Pakistan Economy - News & Updates - Archive

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Rs 5.3bn Cherah Dam project: WASA agrees to give 50% water share to CDA​

RAWALPINDI: Water and Sanitation Agency (WASA) has finally agreed to give 50 percent share of water to Capital Development Authority (CDA) to settle a dispute between the two civic bodies over construction of Rs 5.3 billion Cherah Dam in Islamabad, a senior official of WASA told Daily Times on Tuesday.

He said CDA had refused to give No Objection Certificate (NOC) to WASA for construction of the dam in its precincts. CDA raised several objections against the project and linked NOC with 50 percent water share to Islamabad from the proposed dam.

The proposed dam will be constructed on Soan River near Cherah village in the jurisdiction of Islamabad. The site is located northeast of Rawalpindi, about 25 km east of Rawalpindi-Lehtrar Road.

He said CDA made unnecessary objections that land cost of the project was very low and the project had many flaws. He said to settle the dispute WASA had decided in principle to give 50 percent share of water to CDA just to start the project and provide some additional water to residents of the city.

He said dam was necessary, as over-extraction of ground water had lowered water table alarmingly in Rawalpindi.

He said the proposed dam would produce only 15 million gallon water daily (MGD) and WASA and Rawalpindi Cantonment Board (RCB) would get only 3.5 MGD each and the CDA would get 7.5 MGD water. He said 3.5 MGD water for city would not be sufficient to meet the growing water requirements for future.

He said at present water demand of the city having a population of almost 1.5 million was 50 MGD. He said the city mainly relied on Rawal and Khanpur dams for water in addition to the ground water in the form of 220 tube wells. The total extraction from these two sources was 37 MGD (21 MGD from tube wells and 16 MGD from Rawal and Khanpur dams).

He said the present deficit of 13 MGD would increase to 41 MGD by the year 2025 if the civic bodies did not explore new water sources, as Rawal Dam had outlived its 42-year life out of 50-year design life and it can’t supply more than 28 MGD water. In drought years, even this supply would not be available to meet the city’s drinking water need.

He said due to depleting groundwater table and inadequacy of existing surface water sources, it was imperative to develop additional surface water sources for augmentation of the city’s domestic water supply system.

 

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'PC planning to evolve integrated macro stability package' ​

ISLAMABAD (September 03 2008): Planning Commission Deputy Chairman Salman Faruqui has said that the government is planning to come up with an integrated macro stability package in near future. For this purpose, the government needs assistance, in the next six months, to bring about macro stability.

This he stated in a meeting with Chinese Ambassador in Pakistan Luo Zhaohui here on Tuesday. They discussed a wide range of economic and development issues. Salman said the Chinese private contractors could be of great assistance by investing in and executing the public sector development projects announced in the fiscal year 2008-09 and beyond.

The Ambassador said that he would encourage Chinese investors to come to Pakistan and invest in various projects. He was informed that Pakistan has already shown some good signs of economic recovery by recording 20 percent growth in revenue collection and 15 percent rise in remittances. Moreover, the increase in duty on import of luxury goods would further help to stabilise the economy.

Presently the most important sector for Pakistan is energy sector. The Ambassador was informed about the investment conference recently held in Washington on energy. Faruqui also discussed the plan for the next proposed investment conference to be held in Hong Kong in October this year.

In view of the exceptionally good relations with China, he invited the Chinese private sector to participate in the conference. He hoped to get ADB and Bank of China to sponsor the conference in Hong Kong. The Thar-coal project also came under discussion and the Ambassador assured to consider bringing some other Chinese company for completion of this project. Faruqui assured the Chinese side to remove all impediments related to the execution of projects by Chinese investors.

The Deputy Chairman said that the Planning Commission wanted to interact and work out an integrated relationship with its Chinese counterpart through joint seminars, mutual visits, and exchange of documents to the benefit of both the countries. He briefed the Ambassador on reorganisation of the Planning Commission so that it can focus on strategic issues in the field of development.

The basic purpose behind the reform is to develop a corporate working environment in the Planning Commission to serve as a think tank with a strategic focus and global perspective at conceptual and operational levels. The Chinese Ambassador assured his country's co-operation in all on-going and future development projects in Pakistan.

 

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Lack of refining facility for thick grade: two million barrels crude exported to China ​

ISLAMABAD (September 03 2008): A foreign oil company, engaged in production and exploration of oil in Pakistan, exported about 2 million barrels crude oil to China for refining, due to insufficient capacity of refineries in Pakistan to process it, sources told Business Recorder on Tuesday.

