Pakistan Economy - News & Updates - Archive

[Neo]

However, Pakistan has, of late, been itself inclined towards bilateral activism. Only recently its FTA with Sri Lanka has gone into operation. Another 14 FTAs are to be or already being negotiated. The countries are China, Malaysia, Singapore, Indonesia, Tunisia, Mauritius, Morocco, Laos, Saudi Arabia, Oman, Kuwait, the UAE, Bahrain and Qatar. With China, there already exists a preferential trade agreement for tariff concession on numerous items.

Another issue that disturbs American investors is the inadequacy of intellectual property rights protection in Pakistan which the US-Pakistan Business Council has also been pointing out. The US Trade Representative’s annual report has been placing Pakistan each year, since 1989, on Priority Watch List or “Special 301” for piracy and counterfeit problems. The establishment of Pakistan Intellectual Property Organization (PIPRO), though admired, has not impressed the US authorities and the US copyright industry remains disappointed. However, American industry is now less angry (because of Pakistan’s lead role in ‘war on terror’) and has asked the USTR for discontinuing further investigations into the rampant copyright violations.

The problem is that the US has always viewed WTO agreement on trade-related intellectual property rights (Trips) as being inadequate and wanted the WTO and World Intellectual Property Organization (WIPO) to set higher standards. The US attitude has largely been influenced by its failure to obtain an agreement on trade in counterfeit goods at the end of the Tokyo Round (1979) and later by resistance of the developing countries (led by India and Brazil) in the first half of the 1980s to include intellectual property as a negotiating item in a new Gatt round.

According to Aziz Chaudhry, an activist, Washington insists on both stiff intellectual property laws and settlement of outstanding investment disputes to be sorted out before negotiating a BIT. Progress on negotiations for a US-Pakistan bilateral investment treaty is being stalled by the US until it sees the introduction and better enforcement of IPR and the resolution of investment disputes, particularly in the energy sector.

Yet even more egregiously, in the draft US-Pakistan BIT, the US has been insisting that Pakistan pay damages to US companies for their “future” investment in case there was an infringement of IPRs and unilateral cancellation of licences. According to Pakistan’s law ministry officials, US negotiators insist that either Islamabad pay immediate compensation to the affected US firms or the World Bank’s ICSID should pay the compensation and treat the amount as a loan to Pakistan.

Chaudhry is of the view that it is because of the fact that the WTO negotiations have so far failed to deliver as much as many corporations would want, the US and other governments, under the pressure of big business lobbies, are increasingly turning to bilateral free trade and investment agreements.

With President Bush completing his second term, one can expect more aggressive US free trade and investment bilateralism. These negotiations are being used strategically to advance not only US corporate interests, but also the US administration’s broader foreign policy and geopolitical goals.

At the start of talks on the US-Pakistan bilateral investment treaty in September 2004, the then USTR chief Robert Zoellick said: “ Pakistan and the United States are partners in combating global terrorism.

A BIT based on high standards as contained in our model text can play an important role in strengthening Pakistan’s economy, so as to create new opportunities for exporters and investors in both economies and assist in meeting the economic conditions to counter terrorism.”

However, it is not the WTO’s failure alone to reach an overall accord under Doha mandate that the US is trying to cash on. It is in fact a greedy attempt on its part to extract maximum concessions from weak developing countries by taking the route of bilateral or sub-regional agreements. And the experience of several developing countries tells us that there has been no impact of BITs on investment flows from the signatory developed countries.

Developing countries are usually eager to attract foreign investment, whatever the conditions, under the belief that this is the only way out to get rid of under-development.

A study conducted by Prof. Carlos M. Corea, an expert on IPR issues, says the BITs or free and regional trade agreements (FTAs, RTAs) actually allow developed countries to influence the domestic political economy of developing countries and advance the interests of their corporations in the latter’s markets. The establishment of BITs has a strategic value for developed countries.

According to him, the BITs of American initiative often contain following concessions and guarantees on behalf of the developing country partner:

(1) Every sector of the economy is to be opened to foreign investment. These include health, education, electricity, water and even prisons.

(2) ‘National treatment’ to be accorded to American companies. National treatment, a WTO term, means equal treatment.

(3) US investors to enjoy same privileges as local or any other foreign companies.

(4) Expectation of earnings by US businesses must be guaranteed.

(5) Compensations to US firms when they do not earn what they expect.

(6) US businesses to be protected against any kind of expropriation.

 

[Neo]

By Zafar-ul-Hassan Almas
Pakistan’s economy has gained more strength during the course of last four years. Its macroeconomic indicators have posted marked improvement indicating sustained growth.

During the last five years (2000-05), there is a tremendous rise in inflow of remittances, exports, micro-credit, development expenditure, revenues, and low inflation rate which has only gone up last year but it is still below double-digit level.

The government’s poverty reduction strategy being followed for the last six years include: sustaining higher growth momentum, promoting social development, pursuing good governance and protecting the vulnerable segments of the society. Poverty and social sector related expenditures under the strategy are the most important fiscal intervention to target the poor and vulnerable sections of the society.

In 1997, Noble Laureate Amarta Sen said “Unlike agricultural growth, which often reduces poverty only by increasing mean consumption, the government expenditure reduces poverty both by increasing mean income and improving the distribution of income”.

The spending on social sector witnessed a rise during the last five years. It was less than Rs100 billion six years ago and it increased to over Rs300 billion last year.

