Pakistan Economy - News & Updates - Archive

[Neo]

OMV to explore oil in Kalat and Barkhan​

VIENNA (August 09 2008): Austrian oil and gas giant, OMV, said on Friday it had acquired stakes in two licences to explore oil in Pakistan. OMV said in a statement it had agreed to acquire a 30 percent stake in the Kalat exploration licence and a 15 percent stake in the Barkhan licence, both in the province of Balochistan.

"The areas are under-explored but considered as highly prospective drilling areas," OMV said. Partners in the Kalat licence were Pakistan Petroleum and ENI Pakistan, while partners in the Barkhan licence were Pakistan Petroleum and MND Exploration and Production.

Kalat is a block of 2,842 square kilometres and Barkhan 2,105 square kilometres. "These new exploration licences acquire acreage with highly attractive exploration potential," said OMV board member Helmut Langanger. "It enables us to proceed with our plans for further growth in Pakistan were we are currently the biggest international gas producer," Langanger said.

In all, OMW holds exploration and production licences in 20 countries in central and eastern Europe, North Africa, north-western Europe, the Middle East, Australia and New Zealand, and Russia and the Caspian region. OMV's daily production volume is around 316,000 barrels per day and at the end of 2007, it had reserves of 1.22 billion barrels.

Business Recorder [Pakistan's First Financial Daily]

 

[Neo]

SCGA to set up Rs 700 million power generation plant in Faisalabad​

LAHORE (August 11 2008): The Sugarcane Growers Association (SCGA) will establish high-tech power plant having a capacity of 4 MW in Mamoo Kanjan district Faisalabad at a cost of Rs 700 million.

Talking to APP here on Sunday, SCGA Convenor Javed Malik said that 60,000 liters ethanol to be extracted from sugarcane juice daily will be the main product of the plant which would help meet the country's requirement while its excessive quantity would be exported to other countries.

He said the electricity will be its by-product. The Sugar Cane Growers have obtained No Objection Certificate (NOC) from the department concerned to establish power plant, and a proposal has been sent to the Provincial Co-operative Bank Limited (PCBL) for joint venture, he added.

Highlighting the salient features of the power plant, he said the high-tech plant will have the functional capacity to generate 1.5 kilowatt from 20-kg bagasse, while the existing sugar industries are generating only one kilowatt from 40 kg bagasse. Javed Malik also said that 2 MW electricity would be brought under utilisation of the plant while the rest of 2 MW would be provided to the nearby villages on subsidised rate. He said that about 10,000 to 15,000 local sugarcane growers will supply of their produce to the power plant on membership basis. In return, the plant management will facilitate the growers by providing them subsidy on fertiliser and electricity, besides quick payment of their produce.

He said the plant would help provide employment opportunity to 300-500 persons.

The multi-purpose power plant will help to produce feed for livestock, fertiliser, hard board and its related items from the leftover of sugarcane, he added.

Business Recorder [Pakistan's First Financial Daily]

 

[Neo]

How to expand trade with neighbours​

During eight years of President Pervez Musharraf’s rule, Pakistan did not develop a trade policy suited to its circumstances. If some initiatives were taken by the Ministry of Commerce – there were not all that many – they took the country in the wrong direction.

Much effort was devoted to concluding a free trade arrangement with the United States and increasing textile exports to America. Neither objective, even it was realised, would help Pakistan to bring about a bounce in its exports.

This is something the country needs to do with some urgency in order to deal with the problem posed by the widening trade deficit.

The current deficit has reached unsustainable levels. In the short run the only way to constrain it is to limit imports. This can be done with tariff increases and other charges on imports that feed consumption, not investment. This the government is already doing.

But a move towards a closed economy would take the country back by decades at a time when most of the rest of the world is taking advantage of the process of globalisation.

The only viable solution to the problem of growing trade and balance of payments deficits is to increase exports. This won’t happen suddenly; it will take time and much greater involvement of the state in developing the export sector.

Trade policy, in other words, should be at the heart of the strategy needed to take care of the country’s ailing economy. What is it that the government should be doing to increase exports?

Pakistan needs to change in a dramatic way the direction and content of its exports. As the “gravity model of trade” suggests, Pakistan should be building stronger trade relations with the countries in its neighborhood and concentrating on the production of exportable surpluses that have markets in these places.

Continued emphasis on textiles does not belong to this strategy. Neither does the focus on gaining access to the markets in the United States. Pakistan’s exports to America are concentrated in the cotton group in which the country faces many competitors.

However, for Pakistan to adopt an entirely different approach to trade would mean that the countries that are its natural trading partners should be prepared to play ball with Islamabad.

For that to happen they must abide by the rules of international trade which has not always been the case. This is particularly the case with India which, if the gravity model has any validity, should be Pakistan’s largest trading partner.

India freely uses devices such as the “dumping clause” in the treaty that set up the World Trade Organization to keep out the goods in which its own industry is not very competitive. For it to play on a level field, it must come under international pressure and scrutiny.

This is why multilateral trade negotiations such as the Doha round acquire considerable importance and this is also why Pakistan should have played a much more active role in these talks than it did.

Now that Doha has collapsed, what are the options available to Pakistan and how should Islamabad reflect these options in its trade policy? What stance should the country’s industry owners adopt to move Islamabad towards formulating a trade policy that would work for them and for the country?

