Sectoral Updates Pakistan - June

Sector Updates – Jun 2015 Meezan Bank Limited INSIDE THIS ISSUE:

Macro-Environment Review and Outlook INSIDE THIS ISSUE:

Sector Updates Economy…….…….….....2 Power……...…………......6 Oil & Gas…………..……10 Cement..…..……………..12 Fertilizer.…..…………....14 Textile……..……………..15 Edible Oil…………………19

This monthly newsletter is prepared by Market Research Unit, Risk Management Department. Its purpose is to provide latest news & developments in important economic sectors of the country. All information in this newsletter is taken from published sources & does not contain any analysis or opinions by Risk Management. For feedback and suggestions please contact: Muhammad Taha Ekram [email protected] Kamran Aziz Khan [email protected]

In light of lower fuel and commodity prices, Inflation stood at 3.16 percent in June bringing average CPI to 12-years low of 4 56 percent in FY15 Multiyear Macro Environment Review and Outlook In light of lower fuel and commodity prices, Inflation stood at 3.16 percent in June bringing average CPI to 12-years low of 4.56 percent in FY15. Multi-year low CPI readings had compelled the policy makers to cut the discount rate by a total of 300 bps during the year to 7 percent. Aided by aggressive privatization plan, successful auction of Sukuk bond and proceeds from IMF and under Coalition Support Fund, the country's Forex reserves balance is expected to have improved to $18.5 billion at the end of FY15 from $14.14 at the start of the year. While latest available data suggests that Forex reserve balance stood at $18.2 billion on 26th June, 2015. Plight of energy issues and slow global demand took its toll on exports during the first eleven months of FY15, but on account of lower oil bill the country's trade bill remained slightly above the last year's level. However, thanks to growth in remittances, the country's current account deficit narrowed down to around $2 billion during the first eleven months of the current fiscal year, as opposed to the deficit of around $3 billion recorded during the same period last fiscal year. The money sent home by overseas Pakistanis working abroad summed to $16.63 billion during 11MFY15, marking a growth of 16% compared to same period last year. With crude oil price expected to remain weak, average CPI is expected to remain tepid, close to 6%, in FY16. While reserves are likely to improve going forward, with the government aggressive in their privatization plans. Moreover, the government aims to raise $1 billion by issuing Eurobond and planning to borrow $1 billion from Islamic Development Bank (IDB) in FY16.

Equity Market Performance Review and Outlook The budget related news flow, up gradation of Pakistan's sovereign rating, announcement by MSCI to classify Pakistan to Emerging Market and successful completion of seventh IMF review drove the investors’ sentiments during month, with KSE-100 index managed to ascend by around 4 percent during the month to 34,398.86 points at the end of June, 2015. Thus, the KSE-100 index closed the year by recording 16 percent growth in FY15 as opposed to 41 percent and 52 percent growth registered in FY14 and FY13, respectively.

Despite imposition of one-time super tax, higher tax on capital gains and dividend income, the sentiments in the market remained largely positive during the month. Cement Sector remained in the limelight in consideration of higher PSDP allocation in the Budget FY16. In the face of shorter trading hours during Ramadan, average turnover of the market improved to 377 million shares in June from average turnover of 218 million shares in FY15. Foreigners remained net buyer, with total net inflows of around $7.6 million in June, brings the total net inflow to $ 38.5 million in FY15. Lower discount rate will continue to keep leveraged companies and high dividend yield plays in the limelight. While improvement in Pakistan's sovereign outlook and possible reclassification of Pakistan to emerging market by MSCI will continue to support appetite for Large Cap stocks.

Money Market Performance Review Money Market remained quite active during June 2015 after the 100bps cut in monetary policy announced last month. The State Bank of Pakistan conducted Open Market Operations on several occasions to manage liquidity of the banking sector. In the PIB auction held in the month of June 2015 the State Bank of Pakistan (SBP) accepted Rs 50.4 billion (face value) against bids of Rs 69.2 billion (face value). The auction target was Rs 50 billion where participation was majorly skewed towards the 3-Year tenor (64 percent), while 5Year and 10-Year tenors attracted 22 percent and 14 percent of bids respectively. SBP contrary to previous trend have not accepted any bids in 10-Year category. The yield for 3- Year and 5-Year tenors came as 8.0934 percent and 8.9994 percent, respectively. The State Bank of Pakistan (SBP) accepted an amount of Rs 91.2 billion (face value) against bids of Rs 107.592 billion (face value) in the last T-bill auction held in the month of June ’15. The auction target was Rs 50 billion while the maturing amount was Rs 23.6 billion. The bidding participation was majorly against bids of Rs 107.592 billion (face value) in the last T-bill auction held in the month of June ’15. The auction target was Rs 50 billion while the maturing amount was Rs 23.6 billion. The bidding participation was majorly skewed towards the 3-Month (84 percent), while participation for 6-Month and 12-Month paper stood at 14 percent and 2 percent respectively. The yield for 3- Month, 6-Month and 12-Month tenors stood at 6.9308 percent, 6.9513 percent and 6.9710 percent respectively

