Pakistan Economy - News & Updates - Archive

[Neo]

After NBP, OGDCL plans share buyback​

KARACHI: Oil and Gas Development Company Ltd (OGDCL) has expressed its intention to buy back its shares from the stock market.

This is the second company after National Bank of Pakistan to announce share buyback within the last couple of days. OGDC’s board of directors is due to meet on September 11, 2008 to take the final decision over the buyback shares proposal, a notice of the company to Karachi Stock Exchange (KSE) stated here on Wednesday. In the prevailing market situation, the buyback of shares by heavyweights of the stock market is widely considered an important tool to support the stock market, which fell unprecedently in the last five months with no signs of recovery.

The floor has been placed on the stock market since August 27, 2008 and as per the latest decision of frontline regulator Karachi Stock Exchange, it will stay on until a review meeting of its board of directors on September 25, 2008. Buy backs are generally carried out at times of crisis in equity markets. For instance on Monday Oct 19, 1987 (also known as black Monday), stock prices in the US nose divided by 20 percent. The following day Citicorp approved a plan to repurchase $250 million of the company’s stock and a number of other companies followed suit. As a result, over a 2-day period, firms announced a buy back plan worth a massive $6.2 billion, which helped to stem the slide in the stock prices. After the NBP and OGDCL, share buyback announcements from some other state owned cash rich companies are also expected in coming days, analysts believed.

 

[Neo]

Trade deficit crosses $3 billion in two months​

KARACHI: Country’s trade deficit widened sharply by 47.67 percent during the first two months (July-August) of current financial year to $3.552 billion over $2.385 billion in the corresponding period of previous year.

The deficit also surged by 46.37 percent in month of August to $1.877 billion compared to $1.282 billion in the corresponding month of last year, Federal Bureau of Statistics (FBS) reported on Wednesday.

The major increase in the deficit was caused by heavy spending on oil import, which pushed up the overall import bill of the country during the period under review.

The export registered substantial growth of 18.85 percent to $ 3.489 billion in the first two months against $2.936 billion in the same period of previous year. Whereas import bill stood at $7.011 billion during the period under review, depicting a growth of 31.77 over $5.321 billion in the corresponding period of previous year.

On YoY basis, export recorded 8.16 percent growth to $1.584 billion during the month of August over $1.464 billion in the corresponding month of last fiscal whereas imports surged sharply during the period by registering 26 percent growth to $3.461 billion compared with $2.747 billion in the previous year.

The inflated import bill has rung alarms among the economic managers of the country because of widening trade deficit, which is badly distorting balance of payment position and enlarging current account deficit

Last month, in order to curtail the burgeoning import bill, government imposed 10 to 50 percent regulatory duty on 379 luxury and non-essential items as well as 100 percent LC margin was imposed by State Bank of Pakistan to discourage the import of these items.

Government estimates to cut down the import of these items to $750 million from $1.2 billion, spent earlier on importing luxurious items.

Analysts, however foresee little relief from these measures as far as the import bill is concerned. “It is the oil import bill, which is the main contributor in deteriorating the trade deficit”, they felt.

With the decreasing international oil prices, which fell to less than $100 per barrel from all time high level of $147, Pakistan import bill is also likely to come down in the coming days.

On the export side, the increase in the two months was quite encouraging and this rise could be attributed to a surge in non-traditional items’ export.

The five-month old ruling coalition is faced with the gigantic task of putting the economy on right track, which is in shambles due to soaring inflation, record trade deficit, depleting forex reserves and devaluing rupee.

Analysts said that unfortunately the PPP-led coalition has been still directionless on how to manage the economic side, but the businessmen community hopes that with the election of Asif Ali Zardari as President of Pakistan, some tangible work is expected to come on ground in the economic arena.

 

[Neo]

Pakistan won't be going to IMF: Zardari ​

KARACHI (September 10 2008): Pakistan will not seek an assistance package from the International Monetary Fund, but will 'tighten its belt,' the country's new president Asif Ali Zardari said after being sworn in on Tuesday. Zardari, in a joint news conference in Islamabad with Afghan President Hamid Karzai, apologised in advance for the hardships people would face as a result of the austere measures that needed to be taken.