That the current approach to trade defies economic logic and is the consequence of public policy mistakes is well illustrated by some of the recent trends.

The cotton group remains the dominant player. Its share in total exports has declined a bit and some changes have taken place in the group’s composition. Pakistan, once one of the major exporters of raw cotton, has become a net importer.

That said, there is still not enough diversification in the composition of exports to indicate that the country has positioned itself to take advantage of the enormous changes that have taken place in the structure of the global economy.

But there is one silver lining on the horizon. The fact that the share of miscellaneous manufactures has increased significantly – last year it increased at an impressive rate of 33 per cent – gives some hope.

There is sufficient diversification within this group and sufficient presence of the items in which Pakistan has some comparative advantage to indicate that an export oriented strategy could be put in place.

One example will help to illustrate this point. The leather group is one of the fastest growing lines of export products.

The country has moved away from exporting raw hides to selling processed leather and leather products. Since Pakistan has one of the largest animal populations in the world the leather group could become a major export item.

To move in that direction, leather products should replace processed leather as an item of growth. While Pakistan has missed out in developing large scale export oriented industry as was done by the countries in East Asia and while it has made very slow progress in making use of its abundant human resource to export services such as IT and health services as India has done, it can still develop some niches in the international markets. Leather products could constitute one such niche.

The other area in which work needs to be done is to follow the gravity model of trade and concentrate on the development of markets nearer home. The accompanying table illustrates two problems in the current structure of exports: concentration in a few markets and dependence on distant countries.

For the last ten years, six countries have accounted for nearly one-half of total exports. Within these, the United States has been by far the largest. China and India don’t figure among major markets for the country’s exports although given their size, the rapid growth in their economies and their proximity to Pakistan, they should be the largest importers of Pakistan’s products.

Given the collapse in the Doha round, what public policy choices are available to Pakistan to change the composition of its exports. Islamabad should do a number of things differently. Among these three are especially important and all of them are directed at trade policy affecting India.

One it should allow the provincial governments much larger role in the making of trade policy. At this point they have been largely kept out of the policymaking process. The Punjab, being India’s neighbor, should be allowed to develop strong trading relations with that country.

Two, Pakistan should aggressively pursue the markets in India even if it means undertaking unilateral actions such as the grant of visas to the Indians wanting to visit the country in the hope that New Delhi would reciprocate such as gesture.

Three, it should use regional arrangements to tie down India to good behavior. In the past Islamabad chose not to pay much attention to the development of the South Asia Free Trade Area, the Safta. That was a mistake.

In so far as China is concerned, Pakistan already has a free trade arrangement but it is not working to produce much trade. The reason is the absence of items of production which would interest China.

One way of developing a China oriented export industry is to encourage investors in both sides of the border to invest in the industries and services of specific interest to China. The Indians are talking that route with good results.

How to expand trade with neighbours -DAWN - Business; August 11, 2008

 

[Neo]

Return to the begging bowl​

Since the restoration of the democratic government, and all the economic indicators, except inflation heading south from the beginning of 2008, a question on everybody’s mind is: does this major milestone in our political history also mean the return of the ‘begging bowl”.

Its’ full-fledged second debut from government’s kitchen in front of the philanthropic governments, development partners and multilateral agencies has already broken the perceived myth of ‘sustainable’ growth and ‘resilient’ economy created by the previous government. One also hopes that there is no ominous link and just a coincidence between the advent of democracy and the re-appearance of begging bowl.

Some may argue that in the current scenario, we just require temporary balance of payment support and it should not be likened to the debut of ‘begging bowl. The economy will be up and running in six months time. But request for large grants indicates that government is in unsustainable debt and future liabilities and cannot assume more loans and its repayments.

Although a declining share of total foreign aid over the decades, grants have been a constant feature of the BoP support since independence. But, they cannot be strictly associated with ‘begging’ when they were and are realised as transactions more dependent on the largess of the donors and gestures of philanthropic governments, sometimes in case of natural emergencies.

Similarly, deferred oil payments worth $5 billion a year that we are expecting from Saudi Arabia any day and food aid plus $15 billion over the next 10 years from USA are soft loans, but the urgency and purpose under/for which they were requested along with the magnitude is tantamount to begging. The ‘democracy bonus’ of $500 million from China in response to our SOS for BoP support is nothing more than ‘begging’. Insistent private foreign direct investment at the highest international economic and non-economic forums as ‘pseudo’ begging. In this globalised world and almost free flow of capital, investment would automatically flow where the return to it are the highest and where cost of doing business is the lowest. Who else would know better about these profitable niches than the investors’ themselves?

By drumming up the case for private foreign direct investment, we implicitly admit, we are ready to give concessions and tilt the level playing ground in favour of foreign investors in order to bolster our foreign reserves.

The begging bowl implies a loss, to an extent, of sovereignty; and type of implicit and/or explicit conditionalities attached to ‘begging’ is more a function of the economic/political power of the benefactor and objectives the philanthropist wants to achieve through the grant.

Moreover conditionalities come in various forms and sizes. The speed at which the foreign reserves and Pakistani currency value is declining, some see IMF/World Bank rescue lending in a few months as a writing on the wall.

As bankers, they would require explicit conditionalities on quick stabilisation of the economy, but the implicit conditionalities of the members of the governing board of these institutions behind these innocuous (and usually half-heartedly implemented) economic conditionalities will be of political nature and may directly affect the sovereignty and security of the country.

