other initiatives taken by the Board. However, he advised the Board to speed-up and work more aggressively.

The minister directed that the regional offices of the Board at Karachi (partially operational) and Gujranwala should be established speedily and assured availability of necessary funding.

 

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CDWP approves 37 projects worth Rs 232.38 billion

ISLAMABAD (October 20 2006): The central development working party (CDWP) on Thursday approved Rs 232.38 billion for 37 development projects out of which Rs 150 million were sanctioned for conducting feasibility studies for setting up six additional nuclear power plants in the country.

Dr Asad Ali Shah, member, planning commission, briefing reporters after the CDWP meeting, said the power plants were to be established in Qadirabad, Taunsa, Sukkur, Guddu in the Sindh province, Multan in Punjab and Nowshera in the NWFP.

The CDWP, which met with planning commission deputy chairman Dr Akram Sheikh in the chair, approved/recommended 20 projects in infrastructure sector costing Rs 208.12 billion; 15 projects in social sector worth Rs 22.5 billion; and two in other sectors worth Rs 1.6 million. Out of these 37 projects, 17 projects were referred to the executive committee of the national economic council (Ecnec) for approval.

Giving area-wise detail, Asad said six projects worth Rs 151 billion were approved for Punjab; seven projects in Sindh (Rs 21.3 billion); six projects in NWFP (Rs 23.8 billion); three projects in Balochistan (Rs 3.2 billion); one project worth Rs 0.2 billion in Fata; and two projects worth Rs 0.69 billion in AJK and 12 projects all over the country with an allocation of Rs 32.23 billion.

He said the recommended projects included Rs 4.8 billion scheme relating to construction of bridge over River Indus connecting Larkana and Khairpur districts; Rs 12.3 billion for additional carriageway of National Highway (Sehwan Ratodero section); Rs 2.3 billion for improvement of National Highway (N-45); Rs 145 billion for concept clearance paper Lahore Rapid Mass Transit; and Rs 13.5 billion in communication sector and World Bank-funded support concept clearance paper for rural telecommunication and e-services development project of the ministry of information technology and telecommunication sector.

In the water sector, the water and power ministry groundwater recharge project in Quetta, Pishin, Mastung and Mangoehar valleys worth Rs 1.09 billion has also been recommended for the Ecnec approval. In the energy sector, the recommended schemes included water and power ministry second rural electrification project in Balochistan worth Rs 1.6 billion; power transmission enhancement project worth Rs 15.6 billion; development of renewable energy in NWFP costing Rs 4.7 billion; and almost the same project with an allocation of Rs 4 billion in Punjab.

The setting up of Gujranwala tools, dies, moulds centre costing Rs 878 million; Rs 784 million expansion of network of Utility Stores Corporation (USC); construction of medical tower at Pims, Islamabad, and JPMC, Karachi worth Rs 2 billion and 3 billion, respectively; national maternal, new born and child health programme of Rs 11 billion; and Gavi phase-II health system strengthening of Rs 3.5 billion have also been recommended to the Ecnec.

The CDWP, which has the power to approve projects worth up to Rs 500 million and recommend schemes above this allocation to the Ecnec, also recommended Rs 883 million project of establishing medical college at the University of Sargodha for Ecnec approval.

The projects of establishing construction machinery training centres in four provinces and AJK worth Rs 478.6 million each have also been approved by the CDWP.

Among other approved projects included construction of Maidani dam in Kurram Agency worth Rs 229.1 million; detailed engineering design and tender documents of Nai Gaj dam project; power transmission enhancement project-II of Rs 48.2 million; establishment of Thar Coal Mining Development Company worth Rs 260.7 million; construction of two trauma centres on motorway worth Rs 89 million; national breast screening programme worth Rs 421 million and others.

 

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Mills predict 3.5 million tonnes sugar output in 2006-07

ISLAMABAD (October 20 2006): The Pakistan Sugar Mills Association (PSMA), in its annual review, has predicted 3.5 million tonnes of sugar production in 2006-07, season, one million tonnes more than the last year's 2.5 million tonnes.