Some bankers have said they would welcome Pakistan entering an IMF programme, as it would help restore investor confidence in a country suffering deteriorating economic fundamentals and prolonged political uncertainty. The international bond market has already priced in a possible default. Goodwill towards Pakistan's five-month-old civilian government, however, should translate into loans of billions of dollars needed to avoid a default early next year, analysts say.

The international community is keen to see democracy succeed in a Muslim nation that is on the frontline in the war on terrorism and whose support is crucial to the success of the Nato mission to stabilise Afghanistan. Analysts hope the government led by Prime Minister Yousaf Raza Gilani, a Zardari nominee, will act fast to avert an economic crisis now that the presidency issue has been settled. "Gilani and his cabinet will face up to the challenge," Zardari said.

 

[Neo]

Government least interested in implementing competition law ​

ISLAMABAD (September 10 2008): The government seems least interested in implementing competition law to do away with cartelisation in different sectors as the Minister of Finance has not provided required funds despite repeated requests by the Competition Commission of Pakistan(CCP), it is learnt.

Sources told Business Recorder about a letter recently written by the CCP to the Ministry of Finance, asking for financial resources, as provided under the competition law. There is funding provision in the competition law which envisages four to six different modes with the most viable one being that the government should determine a specific percentage of levies being charged by other regulators for the CCP's smooth functioning.

All the Ministry of Finance is required is to notify that percentage. The Ministry of Finance neither kept money for CCP in the budget nor it has notified the specific percentage from the fee of other regulator despite repeated requests.

The CCP has so far approached three Finance Ministers and five Finance Secretaries, with Ministers including Salman Shah, Ishaq Dar and Naveed Qamar, and Secretaries Ahmed waqar, Tanveer Agha, Waqar Masood, Furrukh Qayyum and now Ahmed Waqar again, but unfortunately failed to move any one of them.

This is a sad affair that the law is not being implemented in totality maybe because of mounting pressure by different cartels such as cement, banking and many others against whom the CCP has taken action recently and some of them were also penalised.

The CCP Chairman had also taken up the issue of financial constraints of the Commission during a meeting with Minister of Finance Naveed Qamar on July 26 wherein he was assured of all-out support, but this promise, too, like previous promises, proved only a word that never materialised.

The CCP in a letter to the Ministry of Finance said that it had become impossible for it to work against entrenched cartelisations with the prevailing financial constraints, and aske it to take a decision whether it was serious and wanted the CCP to bring about competition in different sectors of economies. The role of the CCP has become extremely important in the prevailing market-based economy to discourage unfair trade practices, said an official of the CCP.

 

[Neo]

Vending industry opposes auto parts import from India ​

KARACHI (September 10 2008): Pakistan's automotive vending industry has opposed the entry of automotive parts from India for use in the assembly of vehicles here. Pak Suzuki Motor Co Ltd had proposed to the Ministry of Commerce change of source of engine and transmission components (not localised) from Japan to India and export of Suzuki Ravi pickup, or its 'Knocked Down' (KD) components, to India.

A delegation of Pak Suzuki Motor Co Ltd, led by Hirofumi Nagao, its managing director had a meeting with Commerce Secretary in Islamabad last month where the issue was discussed in detail. Subsequently, the proposal was reduced in writing, and sent to Secretary, Commerce, for approval.

THE PROPOSALS INCLUDED:

-- The annual import of engine and transmission components (not localised) from Maruti India instead of Suzuki Motor Corporation Japan is expected to be $29 million.

-- Pak-Suzuki will export Suzuki Ravi pickup (or its KD components) to Maruti India worth $29 million. Pak Suzuki Motor Co Ltd had also pointed out to the merit of the proposal for the economy of Pakistan through this bilateral trade as follows:

-- Change of source of the above-mentioned components from Japan to India will not put additional burden to balance of payment. In fact, there will be foreign exchange saving due to lower Indian prices compared to Japan and freight cost.

-- By export of Suzuki Ravi pickup there will be earning of foreign exchange for Pakistan.

-- According to Pak Suzuki Motor Co, the above proposal will be net earner of foreign exchange for Pakistan and also will create further opportunities to promote bilateral trade between Pakistan and India and to increase automobile exports for Pakistan automobiles/components to India.

The Company had assured that in case the Ministry of Commerce agreed to the proposal, it will submit the import parts list along with prices from Maruti Suzuki, and further prices of Suzuki Ravi pickups in Complete Built Unit (CBU) and its KD components, which will be offered to Maruti Suzuki India. In this connection the Company had also assured that it will ask Maruti Suzuki India to get approval from Indian government to import 5-10 units of Suzuki Ravi pickup in CBU for testing purpose.