In the light of the past experience with the commitment of long-term and stable flow of US aid, the recent announcements are means to front load the political/security conditionalities by dangling the long-term carrot in our hour of need. If the deferred oil facility by Saudi Arabia is restricted to just one year, it would be quite innocuous to our national interests, but if we keep requesting for extensions, one may have to comply occasionally with brotherly ‘favours.’

One hopes that the political and economic managers will not embarrass us going around with the bowl for long. However even the back of the envelope exercise suggests that we will be needing substantial amount of BOP support (or need to beg) in the near future.

Lets’ start with the medium term prospects of narrowing the trade balance. With commodity exports at $20 billion and imports touching $40 billion, the prospects of narrowing this gap by 50 per cent in a matter of one or two years are remote (unless the oil price again falls in the range of $60-70).

Historical trends in exports suggest periodic jumps accompanied by fluctuations around a plateau, i.e., jump from $10 to $15 billion and variations around that number for a few years and another quick jump from $15 to $20 billion and then again volatility around that number for the next few years.

However, historically imports have continued to securely climb by smaller or larger rate every year. Thus we are likely to experience a widening trade gap unless the exports quickly jump to $25 billion mark in the next year. Moving to current account gap, the saving grace is remittances, which fill the trade gap by 25 per cent.

They have reached over six billion mark and expected to grow 10-15 per cent a year thanks to booming economies of the Middle East and aging of western societies. That leaves a current account gap of about $8 billion.

At the fag end of the previous government’ rule and the last financial year, foreign direct investment of $5-6 billion more or less considerably bridged the gap. The simmering political uncertainties, law and order situation and macroeconomic instability has burst the FDI balloon.

Thus in a very optimistic scenario for the next two years, the country would need $5-6 billion or import compression of similar magnitude annually to square the BoP account. It seems the return of begging bowl is inevitable, unless we put our economic house in order on a war footing.

Return to the begging bowl -DAWN - Business; August 11, 2008

 

[Neo]

Manufacturing small tractors and level playing field​

The budget 2008-09 has been termed incentive oriented for development of agriculture. It has provided Rs20.30 billion for food, agriculture and livestock projects and fixed the farm credit target at Rs200 billion.

For this year, agriculture growth is targeted at 3.50 per cent, up from actual expansion of 2.50 per cent in 2007-08. Pakistan has total farm area of 22 million hectares, whereas area under cultivation is 20 million hectare, which is planned to be increased to 24.60 million hectares by the year 2010. These targets seem difficult to achieve, given the present conditions of high price increase in agricultural inputs including electricity and diesel.

Extensive farm mechanisation however can possibly bring in the desired results. Agricultural machinery-including tractors and farm equipment- is an important input contributing to higher production. Unfortunately, the use of agricultural tractors, while increasing manifold in the last two decades or so, remains limited.

In fact, tractor density, or penetration level, is very low compared to the world standards. According to the Agricultural Machinery Census, there were 157,310 tractors in 1984, 252,861 in 1994, 401,663 in 2004. Presently, there are an estimated 500,000 tractors.

The domestic tractor industry has shown a steady growth over the years, and has assembled and manufactured tractors of international quality meeting national demands. It has achieved over 80 per cent deletion level through a robust vendor industry. There are two industrial units- Al-Ghazi Tractors Ltd (FIAT/New Holland tractors) and Millat Tractors Ltd (MF/AGCO tractors)- producing a wide range of 55 HP to 85 HP tractors, with an annual installed capacity of 30,000 units at each plant.

Initially, five companies were licensed to undertake local assembly and progressive manufacturing. The other three companies, assembling Belarus, Ford and IMT tractors, could not finally establish manufacturing facilities.

Nonetheless, due to continuous surge in demand, the production capacity has become inadequate, and the two companies are unable to deliver tractors in required quantities. For example, during 2006-07, a total of 49,500 tractors were delivered against demand of 77,261 units; Al-Ghazi having delivered 26,364 and Millat another 23,136 tractors. Obviously, these companies are overbooked with orders that are finalised on their own terms and prices.

To bridge the demand-supply gap, the government had allowed last year the duty-free import of tractors, but, again, the two companies emerged as major importers too, thus earning windfall profits year-on-year, without implementing any plans for capacity expansion. Responding to the potential large market, only few investors showed interest in setting up assembly-cum-manufacturing plants but failed in seeking government’s approval.

The revival of Green, or Awami Tractor Scheme is on cards, which will lead to higher demand of tractors in near future. The government of Punjab has already announced to provide 10,000 tractors to the farmers in a year, extending a subsidy of Rs2lakh on each unit. Understandably, small and medium farmers are main focus of the official efforts, since they hold 65 per cent of total cultivated area.

The tractors available in domestic market however are large, powerful and costly for small farmers with about 12-acre land holding, in particular. Thus there exists a potentially large market for affordable small tractors, of the size of 10,000-15,000 units per year.

Farmers world-over employ small agricultural tractors of 25-35 HP, and a large number of multinationals are engaged in manufacturing of the small-power tractor and its compatible accessories and attachments, in many countries including Japan, China and India. Two versions of these modern diesel engine operated tractors are available—2-wheel drive and 4-wheel drive--with a wide gear range.