The company sent the samples to all refineries in Pakistan, but the refineries showed inability to process the crude due to high concentration of some chemicals, sources said. After working on available options, the company sought permission from the government for exporting the crude, and a ship 'Mare Atlantic', carrying 2 million barrels crude oil left Port Qasim for China on Tuesday, sources added.

It is strange to note that the country is paying more than one billion rupees per day as subsidy to oil companies for providing some relief to the consumers, but it has accumulated to such an extent that the government is now left with no option but to pass on the burden of subsidy to the consumers gradually. The government is in need of speedy investment to refining sector of the oil industry to save the precious foreign exchange, sources elaborated.

The crude at present being extracted from a site in Sindh is so thick that it is not possible to refine it in Pakistan, if the capacity of the refineries is not enhanced to the level where such crude could be processed easily, sources opined.

Oil and gas will remain major sources of energy in the world for the next 50 years, at least, or so, which calls for accelerating both off-and on-shore exploration along with improving refining capacity at the local level to save the precious foreign exchange, sources added.

Most energy analysts are of the opinion that sustaining modest economic growth will require massive new investments in the oil and gas sector, sources elaborated. Recent forecast by the International Energy Agency (IEA) estimate that sustaining a 3.6 percent rate of annual growth in global economy up till 2030 will require an expansion of 33 million barrels per day in global oil supplies, sources further explained.The steep rising trend in oil prices needs revisiting of our oil policy, so that whatever we produce locally could be consumed here, for which investment be injected whenever required.

If we had the desired level of refining capacity we could have contributed towards reducing the oil bill to some extent, sources said. There are also some prospects for exploring alternate sources of energy in Pakistan such as wind; solar etc, and the authorities are pumping in some of the investment for this purpose to have a cheap sustainable energy mix for the consumers in the country, sources said.

 

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300 megawatts wind power likely to be inducted by 2010: AEDB ​

ISLAMABAD (September 03 2008): Alternative Energy Development Board (AEDB) CEO Arif Salahuddin said on Tuesday that around 300 MW of wind power was expected to be inducted by 2010 and the first wind turbines being installed by a Turkish company are at an advanced stage and expected to be operational over next 2-3 months.

He said this while giving a detailed presentation to National Electric Power Regulator Authority (Nepra) about the current status of ongoing wind power projects and the issues impeding their early materialisation.

The representative of National Transmission and Dispatch Company (NTDC) and the Ministry of Water & Power also attended the meeting. During the presentation, some issues on grid connectivity for forthcoming wind projects highlighted by the AEDB were thoroughly discussed.

Nepra Chairman Khalid Saeed directed AEDB and NTDC to expedite the induction of upcoming wind power projects on national grid by resolving the inter-grid connection issues at the earliest. NTDC was also advised to examine various proposals for amending the Grid Code 11w wind power projects presented by investors. At present, Nepra has granted generation license to six wind farm developers with a total installed capacity of 500 MW. Moreover, tariff of four wind power plants with a combined capacity of 400 MW has also been determined by Nepra.

 

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Estimates of the problem of poverty​

EDITORIAL (September 02 2008): In a recently released report on internationally comparable poverty estimates, the Asian Development Bank (ADB) has set a new Asian Poverty Line at 1.35 dollars a day income. It also says the previous one-dollar-a-day income standard remains an appropriate benchmark for estimating the incidence of extreme poverty in Asia that, it notes, has witnessed rapid economic growth.

And hence it might also be time to evaluate the incidence of poverty using a benchmark that reflects the region's dynamism. This method of measuring poverty on the basis of income may be relevant to Asia's fast growing economies such as those of China and India having acceptable inflation levels, it has little relevance to our economic situation which, at this point, is anything but dynamic while inflation has hit through the ceiling.

Measuring poverty generally is a dodgy business with some people preferring to use the daily caloric intake as a standard and others favouring consumer price index (CPI), or as recommended to us by the World Bank, the survey based Tornqvist Price Index. How different methods may yield different results is obvious from the previous government's claim, based on CPI, that poverty had retreated from 34.46 percent in 2001 to 23.94 percent in '05, while as per the WB findings the figure for poverty head count in '05 was around 29.2 percent.

The claim, though, may also have something to do with our economic managers' proclivity to fudge figures in order to hide unpleasant facts. Notably, at the time most people familiar with the issue were saying that over 30 percent people in this country lived below the poverty line, the government declared that the figure was around 24 percent, directing the statistics department to use the same in its official documents.