The stakeholders look at this development as a matter of very serious concern for automotive vending industry and desire that it should be placed for open discussion before Auto Industry Development Committee (AIDC), constituted by the Ministry of Industries & Production.

The stakeholders believe that automotive vending industry in Pakistan has the capability of developing and manufacturing these components locally. The proposal for exporting of equivalent value Suzuki Ravi (or its KD) to Maruti India put forward by Pak Suzuki Motor Co is a mere 'lollipop', the stakeholders said.

The most worrisome scenario will be when tracking Pak Suzuki footsteps other Original Equipment Manufacturers (OEMs) will also join the course and ask for similar concessions. What will be the state of dwindling reserves and sliding currency in case import from Maruti India is allowed, they asked.

Instead Pak Suzuki Motor Co Ltd should be persuaded by the Ministry of Commerce to commence localisation of these parts either by providing financial assistance or Technology Acquisition Support (TAS) to local vendors. In the meetings held between Ministry of Commerce and the stakeholders the unanimous view that usually emerge is that they favour expansion of the positive list for imports from India.

The imports from India suffer from no protection of statutory tariff application on imports of automotive parts. Finance Minister Naveed Qamar had recently said: "The enhanced import tariffs shall not apply on the concessional agreement based imports.

Moreover we are still suffering from one thing that the import duties to last up to 2009 do not apply on the import tariffs notified for SAARC including India".

Further, Saarc tariffs including India have a time schedule tending to zero with the passage of time. Presently these exist at half of the percentages of statutory tariffs for imports from other countries. The worst scenario, in the opinion of stakeholders, would be if the imports proposed by Pak Suzuki Motor Co Ltd took place but the exports of Suzuki Ravi did not come off. This would have multi-dimensional adverse impact on Pakistan's industry, they said.

 

[Neo]

To meet IPI gas line expenses: Ogra allowed to include up to Rs 3 per BTU in gas bills ​

ISLAMABAD (September 11 2008): The Economic Co-ordination Committee (ECC) of the Cabinet on Wednesday allowed Oil and Gas Regulatory Authority (Ogra) to include up to Rs 3 per BTU in gas bills to meet the expenses of the Iran-Pakistan-India (IPI) gas pipeline.

This inclusion in the gas bills is premature considering that the US geopolitical interests in the region have to-date militated against the IPI agreement being finalised - US pressure on Pakistan in particular is unlikely to abated in coming years.

"The ultimate benefit of developing gas import project will go to consumers through the gas companies. So, the revenue expenditure on their development should also be borne by them," the Petroleum Ministry argued in its summary.

The IPI steering committee/subcommittee of the ECC in its meeting on July 15, 2008 had recommended that revenue expenditure of ISGS may continue to be included in the operating costs of SSGC and SNGPL respectively, in the ratio of their current shareholding 51:49, to be recovered from gas consumers in the form of consumer gas tariff.

The meeting once again disputed the proposal of Rs 12 billion package for textile industry that infuriated Textile Minister Ahmed Mukhtar who directed the secretary to take the proposal back as he would have got it approved from the Cabinet now.

The participants of the meeting raised serious questions about the performance of the textile industry with some members asking as to what the ministry has done with the amount it was given last year. Some members dubbed the textile bailout package as "social welfare programme for the rich."

The meeting approved additional amount of urea and rejected a proposal of the Ministry of Food Agriculture and Livestock (Minfal) for export of rice fearing that the proposal was similar to that of wheat export that had created shortage of the commodity in the country.

As a result the previous government who had allowed export of wheat initially was forced to import it on double price following a severe shortage of the commodity in the domestic market. The meeting directed the Minfal to fix minimum price of the rice and if the price of commodity goes further down in the local market the Trading Corporation of Pakistan would intervene by purchasing surplus stock.

The meeting also turned down a proposal of the Interior Ministry regarding exemption from allied taxes and customs duties on import of weapon/ammunition for civil armed forces with directives to first calculate the revenue impact of the proposal then bring it to the meeting for consideration. Meanwhile, the meeting allowed gas allocation for three power plants that are to be set up in different parts of the country.