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Mass tax avoidance chokes Pakistan economy Only about 0.5 per cent of Pakistan’s 200m people pay income tax, compared with 2-3 per cent in India and 20 per cent in China, according to the OECD. Compliance with income tax payments is so poor in parts of the country that the cost of running local tax offices exceeds the tax they collect. “Frankly, the government could end up saving money in some of our remote areas if the tax offices there were shut down today,” says one government official. The problem has not been solved by a plummeting poverty rate, which fell from 65 per cent in 1991 to 13 per cent in 2011 according to UN figures released last week. Huge numbers of affluent Pakistanis dodge their tax by colluding with corrupt tax officials to understate their incomes, exploiting loopholes, or both. In one of the most notorious ploys, people buy farmland — for which there is a tax amnesty — then overstate their agricultural income and understate earnings from other business interests. The country’s parliament, dominated by landowners, has blocked attempts by successive governments to remove this loophole. A December 2013 study by the Centre for Investigative Reporting in Pakistan reported that almost half of the country’s 1,070 lawmakers in provincial and national assemblies paid no tax the previous year. More than 10 per cent did not even possess tax numbers. The tax problem, analysts say, risks undermining Pakistan’s recent run of good economic news. Business confidence is on the rise, economic growth has been recovering, hitting 4.1 per cent last year, and official liquid foreign reserves have grown almost fourfold in the past year to $12.5bn. Last month the central bank cut its benchmark interest rate 1 percentage point to 7 per cent and consumer price inflation is about 2 per cent, having been stuck above 8 per cent only a year ago.

But plunging oil import costs have played a large part in the upturn. The International Monetary Fund says decisive action on taxation is needed to back up this good fortune. “The tax to gross domestic product ratio is still very low at 10-11 per cent,” says Harald Finger, the IMF official leading discussions with Pakistan on the next instalment of a $6.6bn loan programme. “For vibrant emerging markets, this should be in the 15-20 per cent range.” Ishaq Dar, the finance minister preparing to present his annual budget on Friday, hails the government’s early success in broadening the tax base, boasting a rise of 200,000 taxpayers since mid-2013 to a total of about 900,000. Officials say people have been targeted for whom there was clear evidence of wealth, for example frequent foreign travel. Frankly, the government could end up saving money in some of our remote areas if the tax offices there were shut down today Mr Finger, however, believes there is plenty of room for improvement. “The Federal Board of Revenue is bringing in 100,000 new taxpayers every year. We are at the lower end of what is achievable.” And government critics such as Muhammad Yaqub, a former governor of Pakistan’s central bank, agree that more needs to be done. “Progress in collection of more taxes will only be sustained if there are structural reforms,” he says. Meanwhile, the country’s ruling elite show few signs of backing reform, according to western economists in Islamabad. “The political system is controlled by people who neither consider tax collection a big priority nor want to do anything beyond lip service,” says one. Back in Karachi, the industrialist does not expect his own tax practices to change in the near future. “Using a farm income to avoid paying your dues is a common practice,” he says. “Pakistan’s ruling class must first change its behaviour before they expect the public to follow.” Financial Times - June 3, 2015

Investors Flock to Pakistan’s First Real Estate Investment Trust Investors piled into Pakistan’s first real-estate investment trust, which was launched this week with a public offer that was heavily over-subscribed, the REIT’s lead manager and analysts said on Thursday. The Dolmen City REIT offered investors a 25% stake in a 22.24 billion rupee ($218.5 million) shopping mall and an office complex at Dolmen City, one of the most prominent