To justify the feat, it simply shifted its model of measuring poverty from CPI to caloric intake. Then there are discrepancies in the figures put out by the Federal Bureau of Statistics and the State Bank, which surely is not helpful for those responsible for addressing the issue, especially at the present time when the highest ever inflation has pushed a lot more people into poverty.

As per State Bank estimates, the overall CPI inflation in July of the current fiscal year reached 24.3 percent as against 6.4 percent in the corresponding month of the last year. And the food inflation rose from 8.5 percent from a year ago to a staggering 33.8 percent during the current period.

These CPI based statistics clearly indicate that transient poverty - caused by an unprecedented increase in international prices of oil as well as protracted political uncertainty at home - has reached a level where a much higher proportion than 24 percent of the population would find one dollar or 1.35 dollars a day income a lot less than sufficient to make ends meet. For those living in chronic poverty mere survival would be an even bigger struggle.

It goes without saying that the prevalence of poverty, both transient and chronic, needs to be determined and addressed on an urgent basis. Which requires change in past practice. It means that first of all the relevant statistics must be stated correctly. Secondly, there is need for use of a consistent method to define poverty. And thirdly, CPI together with survey based price index should be used to determine the incidence of poverty.

 

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UAE real estate sector booming at the expense of Pakistan ​

Thursday, September 04, 2008

KARACHI: The real estate sector in Pakistan is losing out heavily as investments worth almost $3 billion have been transferred to the United Arab Emirates (UAE) within a span of eight months, say observers.

These investments can be made directly, or through middlemen. Locals wishing to invest directly can open foreign currency accounts in Pakistan and travel to the UAE to pay their real estate dealers themselves.

The property cannot be transferred or sold until the down payment and an additional three installments have been paid by the investor, a rule which is strictly adhered to. The method of payment depends on the type of project, say realtors.

Indirect investments are made through the hawala system, where professional middlemen advise potential investors and help transfer funds according to the requirements of real estate opportunities in the UAE. These middlemen have opened up offices in Pakistan and are well-known in the real estate industry.

K K Builders Chairman Munir Sultan said that the hawala system can be misleading. “A property may be located far away from the main city of Dubai, but dealers may portray it to be right in the centre of the city,” he said.

He said the UAE continues to attract investors because it has a more reliable reputation than Pakistan in terms of freehold properties. “The UAE has promised to complete all projects by 2010, but the same cannot be said for local projects. Furthermore, landlords in the UAE are likely to earn more through rent than landlords in Pakistan,” said Sultan.

The reason for this is that the dirham is stronger and more stable than the rupee.

Moreover, tenants in the UAE are less likely to breach property laws than those in Pakistan. Sultan explained the various crises in the country, along with the lack of facilities, are what propelled investors to shift to the UAE.

“In the UAE, investors do not have endless paperwork, nor do they to face legal hurdles,” he said.

An advantage the UAE has that Pakistan lacks is that there are several laws protecting both developers and purchasers of properties. Real estate brokers operating in Dubai are registered, certified, and ranked in a database introduced by the Real Estate Regulatory Agency (RERA). The main objective of RERA is to establish a global foundation for the real estate sector in Dubai.

The introduction of the much-awaited escrow account law (also called the Trust Account law) in Dubai in 2007 has also played an important role in establishing the foundation of Dubai’s real estate sector.

The initiation of escrow accounts has meant that issues related to real estate developments, including delays due to the lack of funds, will now be scrutinised by the authorities, RERA in particular.

Meanwhile, the Dubai housing sector is declining, owing to saturation in the property market. Foreign and local investors have already invested heavily. There does not seem to be any charm in investing further.

By the middle of 2009, it has been estimated that 80,000 of the freehold apartments in what is known as ‘new Dubai’ would be completed. This is expected to be followed by inter-city migration, with people moving towards these newly constructed properties, which in turn would lead to a decline in the rental value of existing residences in the other parts of the UAE.

Foreign freehold property owners can set up their businesses in the UAE and apply for a license, which would allow them to obtain a visa, although when the freehold concept was introduced, foreign investors were enticed with the opportunity of becoming permanent residents with permanent visas upon the purchase of freehold properties. This clause has been retracted. Now, ordinary employment visa rules apply.

Meanwhile, foreign freehold property owners living abroad would need to apply for a tourist visa to visit the country, which limits the stay to a maximum period of 30 days.

The builders and developers seem to have foreseen the original clause would be retracted. Contracts signed with investors clearly state that builders and developers have the rights to withdrawing approval of the visa or making amendments to it.

Contracts signed with investors clearly state that the former have complete rights to either withdrawing approval of visa or making amendments in it, and also state that developers have the right to demolish or reconstruct the building. Nevertheless, investors continue to flock to the UAE market, as it is viewed as politically and economically stable.