Over the last six years, the government has spent over Rs1 trillion in this area and is expecting positive results. Pakistan has invested heavily on infrastructure projects during the last three years which has enhanced the level of economic development.

Have such policies and programmes improved the living conditions of the people? Have they reduced poverty and improved social indicators? These are valid and frequently asked questions. The efforts to strengthen the economy will not be completed unless macroeconomic gains trickle down to masses in terms of improved living conditions.

The concept of pro-poor growth has recently emerged in the diction of economics. It is not the economic growth per se but quality of the growth that makes dent on poverty. The macroeconomic instability arising from unsound policy has a direct bearing on the well-being of the poor. The pro-poor growth means growth with macroeconomic stability and sectoral composition of growth matters depending on extent of labour intensity.

Agriculture and construction sectors are invariably more labour intensive than manufacturing and services sector. But within manufacturing and services sectors there are pockets of labour intensive sub-sectors. The small and medium industries contribute bulk of the manufactured exports and wholesale and retail trade account for bulk of services sector employment. The crop sector in the agriculture for example generates more than 40 percent of rural employments directly.

The major crop component witnessed a 57 per cent rise in value addition in nominal terms which implies transfer of huge amount to rural areas. When we see patterns of economic growth during the last three years in this backdrop, the pro-poor growth accounted for around 70 per cent of economic growth during the last year’s growth of 8.4 per cent and significant contribution to growth in 2002-03 and 2003-04.

The industrial development is crucial because of limited capacity in the agriculture sector for the employment of growing labour force. The government has provided various incentives to boost industry and increase competitiveness. The large-scale manufacturing grew at an average rate of 11.1 per cent during the last five years which is highest persistent growth for any period in recent economic history.

Such an impressive growth in industrial production is not concentrated on few items; rather it is broad-based with construction related industries, consumer durables, capital goods etc witnessing tremendous growth.

Some five years ago, the country was producing nine million tons of cement. This year the production is likely to touch over 14 million tons. Five years ago, the country was producing some 33,000 cars. This year the production is expected to touch 125,000. Five years ago, the country was producing 95,000 motorcycles. This year, it is likely to produce 450,000. The prices of motorcycles have nosedived.

Considerable advancement has been made in the production of consumer durables. Five years ago, the country was producing 121,000 TV sets. This year the country is expected to produce 851,000 TV sets.

The prices have also come down. Five years ago, the country was producing 4821 air conditioners. This year 140,000 air conditioners will be produced. Similarly, five years ago, the country was producing 211,000 refrigerators. This year, the target is to produce 630,000 refrigerators.

These are the clear examples of growing consumer demand and emergence of a strong middle class. This is also a clear indication of the rising levels of income. The growth in large-scale manufacturing is not limited to consumer durables. This must have generated some employment. Call centres, information technological explosion, exploding mobile business and growth in many sectors should have created employment.

As a study by Centre for Research on Poverty Reduction and Income Distribution (CRPRID) suggests that poverty is characterized by large amounts of clustering around the poverty line. This suggests that there exists a high proportion of vulnerable population which is likely to move in and out of poverty as a result of changing economic conditions.

The concentration around poverty line implies that the poverty incidence can change dramatically or a large section of the population can be categorized as vulnerable – i.e. it is likely to fall into poverty as a result of a shock or move above the poverty line through targeted interventions of the government.

Estimates suggest reduction in poverty between 1990-91 and 1993-94, by approximately five percentage points, followed by an upward spike of four percentage points to 1998-99, and reduction of 6.7 per cent between 2001 and 2005. The wide swings in poverty in Pakistan are a norm rather than an exception.

Poverty is a concept that spans a range of dimensions, such as health, education, mortality and security that is not correlated with conventional measures of income poverty. But we have to live with the international norms and calculate the income poverty as others do.

There is another kind of statistics which reveal our poor show on these counts.

There can be a debate over improvement in the statistics and the government should not be complacent over a meagre reduction in poverty to the extent of 6.9 per cent.

More than one-fourth of our population lives below poverty line and difficult times are ahead.

http://www.dawn.com/2006/04/24/ebr9.htm

 

[Neo]

By Sultan Ahmad
In the oil, gas and power sector in Pakistan the need for investment capital is very large and the profits exceedingly good. Pakistanis would like to play a major role in this sector or willingly to commit small funds though such companies are available relatively cheap and on rather easy terms.

The cost of a mega oil refinery to be set up in Hub is $2 billion Dollars, for example heedless of the cost of dealing with the violence in the region. The refinery is to be commissioned by 2010. Investors are needed for this major project.

The government has directed the OGDC to drill a 1000 gas and oil wells during this financial year, but only a third of the wells have been drilled during the three-fourth of the financial year.

The government has been influencing the incentives for oil and gas companies but they have been asking for more than what the government is ready to give.

So it has come up with liberal tax incentives for major gas and power projects. It has offered to provide tax and duty holiday for LNG plants, which it prefers, with a 10 year tax and duty holiday. The tax relief covers import and distribution of LNG plants.

The government has also come up with a new tariff for hydro units. The average power tariff for gas-based projects has been increased 8—10 cents, and diesel projects to 13 cents. Work on six dams is to start in two years. But Pakistani investors in this area are too small to cope with the task of producing hydro power. And too few of them are very adventurous in this area.

They prefer risk free and maximum profit enterprises, which the energy sector is as the KESC-100 index shows.