 

[Neo]

Country may not get $8 billion-10 billion from foreign sources ​

ISLAMABAD (September 11 2008): Pakistan's immediate financial requirement of approximately $8 billion to $10 billion is unlikely to be met from foreign countries, international lenders and donor agencies which are being proactively pursued by the government. Sources told Business Recorder that the government is in a fix as it does not want to go to the IMF programme.

While other options for the country are not viable to meet this huge demand for injections. It is clear to all that the International Monetary Fund (IMF) programme is offered on very tough conditions, which are difficult to fulfil both from economic and political perspectives.

Sources said that the target of $10 billion is very challenging. The inflow of loans is not that high even in the aftermath of 9/11, 2001 when, as a reward for President Musharraf's unconditional support for the US-led war on terror, bilateral and multilateral agencies had injected huge amounts into Pakistan economy.

At the present moment in time, in spite of the democracy dividend, analysts are cautioning the government about the considerable difficulties in generating such a large amount from China, the US, Saudi Arabia, and some of the Gulf countries--an amount for which there is no precedent.

In 2001-02, Pakistan received $3.795 billion. This was the highest figure for one year, recorded in the current decade. In 2002-03, the loans declined to $1.37 billion, and in 2003-04, the total volume of loans reached $2.07 billion. In 2006-07, the inflow again surged to $3.51 billion. And, in 2007-08 (July-March), total loans procured from bilateral and multilateral sources were $1.8 billion.

Sources said that if one looked closely at facts, foreign loans are unlikely to cross $4 billion a year mark even if Pakistan is supported by the US, the European Union, Saudi Arabia, and GCC countries along with the World Bank, IMF and other institutions. In addition, they point out that Pakistan just does not have the absorption capacity for even the amount of loans it has already procured--a fact reflected by commitments exceeding disbursements every single year.

A former finance minister, Sartaj Aziz, told Business Recorder that for political and economic reasons, Pakistan must not go to the IMF. He said that it was a positive sign that the government was not going to go the Fund for assistance.

He said there were some positive indications from the US and Saudi Arabia, who were waiting for political stability after Musharraf's resignation. He said that Pakistan needed to focus on agriculture for overall development of the economy and employment generation. Another economists, Senator Khurshid, hailed Zardari's statement of not going to IMF. The Fund's conditionalities are always tough and anti-growth.

Pakistan will have to keep its economy mortgaged to IMF, and even budgetary decisions would be made on its advice, he said. Pakistan has about $9 billion reserves, enough to pay for two months' imports, and efforts are underway to muster financial help from China, Saudi Arabia and some Gulf countries.

 

[Neo]

Government gets $500 million offer against securitisation of remittances ​

ISLAMABAD (September 11 2008): The government has received Saudi American Bank and Al Raji Group's offer to provide Pakistan 500 million dollar against sercurtisation of remittances. Al Raji Group manages a major portion of Pakistan's remittances and Saudi American Bank owns Cres Bank in Pakistan.

These two parties have offered Pakistan to arrange $500 million against securitisation of remittances. Securitisation of remittances for raising money from the banks or other fund managers to support fast depleting foreign exchange reserves is one of the options being considered by the government. The government is now waiting for some competing offers.

Pakistan's remittances had touched all time high level of $6.9 billion in 2007-08. This year the government is expecting even more inflows as remittances and on the same calculations it decided to use the option of securitisation of these inflows.

Pakistan foreign exchange reserves had gone up to around $17 billion at one point. Then due to slow down of the inflows it started to decline. The fast depletion of the foreign change reserves have created an alarming situation for the government. The financial crisis is forcing the government authorities to weigh up every possible option for raising money to get out of the situation but there seems no visible source for immediate make-up except non-traditional sources such as securitisation of remittances and privatisation.

The government is already on its feet to implement a multi prong strategy for improvement on economic front. It has approached Saudi Arabia for seeking oil facility valuing around $6 billion against deferred payment, besides requesting many other countries to provide Pakistan support to overcome economic crisis. It is also seriously pushing forward privatisation programme. For the first time those assets which in the past were not on the priority list for divestment have been included in the sell-off list. The Oil and Gas Development Company's (OGDC) proven reserves of oil and gas is one of such assets. The government needs around 8 to 10 billion dollars to get out of the financial mess.

