Pakistan Economy - News & Updates - Archive

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ADB assures consistent support to Pakistan​

ISLAMABAD: The Asian Development Bank (ADB) Board in its next board meeting would consider projects relating to national trade corridor, power transmission enhancement and reform agenda.

This was informed to the Prime Minister Shaukat Aziz during a meeting with Country Director, Asian Development Bank (ADB) Mr. Peter L. Fedon, who called on him at the PM’s House here on Wednesday.

They discussed financial assistance for the upcoming projects in Pakistan and the ADB assured that the Bank would provide assistance on a consistent basis.

The Prime Minister said that Pakistan greatly values its partnership with development institutions particularly the ADB whose constant support has enabled it to invest in structural reforms undertaken by the government as well as infrastructure development projects and poverty alleviation.

The Prime Minster appreciated the active support of ADB for Pakistan’s reform agenda, which enabled economic turnaround of the country. He expressed the hope that this cooperation would further help Pakistan in achieving its objectives in the construction of large dams, road network as well as improving the social sector particularly the health and education facilities.

Giving an overview of the economy, the Prime Minister said Pakistan’s economy maintained a solid pace of growth during the last five years. The size of the economy, he said, has doubled and the GDP is growing at an average rate of 6-8 per cent per annum thus reducing poverty, increasing per capita income, generating more jobs and improving the living standard of the people resulting in growing middle class in the country. The magnitude of growth achieved during this period has positioned Pakistan as one of the fastest growing economies in Asia, he added.

The Prime Minister said that prudent economic policies and the successful implementation of first generation reforms has transformed Pakistan’s economic landscape and now the government is actively pursuing the implementation of second generation reforms to ensure shared and equitable growth for all segments of society.

Mr. Fedon appreciated the support and guidance provided by Prime Minister Shaukat Aziz in cleaning up the loan portfolios and screening out of non performing project loans while focussing on defined sectors to enable Pakistan achieve its desired objectives.

Mr. Peter Fedon acknowledged the economic performance of Pakistan during the last five years and said the success is mainly due to a strong leadership and efficient economic management. He informed the Prime Minister that ADB in its next board meeting would consider projects relating to national trade corridor, power transmission enhancement and reform agenda.

He assured the Prime Minister that the Bank would provide assistance on a consistent basis.

Daily Times - Leading News Resource of Pakistan

 

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EU says still gives Pakistan aid despite crackdown ​

STRASBOURG: November 15, 2007: The European Union called on President Musharraf again on Wednesday to end the state of emergency and set a firm date for elections, but said now was not the time to cut aid to the country.

EU External Relations Commissioner Benita Ferrero-Waldner said the situation was "very serious."

"It is of fundamental importance that a firm date for elections is announced as soon as possible, as well as a clear timeframe for ending the emergency," she said.

Ferrero-Waldner said there had been calls for a review of EU aid, but noted that this support focused on areas such as poverty reduction and education.

"Therefore I think at this stage, let us sit back and let us wait for a moment and let us judge very carefully," she told the European Parliament in Strasbourg. "We should not jeopardise the poor people in Pakistan."

Some members of the assembly proposed that aid be channelled through non-governmental organisations rather than the state, others said sanctions should be prepared in case Musharraf failed to respond to appeals.

US Deputy Secretary of State John Negroponte is due in Pakistan late this week to urge Musharraf to end the emergency. He warned last week against cutting aid to an "indispensable" ally in the war against terrorisum.

Speaking for the EU presidency, Portuguese Secretary of State for Europe Manuel Lobos Antunes and leaders of the parliament's political groups also stressed Pakistan's importance as an ally.

Musharraf said at the weekend a national election would take place by Jan. 9, but did not say when the constitution would be restored or the emergency lifted.

The European Union has been considering sending a mission to observe the elections. Ferrero-Waldner said this would not be possible unless the state of emergency was lifted quickly, but it might be possible to send a smaller team of advisers.

The EU's executive Commission has committed 500 million euros ($733 million) in aid to Pakistan since 1976. For 2002-2006 this included 59 million euros for education, 50 million for financial sector reforms, 6 million for trade development and 5 million for prevention of child labour.