These are suitably employed for all farming operations, from mowing, grading, tilling and ploughing to loading, digging, lifting and transportation. In India, 51 per cent of total market is captured by tractors falling in the range of 31-40 HP, with a sales volume of 148,000 units recorded in 2006.

Likewise, tractors of 20-35 HP are very popular in China. In the early 1990s, Chinese were interested to introduce here the 20-HP tractor with plans to manufacture locally in collaboration with public sector, having prepared a sound marketing feasibility study. Tests and trials of demonstration models were carried out in Sindh province for some time and the then Agricultural Development Bank of Pakistan also consented to the proposal. This however did not materialise because the price of a 25-HP tractor in international market is 66 per cent of the 45-HP tractor, whereas operational cost is higher.

Though the government’s declared policy was for undertaking the indigenous manufacturing of tractors in the range of 45-65 HP, the two tractor companies have developed over a period of years, a market for big tractors up to 85 HP.

Many of the big size models are being imported either as CBU or in SKD condition for local assembly. The manufacturers have simply remained indifferent to the demand of small farmers, whereas product range of their foreign collaborators includes models of 25-35 HP too. The current trade policy also allows duty-free import of tractors.

The government needs to seriously consider devising a prudent policy and preparing a medium-term plan for the rapid promotion of tractor industry, with focus on manufacturing of 25-35 HP standardised tractors, allowing new entrants in the sector a level-playing field.

Manufacturing small tractors and level playing field -DAWN - Business; August 11, 2008

 

[Neo]

Energy security and foreign reliance​

When President Bush and President Musharraf launch-ed the US-Pakistan Strategic Dialogue in March 2006, they agreed to undertake strategic steps in many areas including energy, economic growth and social sector development.

While it was clear from the very beginning that unlike India, access to nuclear energy would remain out of bound for Pakistan no substantial progress could be achieved in other energy fields so far to meet Pakistan’s growing energy needs and strengthen its energy security.

During the last month visit of Prime Minister Yousaf Raza Gilani to the United States, the two sides agreed to hold US-Pakistan Economic Dialogue in Islamabad on August 11, 2008. These consultations have been postponed immediately after Prime Minister Gilani’s return and are now likely to be rescheduled sometime in September.

The $30 million Pakistan Energy Development Programme initiated by the United States focuses on improving power availability, affordability and efficiency. So far, the US support has been limited to provision of solar energy panels for small villages in troubled Federally Administered Tribal Areas (FATA). Funded by the USAID, more than 300 villages in the tribal region are expected to benefit from the solar energy.

The Bush administration had encouraged its companies to invest in Pakistan’s wind power but tangible progress could not be achieved because of their inexperienced Pakistani partners, bureaucratic wrangling and much higher than expected power production cost as the prices of wind turbines went up globally.

Meanwhile, Pakistan’s power production cost has increased more than ever before. The authorities have given the impression that continuing spate of load shedding is because of capacity shortages. The ground situation, however, is much different.

While a seasonal fluctuation with hydropower generation is understandable, the authorities have intentionally downplayed non-utilisation of over 2500MW of Wapda’s thermal power generation capacity because of financial crunch.

Insiders suggest the power purchase cost from most of the thermal power plans has gone beyond Rs22 per unit and it is the hydropower that rescues the economy. Wapda’s generation companies have not been able to run their own thermal stations to their optimum capacity because of their inability to finance expensive furnace oil and diesel.

Wapda’s cumulative cash shortfall have gone beyond Rs150 billion and it has been struggling to make payments for fuel supplies, resulting a huge pile up of inter-corporate circular debt that has engulfed fuel suppliers like Pakistan State Oil and gas utilities.

Non-payment or underpayment of dues to independent power producers has also been resulting in less than contracted power supplies, leading to much higher capacity payments to the IPPs even without its full utilisation.

This situation has given birth to a new debate in the official quarters. The recent international competitive bidding for fast track development of 1500 MW of thermal power projects attracted reasonable response from the private sector but there is a strong feeling that Pakistan should not sign contracts for more than 1000MW because of affordability issues.

The tariffs offered by the bidders have ranged between 11-15 cents per unit (kWh) but critical examination showed that these tariffs practically translated into 15-20 cents per unit because of some hidden allocations, which have to be sorted out.

Also, the authorities believe that about 1500-1800MW of additional electricity would be come on line from October 2008 and December 2009. Since, most of these projects would provide electricity at an average 18 cents per unit, it may not be economically prudent to add further expensive thermal plants.

The major problem with thermal projects is that fuel and inflation are pass-through items, making it unaffordable with rise in international oil market. Already, the hydro-thermal ratio has declined from historic 30:70 to 25:75 in the recent years.

That means the new thermal projects which are in pipeline would tilt this ratio heavily in favour of expensive thermal sector to the extent of 15:85. That would mean the consumer tariff would not be less than Rs20 or so from the current rate of Rs5-6 per unit.

On the other hand, most of the initiatives planned by the previous government over the last eight years have not materialised and seem to be non-starters. For example, the Iran-Pakistan-India pipeline that would have fuelled Pakistan’s power generation over the next decade remains uncertain.

US opposition aside, the three nations have not been able to sign a formal agreement on the project and Tehran has backed out of gas price it had agreed with Islamabad. Import of gas from Turkmenistan and development of five dams in the country, too, seem out of sight at least for the time being.