Farooq Hasan, who wanted Pakistan’s entrepreneurs to take over KESC following its Privatization, went from one rich Pakistani entrepreneur to another asking them to take over KESC jointly instead of letting that fall in to foreign hands, following its privatization. But all of them complained of the rowdy labour of KESC and opted out .

The same is the experience of the others, more or less who wanted the oil and gas companies led by the PSO, Sui Southern and Sui Northern gas following their privatization. And their eventual ownership remains to be seen.

With the purpose of achieving larger production of hydel power, work on six major dams including Basha dam, Kalabagh and munda dams is to begin in a period of two years says the minister for water and power Liaqat Jatoi.

The first to begin in Chilas would be the Basha dam with a storage capacity of 7.3 million-acre feet of water, the biggest dam of the six. Its feasibility study is complete and its design and tender documents are under preparation.

These dams including Akori dam and Nai Gaj are scheduled to be completed over a period of 10 years. As they come up, the power production units are expected to be setup to produce power even before their formal inauguration.

The World Bank and other international lenders may be ready to lend large sums for the dam. In fact, the World Bank had been urging the government to take early decisions on the dams, so that their construction can begin early.

While the World Bank loans will be available for the construction of the dams, the government expects the private sector to come up with a required investment for power production.

The higher Hydro rates may attract the foreign investors to play a role in producing more of the cheapest source of power in Pakistan. If necessary the government may raise the rates for hydel power higher. The higher rates have been announced at a time when the world oil price has shot up to $75 a barrel and even the Americans are outraged to pay $3 for a gallon of gasoline.

Unlike in the past more foreign countries are interested in the energy sector in Pakistan, the Russians with their waste experience in the oil and gas sector are keenly interested in the oil and gas projects.

A Russian consortium comprising five companies had recently visited Pakistan to take part in the cross border gas pipeline projects and to invest in import of natural gas, PNG and other major projects.

A five member delegation from Russia recently met the Pakistan petroleum minister Amanullah Khan Jadoon and discussed the investment prospects which appeared bright.

China which has a 300-MW nuclear power reactor working at Chashma and another construction in the same sight is ready to offer three more nuclear reactors with a capacity of 900 MW. China is interested in participating in other areas of energy production including renewable energy.

Pakistan has signed an agreement with the US during President Bush‘s visit to set up a working group with the US to assist it in the expansion and diversification of its energy sources, except nuclear power.

Pakistan wants the US to treat it at par with India, but the US is not willing. But India is able to get nuclear fuel from the Soviet Union as well.

The US wants Pakistan to opt out of the Iran-Pakistan-India gas pipeline and if it does so, the US will help in financing the Turkmenistan-Afghanistan- Pakistan gas pipeline.

Apart from the Iran-Pakistan-India gas pipeline which is under negotiation, Pakistan has signed a memorandum of understanding for a gas pipeline from Turkmenistan passing through Afghanistan, before reaching Pakistan.

The pipeline may eventually end up in India. The Saudi Arabian investors are also interested in financing the pipeline and to participate in various other energy enterprises in the region after they have taken over KESC and Pakistan steel.

The issue is the Pakistani participation in the energy enterprises, which is very small. It is to be seen what part the Pakistani entrepreneurs will play following the privatization of PSO, Sui Southern and Sui Northern gas companies.

They will have to join hands to be able to play a substantial part in such companies. Otherwise too much of the large profits will be going out and straining the balance of payments critically over the years.

 

[Nasir]

ISLAMABAD: The government of Pakistan owed loans amounting to US $15.467 billion to the World Bank (WB) and Asian Development Bank (ADB) collectively at present, Online learnt.

" The government of Pakistan owes loans of an amount of US$ 9.155 billion up till 28th February 2006 to the World Bank at present," sources said.
The sources said that the said loan included IDA amounting to US$ 6.950 billion and IBRD to the tune of US$ 2.205 billion by Feb28 2006.
The rate of interest for IBRD on the basis of spread loan or variable spread loan (LIBOR+0.5 to 0.85 spread) and IDA loan are free of interest but incur a commitment charge of 0.5 percent and service charge of 0.75 percent.
The sources said that the total amount of loan Pakistan owes to Asian Development Bank as on January 31, 2006 stands at US$ 6,312 million.
Out of this total loan amount to ADB US$ 1,891 is from OCR (Ordinary Capital Resources) and as many as US $4,421 million is from ADF (Asian Development of Fund; concessional window).
The rate of interest on OCR is determined according to LIBOR (London Inter Bank Offered rate) whereas the rate of interest on ADF is one percent during the grace period and 1.5 percent after the grace period," sources added.
The amount of the loan is only of the two big banks of the country and Present government is to return the loan of many other countries of the world. The burden of the loan will increase more as the government is determined to taking loan for the rehabilitation and reconstruction of the quake-hit areas.
The internal system of the Pakistan has become corrupt one as the political parities involve in taking money from the international institutions and take the money into their pockets and the burden of the loan is put on the masses. Then the international institutions like to IMF, WB, and ADB start pressuring the Pakistan to widen the tax net and bring more and more people into the tax net.
Theses political parties get the loans from the Pakistani banks and get these laon written off worth million rupees as the commercial bank has written off the loans above one billion rupees for the year 2005 and the influential figures who are currently in the present government have availed the chance.
It is also reported that the defaulted loans are in the range of Rs.200 billion. Of these, the biggest chunk of Rs.160 billion is owed to the public sector banks, as they have been vulnerable to political influence.
That the loans were given under political pressure is also borne out by the fact that only 12 percent of the loans fall in the category of defaulted loans of less than Rs. 1 million. Bad debts of Rs. 30 million and over are 70 per cent of the total. The big defaulters are thus fewer in number but they hold by far the larger portion of the total unpaid loans.