The last year shortfall in sugar production and the gap of 1.4 million tonnes in demand and supply had left the government in total disarray. Desperate authorities took a number of decisions, mostly in haste, to increase supply and bar the profiteers from fleecing the consumers.

The PSMA said that keeping in view higher cane prices, sugar rates in 2006-07, will stay over Rs 38 per kg at retail level. It had presented the annual review in its AGM held in Lahore last Sunday. Its details are as follow:

OUTLOOK 2006-07: As per data provided by the Ministry of Food, Agriculture, and Livestock (Minfal) there is 14 percent increase in the plantation area of sugarcane. The cane production had dropped significantly in the past two years in a row limited to 44 million tonnes. The increase in the plantation area with promising weather conditions ie supply of irrigation water and rains, the sugarcane production is expected to over 50 million tonnes, which ensures the increase in the sugar production to about 3.5 million tonnes.

Though sugarcane production in 2006-07 shows better prospects yet the utilisation of sugar mills will remain around 50 percent capacity provided 40 million tonnes supply is made to the mills.

The Punjab government has already announced indicative minimum price of sugarcane as Rs 60/40-kg, which means that delivered price at the mill-gate with the inclusion of transportation, cess and price competition would be around Rs 70/40- kg on average. The Sindh government has also recently announced Rs 67/40-kg and NWFP Rs 65/40-kg.

With such enhanced sugarcane price, the production cost of sugar cannot be less than Rs 34/kg ex-mill ie retail price expected to a minimum Rs 38/kg. Confusion prevails over the price structure due to the following reasons, which have been brought to the attention of the Government of Pakistan at a higher level. The 2005-06 a deficit year of sugar production by one million tonnes ended with a surplus of over one million tonnes.

Crushing season 2006-07 starts with a carryover stock of 1.2 million tonnes. The season 2006-07 producing 3.5 million tonnes will have availability of 4.7 million tonnes against a consumption of 4 million tonnes.

Major stock held at the end 2005-06 belongs to the Trading Corporation of Pakistan (TCP) which the government intends to offload at a highly subsidised rate to the market threatening the domestic sugar price.

International sugar market prices are down whereas the government has yet to clamp down any import duty to stop further inflow. While the industry bears a strong feeling to pay better sugarcane prices to ensure a better sugarcane crop in future there is confusion as how to maintain a balance in the minimum indicative price and a matching production cost. The government has been approached at several occasions explaining these issues of utmost importance.

Despite these hurdles, the Sindh government has already issued directions for an early start of crushing on October 1, 2006. As a regular phenomenon every year millers are pressurised for an early start of the crushing with the plea to vacate some portion of the land from sugarcane for the sowing of wheat, whereas the millers resists to accept the plea for the reason that the sugarcane quality at the early season is of very low recovery, the fact is very well known to the all ministries concerned and the growers as well who irrespective of the facts force for the early start as the payment system of sugarcane has still continued based on the weight and not the quality.

As per our estimates early start of the sugar mills with the low recovery is causing a loss of minimum 150,000 tonnes of sugar costing mills billion of rupees, which is a phenomenal loss to the industry and the country.

Overlooking the technical and the positive aspects in favour of the late start, the main cause can be spelled out as the row between the growers and the millers over the price-hike and the non-availability of the crop. Shortage and the immaturity of the crop in the beginning normally result the early closure of the season at the higher recovery period. An adverse step for achieving the optimum production.

REVIEW 2005-06 PRODUCTION: Unaware of the severe effects of the frost in the coming months, the PSMA was optimistic in forecasting sugar production of just over three million tonnes against the domestic consumption estimated of 3.9 million tonnes.

The continuation of the last year's short production, the frost-attack further deteriorated the situation. As usual, the sugarcane price immediately sparked the situation, with the result that sugar market started reflecting the production cost, which had always been a sensitive issue for the government.