 

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S Korea interested in establishing power plant ​

Thursday, September 04, 2008

KARACHI: Korea’s Chief of Mission for Karachi office, K Young Yong Kim has said that a Korean shipbuilding company, Hyundai Heavy Industries, was interested in investing to the country and setting up a 1.7MW unit to overcome electricity shortage.

He explained that this one unit can be easily set up on a container through which around 3,000 homes can be provided power supply. Kim said this during a meeting with Deputy Nazim Nasreen Jalil at the KMC building on Wednesday.

He further added that to overcome Sindh’s electricity deficiency, another Korean company was collaborating with local representatives to install a 175MW plant worth $160 million, which is expected to be completed by next year.

He also said that Korea is interested in importing textile products from Pakistan but due to excessive load shedding this is not being made possible. He informed that there are about 200 Korean businessmen living in Pakistan and 25 companies operating here.

Nasreen Jalil informed the visiting diplomats that several hours of unannounced load shedding has caused havoc for both businesses and people. She said that if uninterrupted power supply is provided to Pakistan then there can be industry stabilisation and trading relations with other countries could improve.

 

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Tumbling rupee may lead country back to IMF ​

Thursday, September 04, 2008

KARACHI: Rupee traded at a record low of 77.45 to the dollar on Wednesday due to heavy oil payments and an economic situation so dire that bankers hope the 5-month-old civilian government will seek IMF support.

The rupee steadied by the close, amid unconfirmed reports of central bank dollar sales, and ended little changed from Tuesday at 76.90/77.00.

The rupee has lost more than 20 per cent against the dollar this year, and foreign currency reserves have fallen sharply due to a deteriorating balance of payments position.

The slide has raised fears of a sovereign default in six months time, Citibank economist Mushtaq Khan said in a research note circulated on Tuesday that advocated Pakistan should turn to the International Monetary Fund.

“With a $500 million repayment of the 2009 Eurobond this February, markets are factoring in a significant risk of sovereign default,” Khan said. He saw measures to stifle imports and the proposed deferral of Pakistani payments to Saudi Arabia for oil imports helping to stabilise the rupee, but investors needed more clarity on the strategy for handling the balance of payments deficit.

Khan wrote: “An IMF programme would bring additional funding policy consistency and discipline” and “political resistance to the IMF may be overcome as the economic slide continues”. Pakistan’s economy is in tatters due to the impact of high oil and food prices, while investors have been frightened off by policy inaction stemming from a lengthy period of political instability stretching back to early 2007.

“They need to restore the confidence of the foreign investors. There is no short-term remedy for this,” said Sayem Ali, an economist at Standered Chartered.

“But if they can get the letter of comfort from the IMF, that is the best thing that can happen right now.”

Inflation has soared to nearly 25 per cent, the trade and fiscal deficits are widening, and the central bank has pleaded with the government to cut its borrowing. In late July, the bank raised its key discount rate to 13 per cent from 12 per cent.

To reduce the trade deficit, the central bank imposed a 100 per cent cash margin on the import of luxury and other non-essential products. The margin had been 35 per cent.

Foreign reserves fell almost $200 million in the weekending on Aug 23 to $9.38 billion, representing less than three months import cover, having slid from a record high of $16.5 billion in October last year.

The IMF could insist on more unpopular measures to put finances in order, though the government has already cut fuel subsidies. “The IMF may bring up-front pain ... but it also includes a published macroeconomic framework, second-generation reforms, and policy coordination within Pakistan and with international donors/financiers,” Citibank’s Khan said.

Pakistan is in talks with Saudi Arabia to defer an estimated $5.9 billion worth of oil payments, and is also in discussions with the World Bank and Asian Development Bank (ADB) for more than $1 billion in loans.

The ADB is due to release $500 million to Pakistan this month as part of a $1.3 billion loan programme that can be used for budgetary support, a Finance Ministry official said last week.

 

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Pakistan ranks high on the vulnerability index: WB changes lending category to ‘project loans’​

ISLAMABAD: Due to the high ranking in the vulnerability index, World Bank has changed its lending arrangements for Pakistan from ‘programme loans’ to ‘project loans’ resulting in releases of funds in periodical installments instead of release in one go, official sources told Daily Times on Wednesday.

Programme loans are comprised of loans for reform programme that require funding in one go for entering in to implementation phase, however, project lending requires hectic work from documentation to implementation and lending for these types of loans comes in installments keeping in view the progress on the project.