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real estate developments in Karachi, Pakistan’s largest city and its economic hub. The Arabian Sea-front project includes three other structures not included in the REIT. Traders and the REIT’s main advisor said the initial offer for 75% of the trust to institutional investors and high networth individuals through bookbuilding on Monday and Tuesday drew demand of more than 7 billion rupees for an offering of shares worth 4.17 billion rupees at a floor price of 10 Pakistani rupees ($0.10). At the strike price, the initial offer raised 4.59 billion rupees, according to the REIT’s lead manager. The remaining 25% of the stake was to be offered to the public on Friday at a strike price of 11 rupees ($0.11). Analysts and the REIT’s management expected the Friday offering to be fully subscribed as well, raising another 1.53 billion rupees. “The interest rate is at a 42-year low, with the discount rate at 7%, so for people who invest in fixed-income instruments, REITs are attractive,” said Muhammad Tahir Saeed, deputy head of research at Topline Securities, a Karachi-based brokerage. Pakistan’s economy has improved in recent years, despite political turmoil, major security challenges, and chronic electricity shortages that have hobbled industry. The country’s main stock market in Karachi has gained 72% since the 2013 election and the country’s improving prospects are increasingly being recognized internationally. Prime Minister Nawaz Sharif’s government has said boosting investment is one of its key economic objectives. With both buildings in the Dolmen City REIT fully occupied, it is expected to yield 9.5% in the first year, with a 10% increase every year based on escalation clauses in tenancy agreements. The development is located next to two of Karachi’s most affluent residential areas. The Dolmen Mall Clifton, Pakistan’s largest shopping mall, currently has an occupancy rate of over 90%, according to a fact sheet provided by the REIT management. The mall has 130 stores, including foreign outlets such as Debenhams and a multi-level department store. The neighboring Harbour Front office complex is currently fully occupied, with several high-profile tenants like Procter & Gamble and Engro, one of Pakistan’s largest corporations. Pakistan’s commercial property sector was described in a first-quarter report this year by Lamudi Pakistan, an online real estate portal, as “almost at a standstill”. But analysts

said investors in Pakistan are still keen on real estate as a long-term asset, particularly in properties such as Dolmen City’s Harbour Front with high-profile corporate tenants. “In the long term there are significant opportunities as prices are low, meaning potential yields are high, and there is considerable room to expand and modernize Pakistan’s stock of commercial real estate,” BMI Research said in a report on the country’s real estate sector earlier this year. Analysts said the success of the Dolmen City REIT could boost interest in the instrument. “People were looking at Dolmen and expecting that, if it succeeds, many REITs will be launched in the coming years [in Pakistan],” said Saeed of Topline Securities. “I can foresee some groups [developing shopping malls] jumping into this asset class.” Wall Street Journal - Jun 12, 2015

Bowing down: Country spends 44.5% revenue to service debt The economy is projected to have grown at a rate of 4.2%. Pakistan spent 44.5% of its total revenue to service debt payments in nine months till March 2015 compared to 47% spent during the same period of previous year, the Economic Survey 2014-15 said. Debt servicing ate up Rs1,193 billion during July-March 2014-15 against the annual budgeted estimate of Rs1,686 billion, it said. Around 76% of these payments were made on domestic debt, which has grown in recent years. As a percentage of GDP, Pakistan’s public debt came down to 61.8% by the end of March 2015, compared to 62% during the same period last year. Public debt stands at Rs16,936 billion with the major chunk (Rs11,932.2 billion) comprising of domestic debt while component of external debt is around Rs5,004 billion. Published in The Express Tribune, June 5th, 2015.

IMF, WB happy with ‘realistic’ budget The International Monetary Fund and the World Bank have endorsed the national budget presented by the government Friday, terming it ‘closer to reality’, senior officials told The Nation. “The finance minister (Ishaq Dar) has been appreciated by the two major financial institutions. There has been a contact by the two lenders who think the budget seems closer to reality,” said a senior official of the finance ministry.

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Another official said, “The IMF and the World Bank have also assured the government that they will continue to play their part to improve Pakistan’s economy”. Last month, IMF Mission Chief Harald Finger, after completion of final round of talks with Ishaq Dar in Islamabad, had said, “It is for the first time that Pakistan has reached the level of 7th review with IMF under any programme”. The IMF mission chief had confirmed that staff level agreement has been reached with Pakistan and after the approval of the Board Pakistan would receive next tranche under extended fund facility in June, the current month. The IMF official said Pakistan has successfully met all performance criteria agreed with the Fund. Earlier, a WB report said Pakistan’s economy had showed resilience. “Despite political uncertainty in H1-FY15 and the September 2014 floods in Punjab that affected agricultural crops, macroeconomic indicators have improved during ongoing FY15”, the report said. The WB’s South Asia Economic Focus Spring 2015 on the topic “Making the most of cheap oil” highlighting Pakistan’s economic performance, pointed out specific factors that ensured the progress in different sectors. The report said the performance was supported by a favourable slump in international oil prices, and stellar implementation of the IMF reform programme, reinforced by two Bank’s Development Policy Credits at the end of FY14 to restructure the energy sector, foster private and financial sector developments and improve social protection and revenue mobilisation; growth recovery remains underway, with projected GDP growth now at 4.44.6%. The Nation - June 07, 2015