Brecorder

 

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Global Competitiveness Rankings: Pakistan makes improvement of seven ranks ​

ISLAMABAD (November 15 2007): Pakistan successfully contained inflation from 9.10 percent to 7.20 percent and managed to decrease public debt from 53.5 percent to 52 percent of GDP, says Global Competitiveness Report of 2007-2008.

The World Economic Forum in its Global Competitiveness Report 2007-2008 released on Wednesday, has identified that Pakistan has improved its competitiveness by 7 ranks as compared to last year. Considering methodology used for 2006-2007 for 122 countries Pakistan would have secured the 84th position.

The World Economic Forum has adopted a new methodology for evaluating the Global Competitiveness Index for 2007-2008, which includes breaking out the single pillar on market efficiency into its three sub-components (goods, labour, and financial markets).

The World Economic Forum also included six new countries to measure the Global Competitiveness Index. Therefore straight comparisons to rankings in prior years of the Global Competitiveness Index cannot be made directly. The United States tops the overall ranking in The Global Competitiveness Report of 2007-2008.

Switzerland is in second position followed by Denmark, Sweden, Germany, Finland and Singapore. Pakistan has maintained its position by 92, whereas other major players lost their rankings by significant numbers. India lost 5 ranks on the GCI, whereas, Slovenia and Brazil lost 6 ranks, Egypt lost 14, United Arab Emirates and Indonesia lost 5 and 4 ranks respectively.

Pakistan remained more or less stable with respect to the constant sample and not considering the countries which entered the rankings for the first time this year, above Pakistan.

It seems that the Global Competitiveness Report of the World Economic Forum (WEF) recognises the leadership of the current government's strategy based on deregulation, privatisation and liberalisation, where Pakistan realised important progress in a number of different dimensions captured in the indexes.

Significant improvement were made in institutions, including property right (+0.40), in institutional framework (+0.27 for diversion of public fund variable, +0.35 in the efficiency of the legal framework among other), in the level of security (+0.31). Also private institutions sub-pillar is assessed as more efficient and transparent than last year (+0.24).

The pillar on infrastructure shows improvement with respect to last year (+0.6 overall), with a notable increase in the number of telephone lines (+0.48) in line with the government's effort to improve connectivity and infrastructure.

On the Macroeconomic stability, level of public debt has decreased (from 53.5 percent to 52 percent of GDP) and so has inflation (from 9.10 percent to 7.20 percent).

Business Recorder [Pakistan's First Financial Daily]

 

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Three hydel power stations being built in Skardu ​

SKARDU (November 15 2007): Three medium-size hydel power stations are being constructed in Skardu District at a cost of Rs 270 million. An official spokesman told PPI on Wednesday that these powerhouses were being constructed at Taloo Rondu, Kindrik and Shamayoul Kharmang Sub Division.

He also said that the federal government was using the water resources to produce energy in these remote areas of the country to accelerate uplift activities.

Business Recorder [Pakistan's First Financial Daily]

 

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Accord for thermal power plant signed ​

ISLAMABAD (November 15 2007): The Private Power and Infrastructure Board (PPIB) and the Atlas Power Limited (APL) on Wednesday signed an agreement for the financial close of 225-MW therrmal power plant situated near Sheikhupura.

Earlier the company signed Power Purchase Agreement (PPA) on September 6, 2007, Implementation Agreement (IA) on September, 18, 2007 and Fuel Supply Agreement (FSA) on October 7, 2007 respectively. Financial closing documents were signed between Private Power and Infrastructure Board (PPIB) and Atlas Power Limited at PPIB Office. Senior officials from both sides attended the signing ceremony.

The sponsors of the project are Shirazi Investments (Atlas Group) and MAN (Germany), while National Bank of Pakistan (NBP), Habib Bank Limited (HBL), United Bank Limited (UBL), Muslim Commercial Bank (MCB), Allied Bank Limited (ABL) and Atlas Bank are the lenders to the project.