 

[Neo]

Good practices for doing business: Pakistan ahead of India and Bangladesh ​

ISLAMABAD (September 11 2008): Pakistan ranks 77 in good practices applied for doing business as compared to Bangladesh and India that rank 110 and 122 respectively, a World Bank report revealed. According to the report, there are 10 indicators for measuring the good practices applied for doing business.

These include starting the business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contractors and closing a business.

The World Bank issued a report on 'Doing Business 2009'on Wednesday that focuses on easing the regulatory burden of doing business through reforms in most of the countries of the world.

The report shows that the introduction of reforms in business regulations makes it easier for a country to obtain credit by strengthening the legal rights of creditors and enhancing the availability of credit information. The main purpose of the report is to encourage the countries to bring about changes to improve their competitiveness globally.

The report shows that there are eleven procedures required to start a business in Pakistan in contrast with India where the number is 13, whereas it requires just seven procedures in Bangladesh to start a business. Similarly, it takes 24 days in Pakistan for starting any business while in Bangladesh 73 and in India it is 30.

According to report it requires twelve per cent of per capita income to start any business in Pakistan, while in India the trend goes up to 70 per cent and in Bangladesh it's 25 per cent. Pakistan stands 43rd on the table regarding the rigidity of employment while India is 30th and Bangladesh 35th, the report stated.

The report revealed that six procedures are required to register property both in Pakistan and India while in Bangladesh the number goes up to eight. The report indicates that the cost of doing business can be reduced to a great extent by easing regulatory burden through local reforms and getting inspiration from other economies.

According to the report, New Zealand can be considered as benchmark regarding the credit information, while Pakistan and India rank four in contrast to Bangladesh two. Pakistan ranks sixth in the table regarding the strength of investor protection, extent of disclosure and the extent of direct liability, the report reads.

The report shows that in Pakistan 47 payments are required for an entrepreneur to pay tax while the number goes up to 60 in India while the number in Bangladesh is 21. According to the report Pakistan requires $611 per container to export any commodity while the cost goes up to $944 per container in India whereas in Bangladesh the cost is $970. Pakistan requires $680 per container to import, while India requires $960 and Bangladesh $1375.

 

[Neo]

KCCI suggests industrial estate on National Highway ​

KARACHI (September 11 2008): President, Karachi Chamber of Commerce and Industry (KCCI), Shamim Ahmed Shamsi, has urged the provincial government of Sindh to establish an industrial estate on the National Highway in Karachi on the pattern of Site industrial estate.

In a communication to Sindh Minister for Industries and Economic Affairs, Muhammad Abdul Rauf Siddiqui, he said that the new industrial estate would boost economic activities and create employment opportunities in the province. He also suggested that like the northern by-pass, another expressway is also the need of the hour to link DHA, Korangi with superhighway, which will facilitate transportation and solve traffic problems. He emphasised the need to develop and modernise the agro-based industry in the province.

Establishment of food/fruit processing units be encouraged, lucrative incentives be announced for the business entrepreneurs, metallic roads and necessary infrastructure be made available to create access of products to the markets. He also suggested setting up of fisheries projects which would create new employment opportunities and availability of seafood as nutrition for the common man.

The export of seafood is one of the rich sources of foreign exchange earnings. The condition of the fish harbour needs to be improved to enable Pakistan to regain its market in the European Union (EU). He said that by improving the coastal areas of this province, the standard of living of the population would improve.

 

[Neo]

Outsourcing of data from EU to Pakistan: PSEB issues recommendatory guidelines for IT companies ​

ISLAMABAD (September 11 2008): Pakistan Software Export Board on Wednesday issued recommendatory guidelines for IT companies to adopt model clauses for transfer of personal data from the European Union to third countries including Pakistan. Talib Baloch, Managing Director said that we want to address concerns of Pakistan's IT industry with regard to stringent requirements by EU, & binding corporate rules for international transfers of personal data.

He said that these guidelines are recommended for both Pakistani IT and IT-enabled businesses, especially the BPO (Business Process Outsourcing), to process data and personal information being transferred from anywhere in the EU to Pakistan as well as for businesses with a presence in Pakistan and frequently involved in global transfers of data.

Baloch said that PSEB is aware of the stringent legal requirements by EU regarding outsourcing of data for processing to countries outside the EU and the problems Pakistani companies, at times, face in getting business from EU. He added that PSEB is also aware of the marked differences between the requirements of the EU as opposed to the US in the area of privacy law and data protection.