Bailout programme: IMF, Pakistan relation enters deeper waters Pakistan and International Monetary Fund’s (IMF) relations will now test deeper waters as the Washingtonbased lender now expects Islamabad to start focusing on deep structural reforms, particularly in neglected areas of energy and taxation. The upcoming approval of the eighth loan tranche of $506 million by the Executive Board of the IMF, which is tentatively scheduled to meet on June 26, will mark the beginning of phase-II that will focus on areas that Pakistan has so far failed to deliver in. In a recent conversation with journalists, IMF Resident Representative in Pakistan Tokhir Mirzoev said the primary focus in the initial stages of the programme was on

measures to stabilise the economy. Key achievements to date include a low interest rate, low inflation, declining budget deficit, and higher reserve buffers. After the stabilisation, the IMF now wants Pakistan to implement reforms in troublesome areas. At a joint press conference in May, IMF Mission Chief Harald Finger emphasised structural reforms in tax administration, energy sector, restructuring of state-owned enterprises, and improving the business climate will be a priority in the remainder period of $6.6-billion bailout package. In its last communiqué issued in May the IMF states, “The authorities’ reform programme has reached its mid-point, and already produced important economic achievements: near-term risks have receded, foreign exchange buffers have been rebuilt, and the budget deficit has narrowed substantially. “In an environment of low international oil prices, these achievements create ideal conditions to focus on deep structural transformation of the economy,” said Mirzoev. He said it would be important for the government to use this opportunity to advance structural reforms in the remainder period of the IMF programme, which is going to end in September 2016. Meanwhile, progress on taxation reforms has been slow. In fiscal year 2014-15 budget, which is ending on June 30, the government withdrew Rs103 billion Statutory Regulatory Orders. There was hope that the cost of tax exemptions that the government estimated at Rs477 billion by the end of fiscal year 2013-14 would come down to around Rs375 billion by close of this fiscal year. However, the Economic Survey of Pakistan that the Finance Minister launched early this month revealed that instead of coming down, the cost of tax exemptions has gone up to Rs665 billion. Out of Rs665 billion tax exemption, the cost of sales tax exemptions was Rs478 billion, according to the survey. An amount of Rs389 billion was lost due to exemptions given to industries under the sixth schedule of the Sales Tax Act. An amount of Rs286 billion was lost at the domestic stage and another Rs103 billion at the imports stage. The IMF said it was examining the reasons behind surge in cost of tax exemptions. When asked, FBR Chairman Tariq Bajwa did not have answer as to why the cost went up despite withdrawing the SROs. Tax collection has been a long-standing concern. As against the original target of Rs2.810 trillion, the FBR will

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be unable to collect more than Rs2.6 trillion despite levying Rs360 billion additional taxes in a single year. The numbers of income tax filers stood at only 880,000, said Bajwa last week. The target was 1.2 million people. “Raising tax revenue is critical for Pakistan to be able to invest what it needs in infrastructure, health, education, and social assistance,” Mirzoev said. He added that the best way to raise tax revenue is to broaden the tax base. If this agenda does not move forward fast enough, the government will eventually be left with difficult choices, such as raising existing tax rates or borrowing. There is not much scope for either.The IMF also considers electricity surcharges as important in bringing the energy sector closer to cost recovery. These measures are only part of the reform agenda in the energy sector. Published in The Express Tribune, June 16th, 2015.

Literally a black market: Tyre smuggling leaving a hole in the economy A key shortcoming of the PML-N government, like most of its predecessors, has been its inability to restructure the country’s tax system. This is made worse by how the government has failed to cope with rampant underinvoicing and smuggling due to which Pakistan continues to lose millions of dollars every year. One of the areas where massive under-invoicing and smuggling is ongoing right under the nose of Federal Board of Revenue (FBR) is the tyre sector. The sector is heavily dependent on imports, making it a lucrative opportunity for smugglers. In its recent research report on Afghanistan-Pakistan Transit Trade Agreement (APTTA), the Pakistan Business Council (PBC) – a business policy advocacy forum representing the country’s 47 largest enterprises including multinationals – signalled at colossal under-invoicing in trucks, buses and car tyre imports.For instance, in 2014, Pakistan imported truck and bus tyres valuing $190 million at an average unit price of $84. According to local tyre industry officials, the unit price is so low that Pakistan cannot even import raw materials of a tyre at this price. So how do importers manage to purchase tyres?