The power plant will use Residual Fuel Oil (RFO) and targeted to start its commercial operations by March 2009. The power plant is estimated to be set up at a cost of $169 million. This is yet another achievement towards adding up the megawatts required into the system in coming years.

Business Recorder [Pakistan's First Financial Daily]

 

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Sindh government to develop mechanised mine at Thar coalfield ​

KARACHI (November 15 2007): Sindh government has decided to develop a mechanised coal mine at Thar coalfield which is expected to have annual production of 2 million tonnes. The sources in Sindh Mines and Mineral Development Department told Business Recorder on Wednesday that provincial government will utilise Annual Development Programme (ADP) funds for this purpose.

The annual coal production in the provincial coalfield is presently 0.5 million tonnes while Sindh Mines and Mineral Development Department has set a target of 20 million tonnes by 2015.

The sources hoped that work on mine development would start soon adding that all necessary preparations were almost finalised. As soon as the coal production from the mechanised mine begins, investor firms would be invited for coal-based power projects, the sources added. They said that such mines could also be developed in other coalfields including Lakhra, Sonda-Jherruk, Mettng-Jhampir and Badin.

Business Recorder [Pakistan's First Financial Daily]

 

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Foreign firms put expansion plans on hold ​

Say Competition Commission has anomalies that need to be removed

Friday, November 16, 2007

KARACHI: A number of foreign companies in the regulated sector have put their expansion plans on hold, as the promulgation of the Competition Commission Ordinance 2007, which was prepared quietly and without consulting the stakeholders, contains a lot of anomalies that are creating confusion and increasing risk for businesses, The News learnt on Thursday.

The first and prompt reaction to the ordinance came from representatives of foreign companies, which are working in Pakistan in association with the Overseas Investors Chamber of Commerce & Industry (OICCI), a body of 171 members with its headquarters in Karachi, the hub of economic activities in Pakistan.

In an informal chat with this reporter, foreign stakeholders complained that the provision of holding 40 per cent or more share of a product in the market would be subject to a possible action against the stakeholder by the Competition Commission. The action includes raids, harsh penalties or/and arrest of the officials concerned without producing search warrants. It is an arbitrary power that would discourage investors to go ahead with their future investment plans in the country.

What kind of mechanism the Commission would be having to measure the share of a product of a particular brand in the country, they questioned and said in some of the sectors such as in the smuggled goods sector, and undocumented and unregulated companies could manipulate figures and for that regulated companies would be held responsible.

They avoided naming the companies, which have put their expansion plans on hold. Most of them, however, are related to consumer goods, they disclosed. They said foreign investors, like them, are having a key role in the growth of developing economies like Pakistan, band criticised the government for not consulting them in the drafting of the ordinance.

Moreover, the fast changing political situation in the country and uncertainty are their other concern which should be resolved as soon as possible, they suggested. They said they are not against the rule of law and will with work within the legal framework, that is, the Competition Commission Ordinance 2007, adding: “But the ordinance has a number of flaws, which need to be removed.”

All the stakeholders should have been given a couple of months’ to read, understand and point out the flaws in this ordinance and the government should have sought suggestions from all the stakeholders before its promulgation. But the government did nothing of the sort and enforced the ordinance on Oct 2, they said. Now we are having this document in our hands (after promulgation) and have found a number of anomalies, they added.

If the government had contacted all the stakeholders in this regard, then there would have been no confusion and they would have been working as smoothly as they were working earlier, they said.

“Secondly, none of the members of the commission, announced a few days ago, have significant practical experience or any experience of working in trade or industry,” they said. “Khalid Mirza, Chairman of the Competition Commission, has served the IFC, World Bank, SECP and the erstwhile MCA but no commercial entity. Mr Ghaffar is from the Tax Group of Civil Service; Ms Rafat Hassan is a legal practitioner associated with the SECP; Dr Wilson is an associate professor at LUMS. Ms Bangash is the only one with some business experience but it is limited to the financial world.

“These members will decide the fate of business in Pakistan, determine the competitive environment and the competitive advantage, if any, that Pakistani businesses as a result enjoy in international markets.