 

[Neo]

ISLAMABAD (updated on: April 25, 2006, 16:10 PST): Prime Minister Shaukat Aziz on Tuesday emphasised the need to promote technical education to fill the skill gap in the growing economy of the country and to maintain the continuing progress in the economic field.

Addressing the inaugural session of two-day National Tripartite Forum, 'Employment and Skills,' organised by Ministry of Labour and Manpower with the cooperation of International Labour Organisation, the Prime Minister said its imperative for the workers to learn technical skills.

The Prime Minister said Pakistan because of its geo strategic location, investment friendly environment, reduced cost of doing business and hard- working workforce is a suitable place to become the regional hub for manufacturing and trade.

He said the only need is to give technical training to the work force to prepare them to face future challenges and compete in the world.

Aziz said continuity of the economic policies was must to ensure the growing rate of economy by 8-10% annually.

Shaukat Aziz said the availability of highly qualified human capital and reduced cost of doing business has made Pakistan a destination place for the business.

The premier said government is investing in human capital to prepare a critical mass of highly qualified people in key areas of science and technology to lead the development process.

He said, "We are gearing to take brain share along with muscle share of global economy by investing in education to build a knowledge economy in Pakistan."

The Prime Minister said openness and transparency are the hallmarks of the government policies and no deviations on policies are made.

He said the consistency and continuity of policies have restored confidence of investors and investments today are all times high.

The Prime Minister said the globalisation is fast becoming the way of life and it is no more an option but an imperative for the future.

He said the distinctive features of globalisation are shrinking space, shrinking time, breaking borders and linking people's lives more deeply than ever before.

The Prime Minister said the globalisation is like a tidal wave and added, "If we ride it, we will move forward and if you resist it, we will be left far behind."

 

[Neo]

ISLAMABAD (April 25 2006): The foreign direct investment (FDI) in Pakistan soared by 180.6 percent year-on-year to $2.22 billion and the portfolio investment by 276 percent to $407.4 million during the first nine-month of FY06, the central bank reported on Monday.

During July-March 2005-06, the FDI year-on-year increased to $2.224 billion from only $792.6 million and the portfolio investment to $407.4 million, whereas it was $108.1 million in the corresponding period last year, said the latest statistics released by the State Bank of Pakistan (SBP).

Therefore, on balance, the total foreign private investment in nine months increased by 192 percent to $2.632 billion from $900.7 million in the corresponding period last year.

It is pertinent to note that during 2004-05, the total investment inflow had crossed $1.67 billion mark as against $0.921 billion in 2003-04. However, for the current fiscal year, there was hope of further improvement in foreign investment, especially with better macro-economic indicators and infrastructure.

The government expects that the foreign investment in Pakistan is likely to cross $3 billion mark by end of this fiscal year. The rising trend of investment inflow since the beginning of this year also endorses the government's claim.

A significant feature of the data was that besides FDI, y-on-y basis inflow of the portfolio investment increased enormously. It followed steep path right from the beginning of the new fiscal year.

Comparing the inflow of foreign private investment in March with the same month of last year, it increased by 197.8 percent to $657.7 million, whereas it was only $220.8 million during March 2005.

The break-up of investment by countries shows that United Arab Emirates (UAE) was the biggest investor in Pakistan totalling $726.1 million with $653.8 million FDI and $72.3 million portfolio investment.

The United States was next with total investment of $710 million, including FDI of $369.3 million and portfolio investment of $340.7 million. However, in terms of direct investment, Saudi Arabia was the third ($272 million) following Switzerland with $156.9 million.

A significant feature of the data is that US portfolio investment during the period showed a high growth, it grew to $340.7 million from $22.3 million of the corresponding period last year. Besides, this, the FDI also grew to $369.3 million. However, the data reveal that during the month understudy US portfolio investment declined to minus 53.9 million dollars as it was minus 21.1 million dollars in March last fiscal year.

Saudi Arabia's direct investment during the first eight months of this fiscal year jumped to $272 million, as it was only $12.2 million in the corresponding period last year.

The direct investment from UK slightly moved up to $136.7 million as against $127.5 million of last year, while its portfolio investment declined to minus 5.2 million dollars as was 3.5 million dollars in the same period last year.

The FDI inflow from the Netherlands during first nine months this fiscal year doubled to $66.5 million against $30.4 million in the corresponding period last year. Its portfolio investment decreased considerably to minus 0.7 million dollars as last fiscal year it was 25 million dollars.

The United Arab Emirates (UAE) portfolio investment doubled to $72.3 million as against $36.6 million in the corresponding period last year. Independent experts believe that the current inflow of foreign investment was not satisfactory taking into account the other countries of the region. During the last 15 years Pakistan attracted nearly $10 billion, whereas it was $1.67 billion in 2004-05.

The FDI in India at the onset of the liberalisation process was $36.28 billion (up to November 2005). During 2005-06 (April-November 2005), FDI inflows were $3.36 billion as compared to $2.25 billion during the corresponding period previous year.