Price details The PBC mentioned in its report that during 2014, the average per-unit price of a truck or bus tyre hovered around $142. By declaring half of the original value of the commodity, Pakistani importers saving millions in import duty, causing huge losses to the national exchequer. “All of this is happening because our customs department is involved in these illegal activities. Importing anything at

50% of an international price is not possible without the support of tax officials,” an official of a tyre making company said.

40% of the tyres from different countries. The remaining 37% of the market share is in the hands of tyre smugglers who mainly use Chaman and Landi Kotal routes to bring in used and refurbished tyres into Pakistan. The market believes the situation will remain the same unless the government starts taking serious measures to control such practices. In presence of widespread smuggling, new investors will never come to Pakistan and the country will continue to depend on tyre imports, they add. Published in The Express Tribune, June 28th, 2015.

“Pakistan does not encourage its manufacturing sector which is why renowned international tyre manufacturers do not invest here. In presence of current tyre smuggling and under-invoicing, no new tyre company will invest in Pakistan,” he added. Pakistan imports car tyres worth $18.3 million in 2014 at an average price of $23 per unit, down 35% from the average international price of a car tyre of about $35 per unit.

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Afghanistan vs Pakistan What is shocking is that Afghanistan imported almost the same quantity of car tyres in 2014 compared to Pakistan though its population is less than one sixth and its economy is less than one tenth of Pakistan’s. Import price of Afghanistan is one third of the international average import price of a car tyre. This scenario is equally disturbing because cheap tyres that Pakistan imports from Afghanistan under the APTTA enter Pakistani markets causing huge revenue losses. Both Pakistan and Afghanistan meet most of their tyre demand from Chinese tyre imports while the rest of the market share is divided in Japan, Germany, Italy, South Korea. Local production Pakistan has a couple of companies that produce motorcycle tyres probably because such tyres do not need sophisticated technology. The country does not have any company that produces trucks or bus tyres while it has only one company that manufactures car tyres – General Tyre and Rubber Company (GTR). GTR meets 23% of the total tyre demand in the country, while according to industry estimates, the country imports

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‘KE system couldn’t tackle 2,700 MW surplus power’ NEPRA says KE did not make appropriate investment in improving transmission system as in addition to load shedding, system faults and tripping added to power cuts which resulted in day-long outages The National Electric Power Regulatory Authority (NEPRA) fact finding committee has revealed that K-Electric utilised its generation resources optimally during the recent power crisis, adding that its transmission and distribution system could not sustain 2500 to 2700 mega watts (MWs) of electricity injected to it, resulting in tripping and system breakdown, said a press release issued on Monday. The findings have also revealed that KE has not made appropriate investment in strengthening/improving its transmission and distribution system and due to its failure to invest in these critical areas, service quality, reliability and supply to the consumers was seriously affected.

Taking note of recent power crisis in Karachi, NEPRA constituted a high level fact finding committee to ascertain the causes of frequent power cuts by K-Electric. The committee comprised consultants Masood Ahmad Khan, Javed Pervaiz, Senior Technical Advisor Hussain Zaigham Alvi and Standards Director Mazhar Ranjha. The committee visited affected areas of Karachi, met with consumers and held a series of meetings with the K-Electric management. In its preliminary findings, the committee said that KE has categorised feeders from low loss to very high and carries out load shedding for 7.5 hours on very high loss feeders and 6 hours on high loss feeders during the day between 8am to 6pm. This meant that only two hours of power supply was provided in day time in very high loss areas, the release said. In addition to load shedding, system faults and tripping added to power cuts which resulted in no electricity for certain areas during the entire day. The final report is being prepared and further course of action shall be taken in accordance with law as per final outcome of the report, the press release further said. Pakistantoday - 30 June 2015

Power sector bottleneck for Pakistan growth, IMF says in latest update The International Monetary Fund (IMF) Thursday said Pakistan’s macroeconomic stabilisation is encouraging but the power sector remains a key bottleneck for the country’s growth. “While regulatory reform continues, the power sector remains a key bottleneck for growth and a drain on public finances,” Mitsuhiro Furusawa, Deputy Managing Director said following the 7th review of Pakistan’s economic performance according to an IMF update released Thursday. The statement notes “structural reforms are progressing, although more needs to be done, and the risk of legal challenges remains.” Islamabad’s adoption of a comprehensive medium-term plan to deal with the accumulation of arrears in the electricity sector is welcome in this respect, it says. “Continued efforts are needed in the areas of privatization of public sector enterprises, trade policy, and business climate reforms.” The update says China-Pakistan Economic Corridor (CPEC) could help boost Pakistan’s long term development prospects “Under CPEC, part of China’s efforts to expand trade and transport linkages across central and south Asia, about US$44 billion could be invested in transport infrastructure and energy-related projects including roads,