“For example, a brand of potato chips holding more than 40 per cent share of potato chips market may be deemed to have a dominant share. However, given the many alternatives available to consumers of potato chips, the correct relevant market will be the snackfood industry. Without sufficient experience of trade and industry, members of the commission are not likely to appreciate the difference,” they said.

Appeals against the decision of the commission are to be filed before its own appellate bench which also is composed of the commission’s members. So further appeal can be filed with the Supreme Court. The high courts have been bypassed altogether, they pointed out. Contrary to this under the Monopoly Control Authority, there were three levels of appeal as the high courts had not been bypassed, they said. In case of mergers, the commission will adopt a two-phase approach which will take at least 120 days to decide. This is a long and cumbersome procedure for an economy targeting to operate 24 hours, seven days a week, they said.

“Moreover, merger and acquisition deals in other countries are kept confidential till they get matured so that the share prices of these particular companies are not speculated on stock exchanges. But in case of the Competition Commission of Pakistan, the deal would be made public at the initial stage that would be not fair with businesses,” they argued.

Foreign firms put expansion plans on hold

 

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Bank Muscat eyes Pakistan bank buyout ​

Friday, November 16, 2007

DUBAI: Oman’s Bank Muscat has said it expects to agree this year on taking over Pakistan’s Saudi Pak Bank with partners including Nomura Holdings and is not put off by the country’s political turmoil.

Bank Muscat, Oman’s largest lender, is in talks to buy 35 per cent of the Karachi-based bank as part of a strategy to expand in the Gulf and South Asia as competition in its home market intensifies, Chief Executive Officer AbdulRazak Ali Issa told Reuters on Thursday.

Bankers familiar with the transaction said on Wednesday the parties were considering a price of 27 rupees to 28 rupees per share, valuing Saudi Pak Bank at about 13.75 billion rupees ($225 million).

Issa declined to comment on an indicative price. A 35 per cent stake would be worth about $79 million. “Pakistan is a growing economy,” Issa said. “We have been looking at it for a long time.”

A purchase would mark the lender’s entry into banking in the world’s sixth most populous country where Saudi Pak is the 18th largest lender by market value, out of 25. Asked if the political situation in Pakistan was a concern for Bank Muscat, Issa said: “No, Pakistan makes good business sense ... we have not seen any impact so far.”

Bank Muscat eyes Pakistan bank buyout

 

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EU ban on seafood exports causes $100m loss ​

Friday, November 16, 2007

KARACHI: Pakistan has incurred a loss of at least $100 million due to the ban imposed by the European Union (EU) on seafood exports from this country, a senior official of Pakistan Seafood Industries Association (PSIA) told The News, requesting anonymity.

“The landing of seafood this season was double as compared to the previous season and had there not been a ban on seafood export to the EU, Pakistan would have exceeded the export target of $200 million this year,” he said.

He said the government has convened a meeting on the fishery policy in Islamabad on Tuesday but no representative of PSIA, boat owners’ association, mole holders or any other stakeholder has been invited.

The exports to the EU were banned by the Marine Fisheries Department (MFD), government of Pakistan on April 12, 2007 on the plea that Pakistani seafood exporters were not adhering to the standards required by the EU. “The EU complains that traceability and cold chain are not being maintained by Pakistani seafood exporters,” said Sardar Muhammad Hanif Khan, Chairman PSIA.

The EU says the batch number should indicate the boat from where the produce has originated and the required temperature should be maintained in the entire process- from catching to auctioning and ultimately to the processing plants, he explained.

There are 34 seafood-processing plants in Pakistan and 11 of them have been approved to export their produce to the EU that buys 50 per cent of Pakistan’s seafood exports. Khan showed his utter disappointment over the performance of MFD that was quick to impose a ban on seafood exports on behalf of the EU but was slow to rectify the problem despite the fact that the lives and livelihood of about 50,000 people, associated with fishing and allied industry was at stake.

“Last year the seafood export target was $210 million and Pakistan managed to fetch $184 million. This year, the target is $200 million but if the ban is not lifted immediately, Pakistan will be a loser,” he said.