China's FDI-led growth was a strong indicator where FDI inflows since 1978 totalled over one trillion dollars with $153 billion in 2004 alone. It is worth mentioning that foreign investors are in direct control of their investment funds, also transfers in the latest technology and modern management practices resulted in economic gains largely from efficient, effective and economic utilisation of the funds.

While the present economic managers boast of over $1 billion FDI during the last fiscal year, the reality is that given the prevalence of poverty and unemployment, this is too negligible an amount to have had a worthwhile impact on our economy.

 

[Neo]

LAHORE (April 25 2006): Speakers at a pre-budget seminar held here on Monday said that concerted follow-up of the reforms programme, superior economic governance and bold strategic decisions have brought economic turn-around in the country.

Lahore Branch Council of Institute of Cost and Management Accountants of Pakistan organised the seminar, while Lahore Chamber of Commerce & Industry (LCCI) President Mian Shafqat Ali, Lahore Stock Exchange (LSE) former president Dr Yasir Mehmood, Rasool Textiles (Pvt) Ltd, CEO Khalid Rasool, ICMAP President Sher Afgan Malik and Athar Azeem delivered speeches.

The speakers maintained that there was substantial increase in foreign direct investment, as foreign investors had started taking long-term positions.

They said: "although the per capita income has been on the increase, our main problems remain poverty reduction and unemployment."

"In order to keep the tempo of development on, we should remain consistent in policy formation, live within our means, do not expose ourselves to ballooning debts, work to improve systemic inadequacies, respect sovereign commitments and guarantees, remove income disparities, ensure implementation of rules and regulations and adopt transparency and accountability in all spheres of life," they said.

Appreciating growing trend in revenue collection, they said that tax GDP ratio is lop-sided, which invites government attention. The tax structure needs to be rationalised so that each sector could contribute to revenue collection in correspondence with its share in GDP.

Despite the fact that agriculture sector contributes 24 percent to GDP, insignificant amounts are paid by the agriculturists in taxes. The sales tax might be charged only at the time of sales and not only on raw materials. The taxation laws and procedures need to be simplified, they said.

Apprehending that gas reserves are going to be exhausted by 2015, they stressed the need for arranging procurement of gas from Iran, Turkmenistan and Qatar etc.

In the interest of investment and industrialisation, they stressed that interest rate and export refinance be kept in check. Especially the export finance rate should not be more than 4 percent.

It was also brought into focus that we are suffering from water shortage, which is adversely affecting our crops. The only remedy for this problem is building new water reservoirs, they said.

"Our policy should be structured to ensure that the GDP growth remains around 8 percent, low interest regime continues with single digit inflation. The government should adopt the policy so that taxation and utility rates and other tariffs etc, are rationalised to keep up the competitiveness of our product."

Agriculture sector needs special attention for beefing up its performance by elimination of water scarcity and management and timely provision of other inputs. "We should avoid dollarisation of our economy by keeping the exchange rate stable", the speakers said.

About tax dispute resolution, one of the speakers suggested that dispute resolution committees might be vested with powers to make final decisions on the disputes instead of playing a recommendatory role according to the existing law in force.

Speaking on the occasion, Khalid Mahmood, Chairman, Lahore Branch Council, said, "our tax set-up is more pro-rich than pro-poor. Resultantly, the rich pays less tax than they should and the poor are compelled to pay taxes despite of the fact that they have very low capacity to pay."

He said that since its promulgation, numerous amendments had been made in "Income Tax Ordinance 2001" yet complications and complexities are still there. The tax system needs to be simplified to make it people's sympathetic especially for the poorer ones.

 

[Neo]

NH ZUBERI
KARACHI (April 25 2006): The Karachi Chamber of Commerce and Industry (KCCI) noted that the present system works against the middle class and counting inflation has aggravated the problem.

In a report of Taxation, GST, Refund, Customs and Valuation sub-committee, the chamber pointed out that without growing middle class, rapid economic growth was not achievable as business remained deprived of adequate domestic demand.

THE CHAMBER PROPOSES MEASURES THAT THE GOVERNMENT SHOULD TAKE TO ENHANCE PURCHASING POWER OF MIDDLE CLASS, INCLUDING:

-- Through raising exemption limit to Rs 150,000 from Rs 100,000.

-- Reducing maximum tax rate to 25 percent from 35 percent, increase limit for inclusion of perquisites in salary income to Rs 1,050,000.

-- Education expenses on children be allowed on straight-line deduction against the total income as it is a long-term investment.

-- All medical expenses be exempted from Income tax.

-- Allow exemption on expenses incurred on yearly holiday/ vacation trips made by the individual with his family either within or outside the country.

-- The house rent exemption of 45 percent basic salary from total income should be same for all salaried persons without any maximum threshold of house rent allowance of Rs 270,000 calculated on salary of Rs 600,000.

-- Salary tax of an employee borne by his employer should be allowed without considering it as a perquisite and should not be grossed up.

-- Valuation of conveyance or conveyance allowance paid in cash as per the provision of Income Tax Rule 2002 for salary income below Rs 600.000 should be applicable to all salaried employees irrespective of salary ceiling.

-- Expenses incurred on individual (not collective visits) for enhancement of professional expertise to other cities within the country and abroad should be exempted from inclusion in the income and from payment of income tax thereof.

-- As most of corporate sector salaried employees because of their better economic clout live in a joint family system, therefore, they have to bear the living expenses of their retired parents or non-adult, non-earning children/ nephews, nieces etc. This is taxing to some extent on the individual. Here a certain allowance be allowed for each year and should be income tax free/ exempted from total income.