Some quarters in the government lamented that International Financial Institutions (IFIs) feel comfortable while working with non-elected governments and dictatorship. While on the other hand, IFIs always apply tough conditionalties while dealing with democratic governments.

Delay in issuance of Letter of Comfort (LoC) by the International Monetary Fund (IMF) authorities is delaying disbursement of loans from the World Bank and Asian Development Bank to Pakistan.

At present Pakistan desperately needs release of funds so that it could beef up its depleting foreign exchange reserves, stop further depreciation of Rupee as well as to meet enhanced imports requirements in the months to come.

The International Monetary Fund (IMF) will decide whether Pakistan’s economic conditions are vulnerable or not and will issue certificate to the lending institutions. At present Pakistan is awaiting for start of lending by the World Bank and Asian Development Bank, an official informed.

Vulnerability index is comprised of many factors like different economic indicators i.e. fiscal situation, economic growth, current account deficit, and inflation. The countries, whose economic indicators in negative zone face difficulties in obtaining new loans.

The country is facing tough situation on all economic fronts as economic growth remained at 5.8 percent against the target of 7.2 percent in 2007-08, foreign exchange reserves are declining at a rapid speed, inflation is ranging in double digit and current account deficit is also likely to increase against the projected figure.

During the last government’s tenure, Pakistan’s economic indicators and fundamentals were very strong and IMF had no problem in issuance of LoC to lending institutions for starting a new loan programme.

Although they have agreed to issue LoC to Pakistan, however, at present Pakistan’s economic fundamentals are not up to the mark and Fund authorities are delaying issuance of LoC till the board meeting.

Although the present government has taken bold decisions and initiatives in its honeymoon period, it failed to please the high ups in the IFIs. PPP led coalition government has taken decisions like increase in gas tariff, POL price, and electricity prices.

 

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Boosting agriculture exports: Modern storage facilities the need of the hour​

KARACHI: First of three Produce Marketing Organisations (PMOs), being supported by the Agribusiness Support Fund (ASF) to get their mango orchards GlobalGAP certified, went through external (final) audit.

Mateen Siddiqui, Chairman Fruit and Vegetable Processors and Exporters Association (FVPEA) and Sindh Director for Agribusiness Support Fund (ASF) Appraisal Committee said Wednesday that exports of agricultural produce was hampered by lack of modern storage facilities where produce could have consistent quality and conform to international standards.

He said the ASF has extended a grant of around Rs 4 million to these three PMOs on 50-50 basis to upgrade their orchards, related facilities, develop a record-keeping system in their orchards right from plantation of a plant, production, packaging and grading of the produce, which is a prerequisite to fetch high value for the fruit in the European and other markets.

He said the European food retailers and the Euro-Retailer Produce Working Group (EUREP) represents leading European food retailers and aims to promote good production practices in the agricultural sector in order to ensure food safety.

EUREP has developed a framework for Good Agricultural Practice, called EUREPGAP, and elaborated these into specific standards for the production of fruits and vegetables, combinable crops, livestock, feed and flowers.

GlobalGAP is an important international production standard for suppliers of agricultural products to the retail sector, for suppliers of the participating European supermarkets.

He said the exporters needed a full-fledged packaging house, ripening chambers, blast chillers and a big airport at Multan, which could entertain wide body cargo carriers to curtail the shipment time.

Around 50 members under PMOs are included mango, kinno and dates exporters being supported by the ASF are GlobalGAP certified.

Progressive mango growers having 720 acres of land and 3,000 tonnes of annual production are the first PMO to undergo the audit, which would enable them to have access to high value European markets, big super stores and chain stores across the world.

He said according to the reports, Ministry of Commerce in consultation with PHDEB, prepared proposals under National Trade Corridor Improvement Programme (NTCIP) for enhancing annual export of fruit and vegetables, and floriculture from existing $160 million to $500 million in the next five years.

He said measures should also be introduced to help promote floriculture as a viable economic activity in Pakistan.

Pakistan, mostly a fresh flower market, is almost flooded with roses, a flower preferred in all types of ceremonies, as well as in perfume industry and in many Auravedic and Greek medicine preparations.

He said Pakistan is successfully involved in biotechnology, tissue culture, cutting of floriculture, and as a result we are now in a position to export flowers to the developed world.

Ahmad Ali Shah, Chief Monitoring Grants ASF said they had started this project last year for mango growers keeping in view the tough requirements laid down by the European and high valued markets so as enabling the growers to fetch maximum produce for their fruits. He said that three PMOs applied with the ASF for grants in this regard.

Mr Shah said this would enable us to have a good 3,000 tonnes of certified fruit available to tap the potential of European as well as non traditional markets such as Singapore. The members of PMOs have already toured Singapore and soon will be visiting UK to make room for their produce, he added.