Right in this meeting last year, a million tonnes shortage of sugar was forecast based on the official information for production of sugarcane crop. The need for the import of raw sugar was also ascertained to supplement the production. The severe frost attack on sugarcane crop in Northern Punjab and NWFP further disturbed the supply of quality sugarcane. Besides the above loss, the lucrative business of Gur making flourished as the demand was high at home and Afghanistan seriously hurting the mill sector.

Overall situation remained below average as 30 million tonnes of sugarcane was utilised by the mills to produce 2.58 million tonnes of sugar, supplemented by 372,500 tonnes refined from raw sugar and a marginal addition of only 8,700 tonnes from beet. Thus, the total production was registered at 2.964 million tonnes, apparently below 50 percent of the production capacity of the mills, thus Pakistan experienced second crop disaster in a row.

SUGAR PRICE STRUCTURE AND THE CRISES: The government supported sugarcane production by setting a market support price announced before or after planting. The local demand is always above the minimum price fixed as a result mills renegotiate the procurement price. The provincial governments in 2005-06, increased the official cane purchase price for 40-kg to Rs 45.00 for Punjab and NWFP and Rs 48.00 for Sindh.

The Sindh government later revised this price to Rs 60.00. However, during the entire season the price fixation remained a volatile issue between the growers and the millers. The growers refused to sell the cane at the official price and millers in some areas of Punjab and Sindh were forced to delay the start of crushing season.

The miffing sector ended up bearing the bulk of the risk when the circumstances changed. While the support price varies significantly when there is shortfall during a particular harvest, there is no similar level of adjustment when the harvest is good and cane is in abundant supply.

With intermittent stoppages the season's sugarcane price averaged to Rs 80.00 in Punjab and up to Rs 95.00 in Sindh resulting in a significant rise in the production cost to above Rs 32.00 to Rs 34.00 per kg without addition of 15 percent sale tax which was immediately reflected in the market sentiments and retail sugar market shot up from Rs 38.00 to Rs 40.00.

The unprecedented increase in the minimum support price in the province of Sindh triggered the situation in the whole country. The increase of sugarcane price twice in the same crushing season by about 50 percent encouraged the growers to further dictate cane prices and cartel supplies.

As a result of the situation, the sugar market immediately started reflecting the trend in sugar prices, the sugar production was also termed as deficit by about a million tonnes.

The disturbance in the sugar market was immediately noticed by the government, which labelled the millers as profiteers involved in cartel under declaring the sugarcane procurement and production of sugar.

The government was informed of the situation and the deficit of sugar for the season to arrange import of the required quantity of sugar, which besides duty-free import of raw and refined sugar approved the import of about 850,000 tonnes of sugar by the TCP for sale and distribution through Utility Store Corporation (USC) outlets, with an obvious objective of subsidising the sale to bring the market prices down.

The import of refined sugar to the tune of 1.5 million tonnes along 0.5 million tonnes of raw sugar already refined has now converted one million tonnes deficit year into a million tonnes surplus year.

The situation thus developed hampered the economy of all concerned and the oversensitiveness has resulted the year ending with large stocks held by the TCP, mills and by the traders who imported sugar at high price. Ironically, the international prices started subsiding as soon as Pakistan had enough of self-dumped sugar.

The sugar crises during the year caused the industry face the blame game with all government agencies actively involved. In this connection few actions are being mentioned without going into details.

The Monopoly Control Authority (MCA) charged the sugar mills for cartel of sugar and registered cases against mills for their sale being below the desired assumed percentage by the MCA. The National Accountability Bureau (NAB) was asked to investigate corrupt practices leading to the sugar crises in the country. The investigation was later withdrawn.

The CBR appointed customs-armed staff at the mill's gates to supervise and monitor procurement of sugarcane and the sale of sugar looking for tax-evasion and sale to unregistered buyers. The monitoring was withdrawn with the end of crushing.

The State Bank of Pakistan (SBP) imposed 50 percent margin restrictions for financing against the security of sugar stock and instructed for immediate adjustment of all advances against the security of sugar stock. The final date for adjustment was later extended from July 31 to October 31, 2006.