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railways, pipelines, and power plants—in Pakistan over the next 15 years. “While the modalities, terms, and timelines of the various investments under CPEC are yet to be determined, the CPEC has the potential to improve Pakistan’s business environment by reducing infrastructural bottlenecks, and thus to stimulate domestic and foreign investment over the longer run. Sound practices in public debt management and in the evaluation, prioritization, and implementation of public investment projects will be important to ensure that maximum benefit accrues.” The Fund statement also says “progress toward macroeconomic stabilization is encouraging, thanks to strong performance under the program and despite significant legal, political, and security challenges.“Macroeconomic imbalances are being gradually addressed. Building on these gains, continued efforts are needed to make the economic reform more sustainable and boost inclusive growth.” Pakistantoday - 30 June 2015

Power sector: Lenders reject rules International lenders have reportedly rejected the power sector Market Operators, Standards and Procedure Rules 2015 prepared by the Government of Pakistan (GoP), official sources told Business Recorder. National Electric Power Regulatory Authority (Nepra) approved Market Operator Registration, Standards and Procedure Rules 2015 on May 27 and government notified on May 28. According to sources, Nepra modified the licence for NTDC on May 29, 2015, removing NTDC''s right to procure power or to make new arrangements for the purchase of power beyond that needed for the provision of ancillary services. The mission comprising officials from the World Bank, Asian Development Bank (ADB) and JICA also received on May 28 and 29 a set of documents that related to the separation of the market operations function as follows: the Market Operator Registration, Standards and Procedure Rules 2015 as notified by government; the licence proposed modification for NTDC; two versions of the draft commercial code, one dated May 26 and one dated May 27; a draft Administration Agreement for PPAs held by NTDC and which also includes the administration of PPAs held by Wapda WPPO in respect of 1994 Policy IPPs; a revised draft Business Transfer Agreement (BTA) between NTDC and CPPA (G); a revised draft Power Purchase and Agency Agreements to be signed between CPPA (G) and each Disco; Securities and Exchange Commission of Pakistan''s (SECP) approvals of the Discos'' application to appoint CPPA (G) as their sole purchasing agent; a letter to Federal Board of Revenue (FBR) requesting changes to the tax regime governing CPPA (G);

draft PPAs between Gencos and CPPA (G); and a draft PPA between WAPDA Hydel and CPPA (G).

by Wapda''s WPPO. It is by no means clear whether this is a feasible and legitimate option.

The mission noted that documents represented a considerable departure from the earlier agreed approach to the separation of NTDC and CPPA (G), in particular: The original summary on Pakistan Power Sector Reform - CPPA (G) of April 30, 2014, subsequently approved by the ECC on May 8 set out the timetable and sequencing previously agreed with earlier missions is no longer relevant. It included, for example, the signing of new PPAs with Gencos and Wapda hydel within 15 days of the ECC approval of the summary. The mission noted that a new ECC summary was under preparation and requested that it be provided. The Market Operator Registration, Standards and Procedure Rules 2015 are a sub-set of earlier Market Rules upon which previous missions had provided extensive comments, including as recently as the April 2015 mission. The mission itself only received a copy of the Rules after they had been approved and noted that some of the earlier comments have not been addressed and as a result the Market Operator Registration, Standards and Procedure Rules 2015 are inadequate in a number of ways, including that there is no reference to K-Electric.

The mission further noted that given the large volume of documentation and the significant changes, it would take some time before a review could be completed and that it would be able to provide its comments and request clarifications. The changes were of such significance that it would also be necessary for further management review in both institutions, since the earlier review had been on the basis of a different approach to reform.

The mission also noted that the Rules had been approved with no consultation with affected parties including IPPs and K-Electric, and indeed without public disclosure of any kind. The mission expressed the view that this put the Market Operator Registration, Standards and Procedure Rules 2015 at risk of challenge. The modification to NTDC''s licence in part relies on the Market Operator Registration, Standards and Procedure Rules 2015 to justify not holding a licence hearing for CPPA (G). If the Rules are at risk of challenge, so is the licence modification. The updated BTA makes a significant change in the sequencing of actions. The signing of PPAs between the thermal power plants of Gencos and CPPA (G) has been delayed to a transition period of up to two years, despite the heads of agreement for those PPAs having been approved by the Genco Holding Company Board more than one year ago and the final draft template being provided by the government in April 2015 (and again in the package of documents received during the mission). Similarly the PPA between Wapda hydel and CPPA (G) has been made available to the mission but is not proposed to be signed until the transition period. Furthermore, the BTA provides no incentive for the completion of these actions within the two years. The administration agreement between NTDC and CPPA (G) - which was provided to the mission for the first time on May 28, despite many earlier requests - proposed not only the administration of the PPAs now held by NTDC in respect of 2002 Policy IPPs, but the 1994 Policy IPPs held