Pakistan produced around 2.3 million tonnes of citrus fruit that was 5.5 percent of the global production. Its share in world citrus production would be around three percent this year.

World citrus exports are valued at $2.126 billion in which Pakistan’s share was $31 million that was around 2.6 percent. This is due to export of citrus to low priced countries.

 

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‘Marble city’ to be set up in Chitral​

CHITRAL: A ‘marble city’ as well as a marble-processing centre will be set up at Chitral, which has rich potential of standard quality of white marble, participants of a seminar on ‘Development of Marble and Granite Quarries of Chitral’ were told during a presentation regarding cutting of marble stone with modern techniques.

The daylong seminar was held at Zilla Council Hall here under the aegis of Pakistan Stone Development Company (PASDEC). Haji Maghfirat Shah, District Nazim Chitral, was the chief guest on the occasion, while the ceremony was presided over by Sartaj Ahmad Khan, Tehsil Nazim Chitral.

Giving presentation, Tahir Shahab and Taufeeq Ahmad of PASDEC said that China was the main marble producing country in the world with 15.78 million tons of marble production per annum, Iran was the second country having marble production of 13.50 million tons per year, Italy 10.35 million tons, India 9.47 million tons, Spain 8.20 million tons, Brazil 7,67 million tons, Turkey 7.07 million tons, Portugal 3.16 million tons. Pakistan production was only 0.50 million tons per annum, they said.

They said, “During blasting about 80 percent marble is wasted and only 20 percent is used. PASDEC wants to introduce new machineries with the collaboration of mines’ owners for maximum production and collection of marble in big size.”

They said Chitral had rich potential of standard quality of white marble, which had big demand in the world market. “Our company will train 25 girls in gems cutting and polishing. The company will also spend Rs 90 million to promote marble sector in the country.”

Speaking on the occasion, Maulana Qadir Shah, Chitral Marble Owner Association president, Sartaj Ahmad Khan, Tehsil Nazim, and Haji Maghfirat Shah, District Nazim Chitral, said that Chitral had rich potential of marble but could not utilise it properly due to lack of expertise.

They warned that no outsider would be allowed to get a hill on lease except local people.

 

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Rs 260m projects for Mardan​

MARDAN: A total of Rs 260 million will be spent on construction of seven new roads in Mardan district within one year.

A meeting of a local Works and Services Department (WSD), held on Wednesday with District Nazim Himayatullah Mayar in the chair, took this decision. WSD Director Suhail Bin Qayum, Deputy Director Ijaz Khan, Deputy Director (Water Supply and Sanitation) Arif Khan and other relevant officials were also present on the occasion. app

 

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Plan to inject extra 1,500 megawatts in system hits snags ​

ISLAMABAD (September 04 2008): The government plan to inject an additional 1500 MW thermal power in Wapda and KESC systems on a fast track basis has hit snags as tariff offered by most of the companies is on the higher side, sources close to the PPIB Managing Director told Business Recorder here on Tuesday. Sources said a committee headed by Wapda Chairman Shakeel Durrani has negotiated tariff and commissioning period with the qualified companies.

Only a few companies agreed to reduce the tariff; the others remained reluctant. There were reports that the PPIB made efforts to finalise a 'deal' with unqualified companies with incomplete documents, but it failed to succeed due to the presence of other ministries' officials in the committee, the sources added.

Giving the background, the sources said that the federal cabinet on May 14, 2008 approved solicitation for fast-track power generation projects through International Competitive Bidding (ICB).

According to package-A 1000 MW has been proposed from IPPs within Pepco jurisdiction; whereas package-B is based on rental power plants. Initially it had been proposed that 200 MW should be arranged through rental and barge mounted plants near Karachi but later on it was increased to 500 MW. Subsequent to the cabinet meeting, the Minister for Water and Power held a meeting with the Minister for Petroleum, Secretaries of the Ministry of Water and Power, Petroleum, Environment, MD PPIB and discussed the strategy for implementation.

The sources said projects were advertised on May 17, 2008. Request for Proposals (RFP) issued to 42 interested parties (29 for Package-A and 13 for Package-B) by PPIB. The last date of bid submission was July 15, 2008. Technical proposals of 12 received bids (9 for Package-A and 3 for Package-B) were opened on the same day for 3,738 MW capacities.

The financial and tariff bids of responsive bids were opened publicly on August 2. In accordance with the GoP guidelines for determination of Tariff for IPPs, the competent authority constituted a bid evaluation committee comprising representatives from the PPIB, Wapda, Nepra and the Finance Ministry.