-- Deducting in tax liability of salaried person as withdrawn be restored in Part-III of second schedule.

 

[Neo]

ISLAMABAD (April 25 2006): A large number of major Chinese companies are here for the China-Pakistan Energy Forum, organised by the petroleum ministry. The Chinese companies, which sent delegations for the China-Pakistan Energy Forum, were Sichuan Petroleum Administration (SPA), a subsidiary of China National Petroleum Corporation.

Its delegation is led by Senior Vice President Zhang Beiquan, accompanied by the officials of International Co-operation and Technical Departments. The Sichuan Petroleum delegation will have a number of sideline meetings during the Forum with the government officials and non-governmental organisations representatives.

The delegation will also call on Petroleum Minister Amanullah Khan Jadoon. The visiting delegation will discuss proposals during the meeting with the minister to enhance China's participation in Pakistan's energy sector.

It is worth mentioning that Sichuan Petroleum has over 40 years experience of oil and gas exploration, production and marketing. It has also built the largest natural gas industrial base is South West China. The company has advance expertise, equipment and professional workforce for geo-physical survey, drilling and associated services, well-testing, well-logging, engineering design mountain seismic and ultra deep, directional, cluster and horizontal well-drilling. It is capable of supplying system engineering services and related products, covering all aspects from exploration and production to surface construction.

The Sichuan Petroleum is also actively involved in Pakistan's oil and gas development for the past many years, along with its Pakistani partner, the Petroleum Exploration (Pvt) Limited.

The Chinese company has provided a number of drilling rigs, along with its crew of engineering and technical personnel. The Petroleum Exploration (Pvt) Limited is likely to acquire more drilling rigs from the Sichuan Petroleum, as the Pakistani company has already announced an ambitious plan for drilling a large number of development and exploration wells in its concessions in Sindh.

 

[Neo]

ISLAMABAD (April 25 2006): Sui Southern Gas Pipelines Limited (SSGPL) and Sui Northern Gas Pipelines Limited (SNGPL) were jointly injecting a sum of $250 million per annum for developing the infrastructure and capacity building of both the companies, MD SSGPL Munawwar Baseer Ahmad said.

Talking to private TV channel he said country's gas reserves would not prove insufficient for catering the ever increasing demand and supply situation after 2009-2010. Efforts were underway to arrange more gas from neighbouring countries aiming to meet the demands.

 

[Neo]

ISLAMABAD, April 24: Chinese Minister Hu Deping, who also heads the China Federation for Industry and Commerce, has sought the support of the Pakistan government in expanding investment in various sectors by the Chinese private sector.

Hu Deping currently visiting Pakistan at the head of a high level delegation met Jehangir Bashar, Secretary Board of Investment here on Monday.

He presented economic scenario of China and said that the objective of his visit was to help Pakistan in the earthquake reconstruction process and to bring the private sector of the two countries closer to have a conducive environment for boosting bilateral trade and investment.

He said Pakistan and China enjoyed strong diplomatic relations and the need was to convert this friendship into an even stronger economic relationship.

Secretary, BoI apprised the visiting delegation of the salient features of Pakistan’s investment policy and investment opportunities available in various sectors.

He pointed out that the economy of Pakistan had improved tremendously which was evident from the macro-economic indicators.

He stressed the need for closer cooperation in the economic field between the two countries for mutual benefit.

Mr Bashar assured the delegation that BoI would provide every possible assistance to its Chinese counterparts in facilitating investment.

He acknowledged with gratitude the offer of assistance for the reconstruction in the quake-hit areas and said that the Chinese friends had always supported Pakistan in every hour of trial.

The Chinese delegation included representatives from the leading private sector companies along with officials of the UNDP.

Earlier, a delegation of Jordan’s Shaheen Business and Investment group led by Dr Jawad Anani, ex-deputy prime minister of Jordan also met the secretary, BoI to discuss projects in various sectors in Pakistan.

This is the third visit by the group and they have shown interest in investing in the power, cement, oil and gas, hotel and housing projects in Pakistan.—APP

 

[Neo]

25 April 2006

ISLAMABAD — Pakistan's Balochistan has demanded the federal government to appoint an arbitration commission over its dispute with Sindh over gas development surcharge (GDS) and royalties through arbitration as bilateral efforts have failed to resolve the dispute.

Informed sources said Balochistan has written to the centre that provincial government would not be able to present its next year's budget owing to higher expenditure on law and order, interest payments and drought. Balochistan's overdraft has increased to Rs16.5 billion during the current fiscal year and its interest payments are going up. Additionally, the Asian Development Bank (ADB) would not be releasing its second tranche of the Provincial Resource Management Programme (PRMP) that would further squeeze Balochistan's financial situation.

Under the provincial government directives, Balochistan had reduced its current expenditure from Rs34 billion to Rs29 billion which would again post an incremental increase to Rs31 billion and thus annual development programme would become unmanageable creating problems for the provincial government in the election year.

These sources said the federal government has been reminded that an inter-provincial committee led by Senator Dilawar Abbas had recommended a formula for enhanced share to Balochistan out of GDS and royalty but that had not been implemented.

"If Dilawar Abbas formula could not be implemented for some reason, the only option left is to resolve the dispute through arbitration," a source in the provincial government said.