EU and the US markets are both important for Pakistani IT and IT-enabled trade, the approach to be adopted must not adversely affect the possibilities of Pakistani businesses to export their services to either jurisdiction." he added.

Baloch indicated that this was the first step in implementation of the roadmap, which is part of the Data Confidentiality Law and Framework Project, which is under way. PSEB, in the meantime, has issued guidelines to facilitate the IT industry and encourage companies in exploring adoption of the measures in compliance with the requirements laid down by the EU Directive on Data Protection.

It is envisioned that by adopting these measures, the Pakistani IT and IT-enabled businesses would be able to improve their legal coverage in exporting their services and enter relationship for outsourcing of personal data from the EU to Pakistan. Baloch was happy with the patronage and encouragement expressed by the international businesses in the US & EU on becoming the first mover in the region to adopt compatible international best practices in the area of data protection.

 

[Neo]

PKTCL, Plexus sign software maintenance agreement ​

KARACHI (September 10 2008): Pak-Kuwait Takaful Company Limited (PKTCL) and Plexus has entered into a software maintenance agreement after Plexus successfully implemented its General Islamic Insurance Software at Pak-Kuwait Takaful Limited. To formalise the event, a signing ceremony was held at PKTCL headquarters in Karachi.

An annual maintenance and support agreement was signed between Abdul Rahman, Chief Operating Officer, Plexus and Zubair Ahmed, Chief Financial Officer, Pak-Kuwait Takaful Company Limited.

According to a press release issued here on Tuesday, PKTCL choose Plexus to develop and implement software for their core-business automation which is designed to meet the growth of its business. Plexus' solution has helped PKTCL team create operational efficiency and provided them with a robust technology platform to deploy new and innovative products quickly.

Speaking at the occasion, Imtiaz Bhatti, Deputy Managing Director Pak-Kuwait Takaful said: "Plexus insurance solution covers major insurance business processes starting from underwriting to claims to accounts and Re-Takaful. The system addresses the need for efficient and timely reporting that helps in identifying problem causes and assists management in making effective decisions. The ease of use of reports for senior management is also a plus point we observed while using this system".

Abdul Rahman, Chief Operating Officer, Plexus commented that "Successful implementation of Plexus software solution involved strong commitment from the leadership at PKTCL and consistent efforts from the entire business user."-PR

 

[Neo]

Fesco needs $710 million to improve power system during 2008-17 ​

FAISALABAD (September 11 2008): The Faisalabad Electric Supply Company (Fesco) has required total investment of $710 million during 2008-17 to improve power distribution infrastructure through system rehabilitation, augmentation, and expansion; and relieve the power system from distribution bottlenecks and constraints; enable continued operation and maintenance in accordance with best international practices; and commercial operations.

According to offical sources, the Asian Development Bank (ADB) will provide financial assistance to Fesco for launching 'Energy Investment Plan'. According to ADB study, the distribution companies (DISCOs) including Fesco plan to fund 40 percent of this through self-generated funds and the rest through borrowing from the Asian Development Bank (ADB) and other financiers.

The federal government is actively looking for funds from the private sector and other agencies, but other financiers have not been confirmed. ADB's proposed multitranche financing facility (MFF) will act as the anchor for the investment plan. Financing of the immediate and urgent sub-projects planned for tranches 1 and 2 will provide additional revenues for DISCOs to carry out further system enhancements. The investment program support component, funded from ADB's Asian Development Fund (ADF) resources, will assist DISCOs to structure the sub-projects so they can attract investment from other sources.

The power sector entities, specifically the DISCOs, including Fesco lack the required level and mix of skills or support systems necessary to operate as independent entities covering the whole range of electricity business requirements. Improvements in corporate governance and support systems are required.

A support component is an integral part of the proposed Investment Program. The total cost of the Investment Program's support component is estimated at $10 million for the duration of the Investment Program. The objective of the component is to provide both resources and capacity to enable the DISCOs to improve and expand their current project preparation, implementation, and monitoring capabilities.

Support activities will be developed to cover (i) general power distribution business management, including project implementation, portfolio review, project management, and program management; (ii) technical operation and maintenance; (iii) accounting, financial and economic management, and financial reporting; (iv) contracting, procurement, and inventory management; (v) a management information system and economics of cost recovery and tariff setting; and (vi) project development, including policy development, a feasibility study, site identification, and project design.