The report of bid evaluation committee was discussed in a meeting on August 23, 2008 chaired by the Minister for Water and Power in the presence of Wapda Chairman, Managing Director Pepco, Managing Director PPIB and General Manager WPPO and other PPIB officials.

A committee under the Wapda Chairman with Managing Director Pepco, Managing Director PPIB and General Manager WPPO was constituted to negotiate tariff rates, Rate Of Equity, Commercial Operating Date (COD), etc with short-listed bidders. The committee met on 25 and 26 August with the bidders requesting to review their tariff and commissioning date. The sources said a meeting of special cabinet sub-committee was thereafter held on August 28 to finalise the selection of these projects.

The committee was told that power dispersal from Karachi to the Pepco load centres from the proposed LPG power plants will not be possible in the initial two to three years due to transmission constraints and power from these lPPs may have to be absorbed by KESC during this period.

The offers of LPG-fired IPPs to be installed by Progas (305 MW) and Cavalier Energy (470 MW) under package (Package-A) in Karachi and one rental power project (Package-B) to be installed by Karkey (231.8 MW) at Karachi were agreed in principle.

However, the cabinet sub committee advised the Wapda Chairman along with a team of Secretary Petroleum, MD PPIB, MD Pepco and GM WPPO to further discuss the reduction of tariff and adjustment of commissioning date with the bidder for package-A and the higher bidder (Walters) for Package-B.

The sources said, in the meeting with Progas (Package-A) on August 29 the company offered reduction of 0.053 cents/kWh by lowering its tariff to 14.47 cents/kWh, which made it close to Cavalier Energy offer. During meetings with Creative Energy Resources and Attock-Wartsila Consortium for Package-A, it was evident that cost on RFO fuel when compared with the latest tariff determinations of Nepra for reciprocating engines of Liberty Tech at 12.5373 cents/kWh on RFO fuel was higher by 107 percent and 110 percent.

Both the companies were requested to rationalise their total tariff and match their completion schedule with commissioning date targets given in the documents. Creative Energy and Attock-Wartsila Consortium were not willing to improve their quoted tariff as well and were reluctant to meet the completion target date CODs according to RFP schedule.

Ruba Energy offered to reduce its tariff from 14.9786 cents/kWh to 14.7486 cents/kWh (reduction of around 0.23 cents/kWh) on RFO fuel, while its COD is within schedule. The tariff offered by Ruba is still very high and its acceptance will set a wrong precedent. The committee headed by Wapda Chairman has suggested that three bidders ie Attock-Wartsila, Creature Energy and Ruba Energy may be advised to approach Nepra for tariff determination outside the fast track approach as regular projects as decided in the meeting on August 29.

The committee has further recommended that rental tariff offered by Walters is 17.43 cents/kWh on RFO fuel is on the higher side. The company should match its total tariff with Karkey, otherwise the bid may not be considered.

Karkey has reduced its rental rate from 6.35 cents/kWh to 5.98 cents/kWh (ie 0.37 cents/kWh). The revised total tariff proposed by Karkey is 16.2123 cents/kWh on RFO fuel, which is slightly higher than the existing rental power contracts. However, the committee believes that keeping in view the power crisis in the country in general and KESC in particular, the offer of Karkey may be considered, as it is the lowest offer.

 

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$100 million plan for credit flow to SME sector: DFID and SBP sign document ​

KARACHI (September 04 2008): The United Kingdom Department for International Development (DFID) and State Bank of Pakistan (SBP) have signed a $100 million program aimed at increasing the flow of credit to the small and medium enterprises (SMEs) sector. Under DFID, a credit guarantee scheme would be established in addition to capacity-building program for banks to overcome the issues facing SMEs financing.

According to the minutes of the Private Sector Credit Advisory Council (PSCAC) meeting held here in June, SBP Director, SME Department, informed the meeting that there were approximately 3.2 million business enterprises, and the SMEs constitute almost 99 percent of them. SMEs sector, in terms of banks' exposure, is the second largest after corporate sector.

He said that overall growth within SMEs sector was encouraging which was evident from its outreach, which had increased from 67,520 to 184,000 borrowers during the period from December 2002 to December 2007. The market potential for SMEs finance is still, huge but due to many issues/impediments, banks are reluctant to get into SMEs lending in a big way.

Major constraints in lending include lack of collaterals to meet banks' requirements, absence of proper information about business, lack of awareness, lack of credit history, lack of innovative cash flow based products, high management cost, etc.