Interestingly, the United States has been supportive of importing electricity and natural gas from energy-rich central Asian states as an alternative to import of gas from Iran as part of its strategy to economically isolate Tehran. While there still remain a number of unresolved issues with import of gas from Ashgabat, the future of electricity imports from Kyrgyz Republic and Tajikistan would hangs in balance because of security situation in Afghanistan. The only assurance that Afghan energy minister Alhaj Muhammad Ismail could offer last week was that “your brothers and sisters in Afghanistan would ensure security to the (650 km) transmission line in Afghanistan”.

The four nations – Pakistan, Afghanistan, Tajikistan and Kyrgyzstan – signed an inter-governmental agreement last week for the import of 1300 MW from central Asian states to Pakistan (1000MW) and Afghanistan (300MW), many crucial aspects including commercial, legal, security, tariff and technical did not even come under initial discussion and would be taken up later. This import could later be increased to 4,000MW subsequently. That would require a lot of time, energy and commitment.

The World Bank has long been advising Pakistan to start working on import of 4,000MW of cheap electricity from Central Asian states, besides working on domestic sources to overcome electricity shortage owing to a 43 per cent expected increase in demand to 20,000MW by 2010. The Bank estimates that Pakistan’s peak

demand now exceeds 14,000MW and the present installed capacity of 19,500MW has become inadequate on account of the wide variations in the water availability, which greatly reduces the firm capacity available.

Electricity demand at the generation level is forecast to grow at 7-8 per cent per year to about 20,000MW by fiscal year 2010 and 44,700MW by 2020.These imports, the World Bank believes, have two major advantages. First, the cost of supply from Sangtuda, Rogun, Talimardjan and Kambarata power stations in the CARs would range between 4 -6 cents per unit compared thermal power plants being contracted at 18 cents per unit.

Second, the attractive feature of the imports form CARs is that Pakistan’s peak demand occurs in summer, when the Central Asian power systems have large surpluses from their hydroelectric generation stations.

Successive governments have already lost a lot of precious time. The crisis is too serious and requires even serious approach. Apart from controversial big dams, Pakistan has over 25,000MW of hydropower potential based on run-of-the-river model.

Its tariff even at eight US cents per unit maintains declining trend as time passes unlike thermal which keeps on rising. Then there is huge coal deposit in Sindh. Pakistan’s coastal Sindh province alone can generate nearly 11,000MW of electricity from wind.

Solar energy, too, has excellent potential in Pakistan that receives high levels of more than 19 mega joules per square meter of solar radiation throughout the year.

About 70 per cent of rural population lives in some 50,000 villages could be electrified with solar power, leading to load reduction on national grid. Pakistan also has the potential of generating more than 20,000MW from waste energy plants in big cities like Karachi, Lahore, Faisalabad, Multan and Peshawar.

There is nothing wrong if all domestic avenues are exhausted before looking for help abroad. That needs national thinking.

Energy security and foreign reliance -DAWN - Business; August 11, 2008

 

[Neo]

NWFP’s focus on infrastructure​

THE NWFP government has doubled the size of its investment for improving the industrial infrastructure this year amid worsening law and order situation and poor energy supply.

Under the Annual Develop-ment Programme (ADP), devised by the ANP-led coalition government, the allocation for infrastructure projects has been increased to Rs1.24 billion from Rs566.6 million last year.

A total of 60 projects will be financed which include 24 ongoing and 36 new. These projects will get a major portion of the ADP allocation. A big part of the funding will go to improve the industrial estates’ existing infrastructure (mainly roads) and expansion of small industrial estates in Peshawar and Nowshera, procurement of land for proposed China-Pakistan Economic Zone at Hattar and the Export Trade Centre at Peshawar.

Likewise, the setting up of combined effluent treatment plants at Hattar and the Peshawar industrial estates, feasibility studies for setting up of chemical-based industries in southern areas, trucking terminal at Peshawar and an industrial estate at Kohat are also part of the new programme.

The government is attaching high priority to the industrial sector this time, says an official at the Planning and Development Department (P&DD).

The official argues that the industrial sector has great potential for creating badly needed jobs. The poverty ratio in NWFP, according to the World Bank estimates, is 38.1 per cent, the highest among the four provinces. Likewise, 39.73 per cent of the total NWFP population is civilian labour force out of which 35.04 per cent is employed. On the other hand, at the national level, 46.01 per cent of the population is in civilian labour force, of which 43.16 per cent is employed.

The rate of unemployment in NWFP is 4.7 per cent as compared to 2.85 per cent at the national level.

“The province can attract fresh investment, if its infrastructure is good enough, since it has different indigenous raw material that can help in setting up of new industries,” opines an official.

But industrial stake holders are not impressed. For them, the worsening law and order situation in the aftermath of military action going on in different parts of the province, is the major worry.

A Peshawar-based industrialist was kidnapped some three months back, and the police are still clueless about his whereabouts. This has created a sense of insecurity among the business community.

Industrialists say the situation is going from bad to worse which will result in massive transfer of investments to other provinces.

Nauman Wazir, the IAP president, says that every industrialist in HIE is paying Rs20,000 to Rs50, 000 as monthly contribution to keep in place the security system.

Poor condition of electricity and gas supply is also a major concern for the industrialists, which, they say, has not been taken up into consideration so far in the formulation of the provincial ADP.