Mohammad Ali Shah, chairman, Pakistan Fisherfolk Forum (PFF), a representative body of fishermen accuses the government of bringing a bad name to Pakistan and rendering thousands of fisherfolk jobless.

“The government accrues substantial foreign exchange through export of seafood every year, therefore, if the EU has made any objections regarding standardization, it is the responsibility of the State to rectify them,” he said.

Ironically, the Fisheries Development Commissioner who promised some two months ago to present a report to the EU in October has failed to do so. The sufferers are the ordinary fishermen.

“There was a time when fisherfolk would give Zakat because they were prosperous. Today, thousands of fishermen have no option but to survive on Zakat,” said Mohammad Hussain, 38, a fisherman at Karachi Fish Harbour.

“I know there is no defect in our boats because if the EU had any objection on them it would have also banned seafood exports from India where boats are of much inferior quality as compared to Pakistani boats,” he maintained.

He also complained about the highhandedness of Maritime Security Agency (MSA) and Customs Department that harass fishermen on the plea that they were checking their documents and keeps them waiting in the sea for hours.

“We leave at 3am so that by 5am we may reach the deep sea but first we have to seek clearance from MSA that keeps us waiting for hours; followed by a similar drill by the Customs Department. Our diesel keeps burning,” he said. “This is despite the fact that the Sindh High Court has issued directives that boats could only be stopped by security agencies if somebody was suspected,” he said.

EU ban on seafood exports causes $100m loss

 

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Manufacturing of electronic gadgets planned ​

Friday, November 16, 2007

LAHORE: The Technology Upgradation and Skill Development Company (TUSDEC) is planning to establish an electronics complex in a bid to promote local manufacturing or assembling of electronic gadgets, especially mobile phones.

The proposed electronics complex will act as a common facility centre for the manufacturers and assemblers of electronic gadgets to help bring down the import bill through local production of the gadgets, a TUSDEC representative told a meeting on the electronics sector at the Lahore Chamber of Commerce and Industry (LCCI).

President LCCI Shahid Hassan Sheikh, Senior Vice President Yaqoob Tahir Izhar and Chief Operating Officer of United Mobile Azad A Lalani were also present on the occasion. The TUSDEC spokesman said that the electronics industry was considered one of the world’s fastest growing industries with global revenue worth trillions of dollars per annum. However, he regretted that this vital sector was still in its infancy in Pakistan and never became a major revenue generating industry.

The sector basically focuses on consumer electronics, with activities confined to assembly of conventional TV sets, radios, cassette recorders and other allied consumer electronic products from imported CKD or SKD component kits. He said that TUSDEC has conducted studies on enhancing value added production through a common facility or teaching factory approach to upgrade our electronics industry to enable adoption of modern techniques and generate trained human resources.

The establishment of a common facility centre (CFC) or electronics complex has been proposed to uplift the industry by importing contemporary technology, machinery, obtaining training and skill enhancement together with practical production training. The Electronics Complex, he said, would provide the industry with complete printed circuit solutions commensurate with ‘economy of scale’ as well as expert services for product design and proto-typing. This centre will be equipped with a modern electronics design and quality assurance lab for design. The CFC will contain high-tech Surface Mount Technology (SMT) machines for assembly of Printed Circuit Boards (PCBs) with both through-hole and surface mount components, he added.

President LCCI, Shahid Hassan Sheikh while lauding TUSDEC’s efforts for the promotion of electronics sector said that the steps like the establishment of s electronics complex would not only be helpful in import substitution but also make Pakistan a manufacturing hub of the electronic gadgets.

Manufacturing of electronic gadgets planned

 

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Iran to continue investment in Pakistan ​

Friday, November 16, 2007

KARACHI: Iranian Consul General Masood Muhammad Zamani has said the Islamic republic will continue to invest in Pakistan regardless of the political situation here.