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The mission further observed that despite government''s stated confidence that all the actions can be completed within the required timeframe in the previous missions and the mission''s caution of delays, external and internal circumstances did not allow for expected progress of reforms. Business Recorder- June 16, 2015

IFC To Invest $50m In Pak Energy Sector The International Finance Corporation (IFC) has announced it is investing $50 million in the 102MW Gulpur project on the Poonch River in Pakistan, while also mobilizing a further $72 million for the project in a bid to help to address the country’s power shortage, support lower cost energy generation, and help develop renewable energy sources, British media reported on Monday. Being developed by Mira Power Limited, a subsidiary of South Korea’s Korea South East Power Co. Ltd. (KOSEP), the Gulpur project is the company’s first power generation project in Pakistan. “This investment will help us utilize Pakistan’s significant hydropower resource and help address the energy crisis in a cost-effective and environmentally friendly way,” commented Yi, Bo Seuk, General Manager of KOSEP. Pakistan has been facing a severe power deficit in recent years with daily blackouts of up to six hours or more in many areas, hindering industrial growth and adversely affecting the quality of life for millions. “Our aim is to help address Pakistan’s power shortage by supporting the development of renewable energy resources that will reduce the country’s reliance on more expensive fuel imports for power generation,” said Wiebke Schloemer, IFC Regional Industry Head for Infrastructure, Europe, Middle East and North Africa. “We also hope to encourage other international investors to invest in Pakistan’s power sector.” Pakistan represents IFC’s secondlargest exposure in the MENA region, with over $5.6 billion in cumulative investments committed to date. IFC’s current investment exposure in Pakistan is about $1.1 billion in

over 45 companies in sectors including infrastructure (energy, ports, and transport), financial markets, and general manufacturing and services. Pakistan Observer -June 09, 2015

Power production: PPIB approves 1,400MW Thar coal-based project In a bid to utilise the country’s vast coal resources and kickstart projects under the China-Pakistan Economic Corridor (CPEC), the Private Power and Infrastructure Board (PPIB) on Tuesday approved a 1,400-megawatt power generation project (four units of 350MW each) to be set up in Thar. This is the second Thar coal-based independent power plant approved by the PPIB, which will be established by the Shanghai Electric Group Company of China. The first was a 660MW Engro power project. The exploitation of Thar coal resources is a major step aimed at upgrading the area and developing a massive generation capacity using cheaper local coal that will help eliminate the energy crisis. This is one of the projects given top priority and included in the CPEC, which will start power generation in 2017-18. The approval was granted in the 101st board meeting of the PPIB chaired by Federal Minister of Water and Power Khawaja Muhammad Asif. The board also approved the signing of a memorandum of understanding between the PPIB, China Three Gorges Corporation and Silk Road Fund for the development of private hydroelectric power projects in Pakistan. Silk Road Fund is a development fund recently created by the government of China, with main focus on infrastructure and energy development as well as industrial and road initiatives. China Three Gorges Corporation is already developing three hydropower projects in Pakistan – 720MW Karot, 1,100MW Kohala and 590MW Mahl on Jhelum River – and has expressed interest in undertaking more projects. To facilitate the projects initiated by Azad Jammu and Kashmir and Gilgit-Baltistan, the PPIB granted a standardised tripartite Letter of Support. Apart from this, the PPIB issued a Letter of Support to a 150MW coal-based power project in Arifwala, 1,200MW coal-fired projects in Sahiwal, 1,320MW imported coalfired projects at Port Qasim and 1,320MW imported coalbased projects in Hub, Balochistan. The PPIB managing director briefed the meeting on ongoing coal and hydroelectric power generation projects in the private sector, particularly the projects being

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processed under the CPEC. The minister expressed optimism about the CPEC, terming it a ‘game changer’ that would result in economic development of Pakistan. He asked the PPIB to step up work on the projects to ensure their timely completion. Emphasising the importance of cheap electricity, the minister directed the PPIB to facilitate investors. “Progress on all the projects – both new and ongoing – should be reviewed regularly so that they may not face any difficulty.” Published in The Express Tribune, June 17th, 2015.