None of the 90 grid stations in the NWFP has surplus electricity that can be supplied to the existing industrial units, he says and adds that at least 12 industries at the HIE have applied for increase in electricity load, but the Peshawar Electric Supply Company (PESCO) does not have the capacity to meet their power demand.

Likewise, a number of industrial zones such as Bannu do not have proper infrastructure, which should have been focused instead of going for setting up new industrial areas.

Being at the tale-end of the gas distribution network of Sui Northern Gas Pipeline Limited (SNGPL), industries of the Frontier province are the most hit in winters, when public utility disrupts gas supply to balance the demand and supply gap.

To overcome this problem and ensure uninterrupted supply of gas from the nearby Shakardara and Gurguri gas fields, the provincial government had planned a separate pipeline to Peshawar some three years back. But, the project exists on papers only.

The government should have taken steps for the execution of this long-awaited project, says Mr Wazir.

NWFP’s focus on infrastructure -DAWN - Business; August 11, 2008

 

[Neo]

Pakistan inks pact with Iran to import 1000MW electricity​

* Iran to finance completion of project
* NESPAK starts work on feasibility study of project​

ISLAMABAD: Pakistan signed an agreement with Iran to import 1,000 megawatts of electricity to overcome the power shortage in the country and Iran would finance the project’s completion, a senior official in the Water and Power Ministry told Daily Times on Sunday.

He said that the agreement was inked after negotiations during the 17th session of the Iran-Pakistan Joint Economic Commission (JEC) that was held on June 28-29 in Tehran.

He said that Pakistan also planned to import 100MW for the Gwadar Port and 1,000MW for other parts of the country. He said that Pakistan, the National Engineering Services Pakistan (NESPAK) and a consultant from Iran would hold a joint feasibility study of the project. Pakistan has provided Rs 50 million for the feasibility study and the remaining amount would be provided by Iran.

NESPAK: He said that the government had asked NESPAK to complete the feasibility study of the project, adding that it had already started working on it. The official added that Iran had assured the government of Pakistan regarding the financing for the laying of infrastructure including the transmission line. He said that the transmission line would be linked with Quetta to supply power there.

Pakistan was already importing 40MW electricity daily from Iran at 3.2 cents per unit for Balochistan. The sources claimed that the imported electricity was cheaper than the electricity produced by the Independent Power Producers (IPPs). However, Pakistan would need to develop its infrastructure to import more electricity from Iran.

He said that following the hike in fuel prices, the government was currently getting the electricity from the IPPs at 16 to 20 cents/kwh. He said that Pakistan would be receiving power from Iran in the next five years that would cost 10 cents/kwh. He said the power import from Iran and Tajikistan were medium-term solutions to overcome the power shortages in Pakistan that would widen following the pace of the growing economy in the future. Pakistan had signed an agreement with Tajikistan also to import 1,000MW that would be commissioned in 2013.

The official said that the construction of dams like Bhasha would take almost 10 years whereas power import from Iran and Tajikistan would help Pakistan meet its energy requirements more quickly. Pakistan is presently facing a power deficit of around 4,000MW. It would need to add 6,000MW to the national grid in a year to end the load shedding in the country.

Daily Times - Leading News Resource of Pakistan

 

[Neo]

Tarbela Dam can generate 960 MW more power ​

Monday, August 11, 2008

ISLAMABAD: Lack of political will and red tape have hindered the generation of more than 960 megawatt expected potential energy that could be retrieved from the Tarbela reservoir by carrying out a slight modification to the dam's structure and installing two more turbines to cope with the power crisis, well-placed officials told The News.

Talking to senior officials and senior engineers on a visit to Tarbela Dam, this correspondent found that possibility of increasing the dam's power generation capacity was still there. They said: "Since long, the government had planned to modify the water reservoir of Tarbela to pave the way for generating about 960MW electricity, but due to lack of political will and red tape, the projects is still in the doldrums."

There was a plan to install two more turbines at Tarbela Dam, but the said turbines would not be able to generate electricity for six to seven months. However, there was a need to introduce some modifications in the water reservoir (lake) with a view to ensuring sizeable head of water on the two proposed turbines for six to seven months to generate electricity. There is already room or provision in the original design of the water reservoir for proposed modifications and it would not affect the dam, sources in Ministry of Water and Power said.

On this particular issue, feasibility studies are being carried out for making some modifications to make the project of installing two turbines, having the capacity to generate 960MW electricity, economically viable. Earlier, there was a proposal that the Water and Power Development Authority (Wapda) would accomplish this project of strategic significance, but due to lack of adequate financing, the authorities concerned decided that private sector should come forward to complete this project despite the fact that Tarbela Dam is a sensitive and strategic asset.

Tarbela Dam can generate 960 MW more power

 

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Already posted dude, #447.

 

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Low demand, high cost 150,000 lose job in troubled auto industry ​

Tuesday, August 12, 2008

LAHORE: Current turmoil in the automobile industry has claimed jobs of around 150,000 workers, mostly from auto-vending industries which are now operating at around 40 per cent of their installed capacity.

A survey of the auto-vending sector by The News reveals most of the vendors increased their capacity substantially in the wake of sustained growth of over 20 per cent in automobile production during 2001-2006. This capacity is now lying idle as instead of registering some growth the automobile production is on the decline. Most of the auto-vendors, which were running three shifts a day two years ago, are now meeting their orders by operating one shift only.