The CEO of Small & Medium Enterprise Authority (Smeda) told the meeting that in spite of SBP's initiatives, banks are still not meeting credit needs of SMEs due to lack of their capacity, non-availability of cash flow based financing products, and traditional mindset. He urged the banks to develop innovative and targeted products to meet the credit requirements of this segment especially the small enterprises.

Smeda, he said, has developed accounting manuals and also facilitates SMEs in preparation of loan proposals and feasibility report for obtaining loans from banks. SBP Governor asked him to provide the list of SMEs benefited from its services.

The representative of SME association, however complained that small enterprises were still unable to get credit from banks because of lengthy and cumbersome lending procedures, and collateral and financial requirements. He urged the banks to develop collateral-free/cash-flow-based lending products to meet the requirements of this large segment of SMEs.

Representatives of banks, present in the meeting, explained that as far as medium enterprises were concerned, the credit flow had increased significantly. However, due to non-disclosure and lack of information on cash flows and inadequate collaterals, financing of small enterprises was the biggest challenge. The setting up of SME credit guarantee scheme by SBP was expected to resolve the issue to a great extent.

They further said that financing to small enterprises was more challenging and costly. Therefore, program based techniques/products needed to be developed by banks.

On housing finance, the SBP Governor said that it was one of the emerging profitable avenues for banks as the country has been facing shortage of housing units like other developing countries. The recent housing data shows substantial growth, but still lacks behind the desired level.

Efforts are being made by SBP for the establishing 'mortgage refinance company' for development of schemes for rural and low cost housing. According to the latest statistics, the share of House Building Finance Corporation (HBFC) in housing finance was continuously declining as compared to commercial banks and it was expected that they would continue to maintain this trend in the future.

For the development of housing finance, SBP has constituted housing advisory group with representation from all stakeholders with the objective to review the existing regulatory and policy framework and prepare recommendations for the promotion and development of housing finance.

The group has made several recommendations relating to banks provincial and federal governments and the same are being examined by concerned quarters. In addition, for the capacity building of banks on mortgage lending, training programs in collaboration with IFC have also been arranged by SBP.

SBP Governor said that micro-finance sector has also made impressive progress in terms of enabling policy environment and out-reaches and the future growth is enormous with the estimated target market size of 30 to 40 million clients. SBP has developed a strategy for expansion of micro-finance outreach to three million borrowers by 2010 and to raise this number to 10 million borrowers in next five years.

In this regard, various initiatives including branchless banking, transformation of Khushhali Bank and NRSP, entry of international successful players in micro-finance sector, using post offices as delivery channel for micro-finance, trade union development plan, Islamic micro-finance products, and development of financial literacy plan are also being undertaken.

The growth in micro-finance could pick up significantly if commercial banks with extensive branch network and low cost of funds may develop micro-finance products or collaborate with micro-finance institutions for provision of the financial services to the poor.

 

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Listed companies likely to witness nominal growth in fiscal year 2009 ​

KARACHI (September 04 2008): After average annual earnings growth of 21 percent in last 6 years, the listed companies are expected to witness a meagre growth of 7 percent in FY09, analysts said. The earnings growth projection for FY10 is 14 percent.

"The coming years will not show similar performance as it was witnessed in last six years due to external and internal shocks to the economy coupled with the bearish trend in the local capital markets", Muhammad Sohail, senior analyst at JS Global Capital Limited said.

"With indications of slowdown in key industries in first two months (July and August) of FY09, we have revisited the earnings projection for coming years," he said. "We have used respective firm's actual year-end in our analysis," he added.

He said that the growth will be led by heavyweight exploration sector that is likely to post earnings growth of 33 percent next year, thanks to higher oil prices and weakening Pak rupee.

Statistics of different industrial and services sectors available so far show a dismal performance. Overall cement sales in July and August is down 2 percent with local sales declining 16 percent. Automobile sales have declined by 42 percent in July. Cell phone subscribers have declined by 48 percent in July 2008 compared to July 2007. Moreover, bank advances growth has declined by 2 percent since June 2008. July oil sales are up only 3 percent. Moreover, in case of fertiliser and oil & gas where Pakistan is a net importer, the numbers are not impressive. Fertiliser sales were down 38 percent in July while oil and gas production was down 1 percent.

Fertiliser companies' profits are likely to jump 26 percent next year on account of fertiliser shortage and rising prices. Banking sector, another heavyweight, will post a flat growth. Though spreads will not come down sharply, the lower advance growth and higher provisioning will be the main culprit. Oil marketing companies and refineries' profits are expected to decline by 34 percent and 47 percent, respectively, due to no huge inventory gains this year.