This Investment Program focuses on power distribution. In order to enable the power to be effectively, reliably, and safely delivered to existing and new customers, the power distribution companies (DISCOs), including Fesco, in co-ordination with the Ministry of Water and Power have prepared the Power Distribution Sector Road Map, 2008 -17.

Based on current system demand and load growth forecasts in each region, the road map recommends short (priority), medium-, and long-term system improvement projects and details the investment needs. The objective of the road map is to show how the eight DISCOs, including Fesco can deliver reliable and high-quality power supply to the rising number of industrial, commercial, agricultural, and domestic customers.

IT IS CONSISTENT WITH THE GOVERNMENT'S POVERTY REDUCTION STRATEGY AND HAS THE FOLLOWING INTENDED OUTCOMES:

(i) A more efficient power system;

(ii) high-quality power supply through a more reliable and stable system;

(iii) greater geographic coverage; and (iv) greater availability of and access to affordable electricity, by relieving the power distribution constraints.

The eight DISCOs were established as part of Pakistan's power sector unbundling in 1999. Among them, they cover the whole Pakistan, except areas serviced by the Karachi Electricity Supply Corporation, tribal areas, and the Northern Areas.

Each DISCO is required by incorporation and by regulatory requirements to (i) maintain and upgrade its current system; (ii) plan, design, and implement system expansion; and (iii) operate the system according to operational needs and distribution license conditions to ensure effective, reliable, and safe distribution of electricity from the supply points to customers' premises across its licensed territory.

According to ADB study, Pakistan's power sector faces difficulties in its efforts to support the government's strategy of increasing the electricity supply to its urban and rural population and of securing overall economic growth. The key problems are (i) lack of generation capacity, (ii) increasing constraints in the transmission and distribution systems, (iii) weak financial management and sustainability of the sector entities, and (iv) inadequate corporate governance structures for the power companies.

To support development of the power sector and encourage private sector participation, the government has approved power sector policies, strategies, and road maps to (i) ensure independent regulation of the power sector; (ii) complete the power sector unbundling of the Water and Power Development Authority (Wapda) by establishing four generations, one transmission, and eight distribution companies; (iii) begin the power sector privatisation program; and (iv) evaluate and optimise the fuel sources of the power sector to ensure energy security and minimise overall tariff requirements.

Implementation of the government's power sector strategy would have three main outcomes: (i) sector reforms to increase efficiencies and effectiveness and create an enabling environment for more private sector participation and investment; (ii) capacity building in all sector organisations, covering financial management, efficiency improvement, the clean development mechanism, and project management; and (iii) completion of large infrastructure development projects in generation, transmission, and distribution.

The Investment Program is closely linked to Pakistan's power sector strategy and is an integral part of the power distribution development program. The Investment Program will enhance the efficiency of the overall power distribution system; and provide an adequate and reliable power supply to a greater number of industrial, commercial, and residential customers.

 

[Neo]

Let us have a homegrown agenda instead of an IMF programme ​

EDITORIAL (September 11 2008): Asif Ali Zardari, in his maiden press conference after he took oath as the President of the country, categorically stated that Pakistan will not seek assistance from the International Monetary Fund (IMF). This, of course, does not imply that Pakistan has no need of assistance or that it would not hectically seek large injections of money from all its friends abroad.

It implies that the present government regards an IMF package with a deep concern for a reason that is well acknowledged by all: an IMF structural adjustment programme would be accompanied by a host of macroeconomic conditions, which are not only difficult to implement, but would almost certainly damage the country's political leadership in power in the eyes of the domestic public.

A 2008 study undertaken on structural conditionalities in IMF-supported programmes by the IMF's Independent Evaluation Office (IEO) noted that conditions attached to loans have become more focused, but found that there were still too many of them and that some conditions may not have been tied to the main goals of the programme.

These findings must be viewed with concern and could well be a deterrent for any country suffering from weak macroeconomic fundamentals, like Pakistan at present, to willingly opt for the IMF programme. And, needless to say these findings post-date the IMF staff revised guidelines issued in 2006 which recommended that, "adoption of new guidelines for conditionality has been motivated by an increasing recognition of the importance of several interrelated principles for successful design and implementation of Fund-supported programmes.

Chief among these are national ownership of reform programmes, parsimony in the application of programme-related conditions, tailoring of programmes to the member's circumstances, effective co-ordination with other multilateral institutions, and clarity in the specification of conditions."