These small and medium industries, which have been forced to reduce their workforce, are in deep trouble as they earlier went for expansion on low-interest loans when the industry was moving on a sustainable growth path. Then the demand for automobiles started declining with increase in mark-up rates on car finance while vendors are now forced to service their loans on current interest rates as they had borrowed money at floating rates.

At the same time, the vendors allege the deletion policy of the government is in doldrums. Even in vehicles with a deletion level of 70 per cent, they point out, the cost of imported components is much higher than the price paid to vendors for local components. In fact, for 70 per cent local parts the auto-vendors get only 30 per cent of the total cost of vehicle parts while the foreign exchange component for 30 per cent imported parts comprises 70 per cent of the total cost.

The vendors also deeply regret losing their skilled workforce due to low production as these workers were provided in-house training at a substantial cost in various skills. The workers, they say, would divert to other fields as currently there is no work for them in the auto industry, adding they would have to retrain fresh workers when the automobile industry resumes its growth in future.

“There are no chances of resumption of a growth cycle in automobile in the next two years,” says Syed Mansoor Abbas, an auto vendor. “By that time, most of the vending industries would go sick,” he says, adding many vendors would soon default on their bank loans and might be liquidated by bankers.

He says the cost of production has increased enormously due to high steel and energy prices and auto assemblers are not prepared to increase the rates of parts corresponding to the rise in the cost of production.

Even operating vendors, he fears, will close down if prices of parts are not increased by the manufacturers in line with the increase they have made in their cars and tractors.

The News has found that motorcycle manufacturers are also in trouble. Prices of motorcycles are going down while cost of production is increasing. Some vendors say many assemblers of various Chinese brands are in deep trouble as those producing 400 to 500 motorcycles a month are operating much below the economies of scale and some might close down. The minimum survival level, according to industry experts, is production of 2,000 bikes per month or above.

However, some vendors are still operating comfortably despite a negative growth in the automobile industry. They are few in number and their survival depends on finding new markets other than local original equipment manufacturers.

Pakistan Association of Automotive Parts and Accessories Manufacturers’ former chairman Syed Nabeel Hashmi says many vendors have opted for exports, developing stable markets after years of hard work. Moreover, he says, many vendors have entered the local after-sales auto market that until now has been monopolised by Korean and Taiwanese auto part producers. He says local vendors have expertise to produce auto parts of international standards. They now produce parts for many foreign brands and models that are not assembled in Pakistan.

Low demand, high cost 150,000 lose job in troubled auto industry

 

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KSE gains 262 points on Pakistan’s rating news ​

Tuesday, August 12, 2008

KARACHI: Moody’s hint to maintain Pakistan’s rating invited notable buying on Monday restoring the benchmark KSE 100-sahre Index above 10,000 points level.

KSE 100-share Index posted gained 262.41 points or 2.65 per cent to conclude at 10,171.86 points. The cumulative surge of last three successive sessions together stands at 493 points or over five per cent to date.

Prior to this, market had sunk to 23 months low to 9,679 points by Wednesday, August 06, with posting a massive loss of over 38 per cent or 6,000 points from 15,676 points closing of April 18.

Saad bin Ahmed at Capital One Equity said that the statement by an official of Moody’s that his agency would maintain Pakistan’s rating at B2 despite the current political and economic mess in the country, kept the bulls in power for another day.

This was the second investment-friendly development for the equity market in a short while, as on last Friday, August 09, companies listed at the Karachi Sock Exchange (KSE) showed their interest to buy-back their own shares under the depressed stocks market situation, he said.

Amid across the board buying under the lead of blue chips a couple of front line stocks continued to close in red including Lucky Cement, Habib Bank and Bank of Punjab. Moreover, the insurance and refineries, which had remained under selling pressure throughout last week, also came out of depression and invited notable buying while some of them hit their upper breaker of five per cent or Re1.

The parallel running 30-Index also rose by another 365.52 points or 3.19 per cent to close at 11,518.56 points in this session. Market expectations that positive sentiments would continue to prevail under the current circumstances helped generating enhanced turnover at 121.972 million shares. This is over 36 per cent higher than 891.145 million shares on last Friday.

Future market turnover also rose to 17.382 million shares from 15.032 million shares on weekend. Also, the overall market capitalisation soared by Rs76 billion to Rs3.169 trillion. Overseas investors, however, remained net seller of $5.5 million from all three local bourses in this session too.

Hasnain Asghar Ali at Aziz Fidahusein said with the nation closely watching and waiting for yet another historic event, the bulls stayed busy arranging for an extended stay. No doubt the political suspense was at the highest level, but the perception that bright and sunny tracks are a couple of steps ahead.

With the stocks likely to get hit by economic downturn and slowdown have already adjusted accordingly while those likely to benefit from rupee weakening and rise in domestic interest rates continued to attract local and foreign players due to discounted valuations, he added.

The news that Moody’s rating agency has maintained the stable outlook for Pakistan, thus assuring that the efforts made on monetary side would have a positive impact while political scene might start improving from here supported the cause and the index sustained the run-up and managed to close higher, Ali further said.