The centre had informed the provinces recently that in view of an increase in the share of the provinces from the federal divisible pool in the new NFC award, no provincial nature of project will be financed or co-financed from the federal PSDP from next financial year (2006-07).

The provinces have again developed serious differences with the centre over non-financing of their

projects from the federal development programme and have formally registered their protest with the federal government.

Sources said that resource distribution disputes between the centre and its federating units and among the provinces themselves have started cropping up once again as the next year budget preparations enter into a crucial stage.

Balochistan has also made a formal request for arbitration of its dispute with Sindh over gas development surcharge and oil and gas royalties, these sources said.

Similarly, the NWFP has also asked the federal government to increase the size of its hydel profit as an interim arrangement till Justice Ajmal Mian led arbitral tribunal comes out with a final award.

The sources said that during a meeting of the Executive Committee of the National Economic Council last week, the two larger provinces Punjab and Sindh protested over the centre's decision not to finance or co-finance provincial development schemes and demanded its reversal.

 

[Neo]

WASHINGTON, April 24: The world economic outlook report for 2006 praised Pakistan as a country which has done well in sustaining major setbacks like an unprecedented hike in oil prices and the October 8 earthquake.

The report, issued after the weekend spring meetings of the World Bank and the International Monetary Fund, noted that in Pakistan “growth has remained robust despite headwinds from higher oil prices, devastating natural disasters, and the elimination of international textile trade quotas.”

But the report warned that during the current fiscal year, inflation has picked up, and urges “a further tightening of monetary conditions, supported by continued prudent fiscal policies” to curb inflation.

The report urges policymakers in Pakistan to include energy sector in their priorities for structural reforms.

Another South Asian country which dealt successfully with rising oil prices is Bangladesh.

The report also included Pakistan and India among the countries where the current account has weakened during 2005, moving into deficit.

“These disparate movements are due to the non-oil balance, which has generally declined in countries where domestic demand growth has accelerated and/or where the real effective exchange rate has appreciated,” the report said.

Pakistan is also placed among countries — such as India, Indonesia and the Philippines —with high public debt where the favourable outlook provides an opportunity to “take steps to put their public finances on a sustainable medium-term footing.”

In a separate assessment of the Indian economy, the World Bank and IMF termed India’s economic growth as “impressive”, but also said the country faces a challenge in the infrastructure sector which it needs to improve upon in order to attract more foreign investment.

“Overall, India is doing impressively well. How a very large country with an extraordinarily diverse population can make real inroads in poverty reduction and in development with a democratic system, I think that’s encouraging,” World Bank President Paul Wolfowitz said.

“I think Indian officials that I spoke to aren’t satisfied with the 7 per cent or so that they’re doing, but I must say that is impressive already, and I think they are making every effort to do more,” Mr Wolfowitz said.

Managing Director of the International Monetary Fund Rodrigo de Rato observed that India was attaining its growth rate with very low inflation andsaid it “shows the Indian economy is becoming much more efficient. We believe that maintaining macroeconomic stability and deepening reforms is the key for the future.”

“We have seen some very encouraging announcements by Prime Minister Manmohan Singh regarding further liberalisation of financial reforms, and certainly, infrastructure is a challenge for India and improving the business climate as to attract more foreign and domestic investment,” he said.

Corruption and good government were the overriding themes of the final session of the World Bank — International Monetary Fund’s meetings in Washington.

In his concluding remarks, the World Bank chief called aid effectiveness and good government “twin issues” in the battle to help the world’s poorest people.

“Efforts to improve aid effectiveness cannot be separated from strengthening governance systems,” he said. “When governance systems fail, service provision weakens, corruption increases and growth is undermined.”

The problem with corruption, he said, was “one that can’t be eliminated overnight, you have to tackle it progressively.”

Colombia’s Finance Ministers Alberto Carrasquilla serves as the chairman of the joint World Bank/IMF Development Committee. He said nations are looking to the international lenders for guidance to governing. “Members called on the bank to lay out a broad strategy for helping member countries strengthen governance and deepen the fight against corruption,” he said.

On the issue of energy, Mr Carrasquilla said there was broad support for the bank proposal to focus on the energy needs of developing countries. World Bank’s Vice President for Infrastructure Katherine Sierra said the bank will increase investments in renewable energy sources such as hydropower and solar power.

 

[Neo]

By Engr. Husain Ahmed Siddiqui

In the recent years, Pakistan has witnessed a sharp increase in the demand of natural gas. The consumption of natural gas during 2004 was about 1,050 billion cubic feet, close to the level of production but still not enough to meet the total demand, mainly that of industrial and power sectors.

The country produces natural gas to the level of 1,343 billion cubic feet annually, or 3,680 mmcfd (million cubic feet per day), which translates into 28.20 million metric tons of oil equivalent (TOE).

The projected demand-supply position of natural gas indicates a deficit of 25 per cent of total gas requirement by 2010, as additional gas from indigenous production in coming years will rise by 10 per cent.

Gas import pipeline projects are planned. Nonetheless, their implementation will take a much longer period, given the present conditions.

Power sector is major consumer of natural gas, with over 40 per cent share in total national consumption. A number of new independent power producer (IPP) projects have been sanctioned recently, based on natural gas as primary fuel, with cumulative capacity of about 1,600 mw. In total, about 600 mmcfd gas has been earmarked for these projects, initially until 2010-11.