Within this context it is relevant to note that the last IMF mission to Pakistan insisted that the budget deficit be brought down from 7.2 percent to 4.2 to 4.3 percent - a decline that would reduce the budgetary allocation on development while increasing the need to levy mini-budgets throughout the year either in the form of a raise in energy prices and oil prices in the country that would not reflect a decline in the international price of this commodity and cutting down subsidies on wheat and other essential kitchen items.

It reflects favourably on the negotiating skills of the present government that the IMF accepted its deficit target of 4.7 percent. However what is not to the credit of the present set of economic managers is the fact that the revenue side of the budget lacked clarity and international donors specially the World Bank are reluctant to extend support without stabilisation programme of the Fund.

However, the Bank could be persuaded to lend more than twice the funds sought if Pakistan's economic managers could draw a homegrown framework on similar lines as the Fund aims at boosting exports, curbing demand, thereby lowering the external account deficit and also lowering the budget deficit to below four percent.

This is indeed doable and will also be saleable to the people. Generally, Pakistanis make sacrifices when a popular leadership makes such demands, but they are annoyed at having a programme from abroad suddenly thrust on them. A local drawn-up programme expects sacrifice from top to bottom and not just from the masses.

Be that as it may President Zardari's statement with reference to not going on the Fund programme must not be viewed in the context of there being no need for foreign injections. Estimates place the figure at as high as 8 to 10 billion dollars. As of 2007-08 (July-March) total foreign debt was around 37.2 billion dollars. This represents a figure accumulated over the years.

In 2001-02 total debt incurred from all sources, bilateral as well as multilateral, for the year after Musharraf wholeheartedly supported Bush's war on terror, was 3.79 billion dollars. This figure was not exceeded during the next five years. Thus to generate 8 to 10 billion dollars in one year by tapping friendly countries like China, Saudi Arabia and other GCC countries would remain a considerable challenge.

One would hope that the government can access this large amount and that some of it is in the form of grant but based on past foreign injections this amount appears to be too optimistic. If he fails to generate the amount then President Zardari would have to revisit the promise he made during his first press conference as president of the country.

And, even if some of these inflows do materialise - these would be just one-off nature. Should President Zardari want to translate his words that we are making history into Zardari legacy, all he needs to do is to maintain a sharp focus on ways and means to boost exports and a forward thrust to obtain a double digit growth in agriculture output.

This extra food and other farm surplus will not only help the country attain food security, these will also immensely contribute towards generating exports and with value addition through agri-based industry the country can also meet the future economic challenges on a better footing.

 

[Neo]

Govt turns down World Bank’s consultancy offer ​

Friday, September 12, 2008

ISLAMABAD: The government gave cold shoulder to the World Bank for its proposed assistance programme in some of the ongoing agriculture development projects, sources privy to a meeting held in that regard told The News.

The World Bank has shown interest in capacity building and other technical assistance projects dealing with food security, water efficiency and dairy-related matters, said a participant of the meeting after the deliberations at the Ministry of Food, Agriculture and Livestock on Thursday.

The projects in which the Bank had shown interest in investing include Crop Maximisation Project-II (CMP-II) of Rs8.013 billion, high efficiency irrigation system of Rs18 billion and dairy sector project worth billions of rupees.

A World Bank team, headed by its sector manager Adolfo Brizzi, in the meeting with Secretary MINFAL Mohammad Zia-ur-Rehman along other senior officials of the ministry, discussed the Bank’s assistance in MINFAL’s ongoing development projects funded under Public Sector Development Programme allocation.

The multilateral agencies are interested in development projects rather than in other programmes as the country is facing financial crisis and its foreign reserves are depleting. The federal government is likely to cut Rs100 billion of development projects funded under the PSDP of 2008-09 mainly due to financial constraints as the central bank refuses to give more loans to the government.

The MINFAL is only carrying out three foreign-funded projects by the Asian Development Bank (ADB) of Agribusiness of Rs3.27 billion, Agriculture Sector Development Loan of Rs10.26 billion and PARC of Rs2.96 billion.

Another participant of the meeting said that the bank is offering consultancies for investing in development projects and in consultancies the donors repatriate nearly half of their investment in the projects. The ministry, which is running 66 development projects including ongoing and new ones with estimated cost of Rs125.63 billion, has also closed down some of slow-going projects.