He was speaking in a meeting with businessmen at the Karachi Chamber of Commerce and Industry (KCCI) on Thursday. A 24-member trade delegation from Kermanshah province of the Islamic Republic of Iran, headed by Daaryash Panahi, Deputy Director of Commerce Organisation of Kermanshah, visited the KCCI.

Zamani said Pakistan’s political situation was its internal matter which would be resolved soon but Iran would not back out of investments and its businessmen would continue to visit the country.

He also invited Pakistani businessmen to visit Iran in order to learn more about the country, search for investment opportunities and hold exhibitions there. He said the Iranian people would treat the visitors as their brothers and would ensure that the delegates faced no problems.

Counsel Manager of Trading Organisation of Iran Ahmed Fasihi said Pakistan was the second country in the export list of Kermanshah province, which highlighted the important trade relations between the two sides.

He suggested that the Kermanshah Chamber of Commerce and Industry and the KCCI should join hands and work as one body to promote exports and overcome obstacles faced by the businessmen of both sides.

Iran to continue investment in Pakistan

 

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Pak pavilion main attraction at IITF-2007 ​

Friday, November 16, 2007

KARACHI: Pakistan’s pavilion at India International Trade Fair (IITF-2007) was the main attraction for visitors in terms of variety of product range among all the stalls.

This was stated by the director of Pakistan’s pavilion Farooq ASheikh in a communiquÈ sent to the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) from New Delhi on Thursday. He said that President of India Pratibha Patil visited almost all the stalls at Pakistan’s pavilion and appreciated the products and their craftsmanship. Minister of State and Chief Executive TDAP Tariq Ikram welcomed the Indian president at Pakistan Pavilion, located in the SAARC area.

He said that although 40 countries were participating in IITF, the display of multi products range in Pakistan Pavilion was distinction amongst all international pavilions which is being highly projected by print and electronic media of India.

Pak pavilion main attraction at IITF-2007

 

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Auto industry plan approved​

ISLAMABAD, Nov 15: The government has approved the Auto Industry Development Programme (AIDP) to provide a predictable and transparent investment opportunity.

The Economic Coordination Committee (ECC) of the Cabinet which met on Tuesday cleared a summary on the subject submitted by the Ministry of Industries, Production and Special Initiatives.

The ECC termed the AIDP as a clear roadmap which will lead the auto industry to a sustainable, innovative and competitive development and to enable the industry to attract investment and become a part of global supply chain.

The AIDP has been developed by the Engineering Development Board (EDB) to facilitate and encourage the investment, domestic competition, enhance competitiveness and stimulate innovation through technology acquisition, human resource development, capacity expansion, auto cluster development etc.

The programme is based on the principles which include: encourage continuation and increasing indigenisation; and facilitate auto industry’s integration into the global supply chain and the used vehicles import policy will be regulated so as not to impede the growth of the local industry while protecting consumers’ interest, an EDB announcement said on Thursday.

It provides the targets and goals and a clear development programme through a roadmap for the next five years, realising that the rapid growth in auto industry is difficult to sustain without efficient human resource.

In order to fill the deficiency of skilled personnel, an Auto Industry Skills Development Company (AISDC) will be established to be jointly managed by a board with representatives from industry and the government. Two centres of excellence will be established under the management of AISDC.

Productive Asset Investment Incentive (PAII) provides incentives against the newly-installed productive assets to stimulate investments in the production capacities of auto part manufacturing and to optimally utilise such capacities through supply of output to the vehicle assemblers in the country.

Since technology level remains low in the auto parts manufacturing due to high cost of technology acquisitions and to enhance the technology level, quality and encourage further localisation, matching grants will be provided under the Technology Acquisition Support Scheme.

Furthermore, to complement mutual support and synergy of the vendors, the AIDP provides the establishment of two auto clusters one at Lahore and Karachi each for which the government has already acquired land. AIDP also provides for Auto Industry Investment Policy (AIIP) for the investors to start manufacturing of vehicles in the country.

An Auto Industry Development Committee (AIDC) will be established with the objective to provide focused and continued attention to the auto industry at a government–private level. It will have a regular dialogue and effective communication with the industry and it will steer the implementation of AIDP and conduct an assessment and review of the policy initiatives of AIDP annually and up to 5 years to evaluate the effectiveness of AIDP.