Gas is not committed for these power projects on year-round basis and it is not made available during 2-3 months of winter season. The power plants use alternate or back-up fuel for this period, depending on the technology applied for power generation. Generally, these are distillate (light) fuel oils, such as high-speed diesel (HSD), and residual (heavy) fuel oils, including low sulfur furnace oil (LSFO) and high sulfur furnace oil (HSFO).

Consumption of petroleum products by power sector at present is 2.74 million tons, mostly required for oil-based thermal power plants. Nonetheless, dual-fuel (gas-oil) fired power plants consume significant part of this figure. The up-coming gas-based/dual-fuel power projects in private sector will be a further strain on demand for petroleum products during winter when gas is not available.

In view of increasing cost of petroleum products globally and also Pakistan’s persistent high import bill of oil, it is advisable to consider economical options. Petroleum naphtha, commonly known as naphtha, has the potential to be considered suitable in replacing the above liquid oil fuels, due to naphtha being indigenous and comparatively of lower price. A few of the IPPs are reported to be exploring the possibility of using naphtha as an alternate/back-up oil fuel.

Naphtha is primarily used as feedstock in refineries and chemical/ petrochemical industries. The least expensive of oil fuels, it is used the world over for power generation, either as primary fuel or alternate fuel to natural gas. Leading manufacturers of gas turbines and diesel/gas engines have installed, a number of simple-cycle and combined-cycle units using naphtha in many countries, including China and India. With a total power generation capacity of 115,545 MW, India has the world’s largest experience of using naphtha on gas turbines.

Current naphtha production in Pakistan, as a by-product from the petroleum refineries, is around 833,000 tons per annum. The current production is enough to run at least six combined-cycle power plants of 100-mw capacity each, roughly, for a period of approximately two months when supply of natural gas would not be ensured. Only at one refinery the naphtha production is converted into high-octane gasoline, whereas all other refineries export the low-valued commodity, earning annually an amount of $160 million at optimum market price.

Unfortunately, Pakistan’s hydro-cracker/naphtha-cracker project, originally approved in 1982, could not be set up. In 1990s an UAE- based company had joined hands with Pakistan to establish joint venture, but it lacked professionalism and required financial credibility. Hence the plan was shelved.

Naphtha, a colourless, volatile and inflammable liquid hydrocarbon mixture, is composed of different grades. Petroleum naphtha, which is the unprocessed component in the production of petrol/motor gasoline, is intermediate distillate between the lighter gasoline and heavier benzene. It has a specific gravity of 0.76. Transfer, transportation and storage of naphtha may pose problems. Its very low viscosity results in poor lubrication to metal surfaces, and therefore lubricity improvement additives are used for naphtha-fuelled power generation facilities.

Naphtha requires special safety considerations for use in gas turbines and diesel/gas engines. Its high volatility can cause fire explosions, as in case of other liquid fuels, though only one major accident is reported.

In July 1996, a fire explosion occurred in Enron’s Telside (UK) power station, which is 1,875 mw capacity—perhaps the world’s largest gas-fired combined cycle heat and power plant. This was due to ignition of naphtha leak from a joint during fuel changeover. Since then the related technology has improved.

As regards environmental concerns, nitrogen oxide emissions burning naphtha are almost of the same levels as that for combustion of other heavy fuel oils, and the impact is effectively mitigated, by installing separators, bringing the same to acceptable and regulatory levels.

In fact, centrifugal liquid fuel treatment systems are installed, which significantly improves the quality of fuel before it enters gas turbine or diesel/gas engine, as the case may be.

There is no pricing policy for naphtha in Pakistan since it is not being sold in domestic market. It is however estimated that naphtha would be available to the IPPs at Rs40,643 per ton, or Rs28.39 per litre.

Based on this price, it is estimated that naphtha fuel component of power plant operation would be much lower in comparison to burning, for example, diesel (HSD) that currently costs Rs36.66 per litre. There is also no increase in cost of machinery and equipment, and the total cost of power plant. Using naphtha would significantly reduce power generation costs and resultantly electricity tariffs. In view of the foregoing, a feasibility study is needed to establish use of naphtha as alternate/backup oil fuel for gas-based power projects.

 

[Neo]

Tuesday April 25, 2006

ISLAMABAD: Prime Minister Shaukat Aziz has said that the government will set up an Export Promotion Zone (EPZ) near Gwadar on a designated area to promote industrial activity with a view to providing new employment opportunities for the people of Balochistan.
The Prime Minister said that EPZ at Gwadar will be given additional incentives than are available to other Export Processing Zones in the country in order to expedite the process of industrialization in the province.

The Prime Minister directed the Ministry of Ports and Shipping and the government of Balochistan to prepare within a month a special package of incentives for the EPZ at Gwadar for approval by the Government.

The Prime Minister made these observations at a meeting to review the progress on Gwadar port on Monday.

Mr. Babur Ghouri, Minister for Ports and Shipping informed the Prime Minister that construction and dredging for deeper draft of 14.5 meters is proceeding on schedule. The meeting was also informed that the process of acquisition of additional land to build warehouses to enable the Gwadar Port to function as a trans-shipment hub for the country is also progressing satisfactorily.

The Prime Minister emphasized the need to provide the investors facilities including water, gas and electricity in an expeditious manner as the port will become operational soon.

The meeting was attended among others by Mr. Babur Khan Ghouri, Minister for Ports and Shipping, Secretaries for Commerce ,Industries, Ports & Shipping and Chief Secretary Baluchistan.