After hectic meetings at the PSMA with the government officials concerned some of the restrictions have eased down. The government intervention for bringing down the import duty, subsidising the supplies through its outlets and blaming the industry hardly matters without taking necessary measures to support production of a better crop in a competitive environment.

The past experience and record showed that the sugar prices moved up and down inversely proportional to stocks and the same was the effect on the price of Gur where no factories are involved, contains impurities and remains tax-free.

 

[Neo]

Non-food inflation drops to seven percent: SBP

KARACHI (October 20 2006): Non-food inflation maintained its declining trend and was recorded at 7 percent in September 2006 compared with 9.3 percent in the corresponding period last year, according to the State Bank's monthly publication titled 'Inflation Monitor' which has been released on its website on Thursday. In August 2006, the non-food inflation was recorded at 7.4 percent.

Headline inflation was recorded at 8.7 percent in September 2006 that was slightly lower than inflation in the preceding month. The main source of current rate of inflation was food inflation at 11.3 percent in the month mainly due to strong demand as a Ramazan effect.

In the non-food group, house rent index (HRI) maintained its declining trend which started after February 2005, and recorded a moderate increase of 7.3 percent in September 2006 compared with about 11.3 percent in the corresponding period last year. Similarly, sub-indices of fuel and lighting, transport and communication and cleaning laundry and personal also decelerated in the month.

A closer look at price movements of individual items included in the CPI food group reveals that prices of 49 commodities, including fresh milk, beef, sugar, chicken, pulses gram, Mash, Moong, etc exhibited above 10 percent inflation YoY in September 2006, of which some fruits and vegetables like guava, green chillies, tomatoes, etc showed more than 30 percent inflation.

The combined weight of such commodities (with double digit inflation) is about 52 percent of the food group. On the other hand, prices of 12 commodities like onion, eggs, rice, etc declined or remained the same during the month. The rest of items, having a weight of 38 percent in food group exhibited subdued or moderate inflation.

The core inflation measured as non-food non-energy remained stable in September 2006 at its previous month's level. However, trimmed mean core inflation continued to rise and has been recorded at 6.6 percent in September 2006. This rise in trimmed mean core inflation was due to some key food and energy items, having high weight and high inflation, like fresh milk, beef, mutton, potatoes, and CNG.

Following the pattern of first two months of FY06, wage inflation continued its decelerating trend in September 2006 resulting from weak demand due to low construction activities in Ramazan. Average wages of construction workers registered a YoY growth of 14.8 percent compared with 15.9 percent in the preceding month and 16.7 percent in the corresponding period last year. Both skilled and unskilled labours wage inflation contributed to this deceleration.

 

[Neo]

Banks extend Rs 50 billion to private sector in fresh credit

KARACHI (October 19 2006): Banks credit to private sector, which showed a net credit retirement by economic agents of Rs 20.5 billion by July 15, started picking up slowly thereafter, so that credit retirement almost vanished by September 16, and actually turned into a positive change by September 23.

By that date, banks had already extended Rs 23 billion in fresh loans to the private sector. However, compared with June 30, 2006, private sector credit recorded an increase of only Rs 1.5 billion by September 23, which did not reflect the true position of credit utilisation by the private sector in recent weeks.

According to the latest update by the State Bank, credit expansion, compared with June 30, 2006 amounted to Rs 29.4 billion on September 30 but when credit retired up to July 15 is added back, fresh loaning to the private sector between July 15 and September 30 comes to Rs 50 billion.

Net borrowing by the Government sector, in the meanwhile, amounted to Rs 45.8 billion, almost entirely on account of Federal Government, as Provincial Governments retired Rs 9 billion to the banks.

Of the total, nearly 84 percent, or Rs 38 billion, was borrowed to meet the budget deficit, 14.5 percent (or Rs 6.5 billion) for procurement of various commodities including wheat, and 1.5 percent (or Rs 1.2 billion) for other credit expansion which occurs because of utilisation of accumulated funds under Zakat, privatisation proceeds and similar accounts. (For more details, see 'Money Week' appearing on Monday next).