Auto industry plan approved -DAWN - Business; November 16, 2007

 

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Reserves​

KARACHI, Nov 15: Pakistan’s total liquid foreign exchange reserves went up by $15 million to more than $16.387 billion this week.

According to weekly report of SBP here on Thursday, the foreign exchange reserves held by the Central Bank were estimated at $ 14.183 billion on Nov 10 while reserves held by the banks stood at about $2.204 billion.—APP

Reserves -DAWN - Business; November 16, 2007

 

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Oil production by local E&P companies: Govt bags $127.7m in windfall gains​

ISLAMABAD: The federal government has come out as a major beneficiary of the increase in international prices of crude oil, bagging $127.723 million in windfall gains on local oil production from local exploration and production (E&P) companies, a senior official at the petroleum ministry told Daily Times on Thursday.

The ministry came to this conclusion after accepting the proposals of a committee set up to negotiate discount rates for petroleum bought from local E&P companies.

According to the official, the government of Pakistan purchases crude oil from different E&P companies in accordance with the pricing provisions of various Crude Oil Sales Agreements (COSAs), Petroleum Concession Agreements (PCAs) signed between the companies and the government. Under the provisions of some of the agreements which were signed prior to Petroleum Policy 2001 with British Petroleum (BP), Orient Petroleum International Inc. (OPII), Pakistan Oilfields Limited (POL), and Oil and Gas Development Company Limited (OGDCL), the sellers of crude oil receive a price for their share sold to the government of Pakistan after applying for a sliding scale discount. The government is the beneficiary of this discount and has deposited the same in the government’s treasury. The COSAs and PCAs provide that in the event, the net international crude oil prices exceed $50 a barrel, the parties would meet to determine an appropriate discount for prices above $50 a barrel.

From March 2005 onwards, crude oil prices started registering increase in the international market above $50 a barrel. Therefore, in order to negotiate the discount rates with the producing companies BP, POL, OPII, OGDCL, under the provisions of respective agreements, the secretary Petroleum and Natural Resources (P&NR) Ministry constituted a committee comprising representatives from the Finance Division and the P&NR Division. The committee held various meetings with the above companies to negotiate the discount and later submitted its report, the official added.

The producing companies were of the view that due to increase in crude oil prices in the international market, the cost of production had also increase manifold. The fields under negotiation had been in production since long and had become technically different and expensive to maintain for which all benefit/windfall of increase in the prices beyond $50/ barrel should be passed on to them for maintaining the production.

After detailed deliberations, the committee has recommended that provisions of the agreement should be honoured. In this regard the existing petroleum policy has a provision to share windfall profits on a 50:50 basis in case oil prices increase beyond $30/ barrel.

The committee, therefore, recommended that the principle of the approved petroleum policy could be considered as a logical basis for negotiations. It was revealed that in case the windfall provision of existing policy is applied for prices above $50/ barrel, the gain to government would be higher. The committee therefore, recommended that the crude oil price differential between $50/ barrel and the net market price be shared equally between the government and the producers.

Similarly in case of condensate, the agreements provide that if prices exceed $34/barrel in case of Qadirpur, Block-20 and Tajjal blocks and $50/barrel for Ratana field, the parties shall meet to determine discount prices exceeding the above ceiling. OGDCL, OMV and OPII have approached to negotiate the discount for condensate. The committee also recommended: “the condensate price differential may also be shared equally between the government and the producers on 50:50 basis on the analogy of crude oil discount.”

The ministry while endorsing the recommendations of the committee called it as a win-win situation both for the parties. In the light of the recommendations of the committee, the ministry has proposed the government that the present discount rates applicable under the respective agreements may continue up to the ceiling limits mentioned in the respective agreements. The ministry has estimated that based on the said proposal an amount of $127.723 million will accrue to the government for the period the prices started exceeding the existing ceiling limits in the respective agreements and up to May 2007.

Daily Times - Leading News Resource of Pakistan