The plus signs remained changed with 199 stocks advanced against 71 stocks declined, the vale of 14 scrips remained unchanged with total 284 active counters. Highest volumes were witnessed in NIB Bank at 12.655 million closing at Rs9.12 with a gain of nine paisa, followed by DG Khan Cement at 8.908 million closing at Rs48.98 with a gain of 89 paisa, Oil and Gas Development Company at 7.990 million closing at Rs111.60 with a gain of Rs4.45, Arif Habib Securities at 7.816 million closing at Rs119.25 with a gain of 50 paisa and National Bank at 5.365 million closing at Rs114.10 with a gain of Rs5.43.

KSE gains 262 points on Pakistan’s rating news

 

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Moody’s to keep Pakistan’s rating unchanged ​

Tuesday, August 12, 2008

KARACHI: Moody’s will maintain its rating for Pakistan despite political and economic problems facing the nuclear-armed country, a senior analyst from the ratings agency said on Monday.

Moody’s downgraded Pakistan’s rating to B2 from B1 in May because of growing economic imbalances and political difficulties that analysts say have plagued the government that came to power after the February elections.

“B2 is a stable outlook and that’s the way it’s going to stay for now,” Aninda Mitra, a senior analyst with Moody’s Sovereign Risk Unit, told Reuters. Mitra said the rating adequately captured the political risk the country was facing, and while dwindling forex reserves were a matter of concern, steps were being taken to address problems.

“We are also mindful of a lot of corrective measures being put together such as the reduction of fuel subsidies, the increase in GST (general sales tax) and so on, and the State Bank of Pakistan has also tightened policy,” Mitra said.

Moody’s to keep Pakistan’s rating unchanged

 

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China says political stability a must for investment ​

Tuesday, August 12, 2008

LAHORE: Chinese Ambassador to Pakistan Luo Zhaohui has said Pakistan and China have a huge potential to increase bilateral trade as existing volume of two-way trade of $7 billion between the two countries is very small.

Speaking at the Lahore Chamber of Commerce and Industry on Monday, he said China was a huge market that had a global trade volume of $2.2 trillion. Pakistani businessmen, he added, should explore the huge Chinese market for promoting their products besides buying industrial raw material at globally competitive prices.

He said political stability in any country was a prerequisite for foreign direct investment and bilateral trade. Pakistan was the first Asian country with which China had initiated a free trade agreement and that was enough to prove the point that Beijing gave top priority to Islamabad in terms of business and trade.

He cited the example of Pak-China Joint Investment Company, which was the first of its kind China had established with any country of the world. The ambassador said he had meetings with the Punjab governor and chief minister and found them very pragmatic, adding both men were very optimist about future trade relations between Pakistan and China.

Speaking on the occasion, LCCI President Mohammad Ali Mian invited Chinese businessmen to invest in Pakistan in priority sectors like oil and gas, mining, infrastructure, power (coal, hydel, gas), IT & telecom, chemicals (fertiliser), glass, PV & polymers, value added textile, engineering goods, textile machinery, electronics, automotives, agricultural and agro-based industry, pesticides, cool chains, food & fruit processing and packaging, livestock and dairy farming.

He said Pakistan because of its strategic location could be a more suitable destination for Chinese investments, adding the country was offering liberal investment policies allowing 100 per cent foreign equity and equal treatment to local and foreign investors. He said Pakistan had a network of Export Processing Zones and industrial estates ready to accommodate Chinese investors, especially in Punjab province. Mohammad Ali said the balance of trade between the two countries was heavily in favour of China, which required to be turned into a win-win situation for both.

China says political stability a must for investment

 

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Skilled manpower key to industrial development ​

Tuesday, August 12, 2008

ISLAMABAD: Trade and industry is experiencing a shortage of skilled and well trained manpower, which is proving to be a great hurdle in the promotion and growth of productivity of commercial organisations. President Islamabad Chamber of Commerce and Industry (ICCI), Muhammad Ijaz Abbasi stated this in a meeting with the Chairman, National Vocational and Technical Education Commission (NAVTEC) Adnan A Khawaja here on Monday.

Ijaz Abbasi said that NAVTEC initiatives concerning skills development in various sectors through the establishment of Vocational and Technical Education Institutes will play a positive role in providing trained and skilled manpower to public and private sector enterprises.

ICCI President said that Pakistan is blessed with very young human capital, but this huge manpower needs the latest training and skills development to convert this budding talent into a productive and valuable source of production for the country. He asked for establishing more vocational and technical education institutions and training centers to fulfill the emerging demand of skilled, trained manpower for the development of trade and industry in the country.

“After getting vocational and technical education from these institutes, our youth could become a productive and value adding human resource for trade and industry”, he added. Muhammad Ijaz Abbasi said foreign investors always prefer to invest in the countries that provide skilled and cheap labor. By developing the skills and knowledge of its human resource and equipping it with the latest and demand driven education, Pakistan can attract domestic and foreign investment in the country, he added.

ICCI President said that ICCI is establishing a vocational and technical training institute in Islamabad with its members’ cooperation to provide training in different professions to meet the HR needs of business and industry.

He said that ICCI is also constructing a seven storey Export Display Centre in Islamabad with its own resources for the display of exportable items by the trade and industry, and hoped that this centre would give a boost to our exports.

Speaking on the occasion, Chairman NAVTEC Adnan A Khawaja said that the Commission is currently focusing its efforts on four priority areas comprising construction, agriculture, hospitality, IT and telecommunication, which are facing a shortage of skilled and well trained manpower.

Skilled manpower key to industrial development