''Thar coal will be used for power generation'' Prime Minister Nawaz Sharif on Friday said that the Thar coal would be used for power generation. The coal for some power plants would be imported for short time till Thar fields started production at commercial level, he added. "Today, I want to give Sindh Chief Minister Syed Qaim Ali Shah a good news. We will use Thar coal in coal-fired power plants in the country," he said addressing the chief minister, who was also present at FPCCI''s 38th Exports Awards distribution ceremony here. Sindh Governor Dr Ishrat-ul-Ebad Khan, Federal Commerce Minister Engr Khurram Dastagir Khan, Federal Minister for Finance and Economic Affairs Senator Muhammad Ishaq Dar, Minister of State for Petroleum and Natural Resources Jam Kamal and Minister of State and Chairman Board of Investment Dr Miftah Ismail, Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Mian Muhammad Adrees, Trade Development Authority of Pakistan (TDAP) Chief Executive Officer S M Muneer, United Business Group (UBG) Chairman Iftikhar Ali Malik, Senior Vice President FPCCI Abdul Rahim Janoo, FPCCI vice presidents, former vice president, In-Charge WTO Cell at FPCCI Engr. M.A. Jabbar and a large number of business leaders were present. The Prime Minister assured the business community that his government wanted maximum participation of the private sector in economic and development activities. The government, he said, had always made consultations with the business community before taking any decision regarding the economy. In response to a demand of the FPCCI President, the Prime Minister announced the formation of Business Advisory Council under his chairmanship. "We will form the business development council, which will be chaired by me. This will be a very good platform for regular interaction between the government and the business community. This interaction should be at least once in every three months." The council, he added, would

help promote industrialisation and trade in the country. Nawaz Sharif also supported the FPCCI''s demand that import of new plants and machinery be zero-rated to accelerate industrialisation in the prosperity. "This will create more employment opportunities, essential for peace and security in the country." "We should encourage installation of new plants and machinery. More industrialisation will be only when import of plants and machinery is facilitated and exempted from the duty," he said. "We will seriously consider this demand." BRecoreder - Jun 13, 2015

Despite missed targets WB likely to lend $1b Even though the government missed almost all the targets it had to achieve by utilising the $1 billion loan it received from the World Bank (WB) earlier, the international lender will likely give Pakistan another $1 billion this month to help enhance growth in the country and reform its power sector. A senior finance ministry official told The Express Tribune on Friday that the WB board of directors is set to approve a Development Policy Credit of $500 million for economic growth on June 19 and another $500 million on June 30 for the power sector reforms programme. The power sector loan will include $50 million that Japan will extend through WB, he said.The lender’s decision to take the programme loan to its board for an approval will greatly relieve the beleaguered federal government.

every year. WB also approved two loans amounting to $1 billion last May. These included $600 million for power sector reforms. The loan was approved to help reduce power subsidies, improve power sector performance and ensure accountability and transparency in power distribution and generation companies. But other than a reduction in the subsidies, which has been limited to budgetary books, progress towards these ends has not been encouraging. A recent implementation and status result report of the $600 million loan reveals that the government failed to achieve the target of increasing bill collection. According to the report, bill collection by March this year stood at 88.5%, only 2.5% up from the June 2013 level. June 2016’s target is 94%, which the government is likely to miss. Similarly, the government is supposed to increase gas supply to the power sector to five billion Standard Cubic Feet gas per day (CSFD) by June 2016. By the end of March, supplies stood at 4.1 billion, only 300 million CSFD up from the June 2013 level. Under another condition, the government had to make the Central Power Purchasing Agency (CPPA) operational and independent by now to bring transparency in power generation and its purchases. However, this has not been done yet, according to the report. The goals which could not be achieved under the first credit line are now proposed as the targets of the second power sector credit, according to the WB documents. Published in The Express Tribune, June 13th, 2015.

After the Lahore High Court (LHC) struck down four separate electricity surcharges, WB had shown reluctance to approve the loans, another finance ministry official said. A panicking finance ministry subsequently challenged the LHC decision in the Supreme Court and managed to get relief after the latter suspended the high court order. The WB loan will help the government achieve the Net International Reserves Target set by the International Monetary Fund (IMF) for April-June. However, the intended purpose attached with these loans has not been achieved. The government is availing the programme loan for budgetary support and the money is not used for creating assets, unlike the project loans. Pakistan Muslim League-Nawaz (PML-N) had come to power by promising to end load-shedding within two years. It failed to fulfill the promise due to its inability to introduce much needed reforms to reduce line losses and permanently address the issue of circular debt. In a recent National Economic Council meeting, Finance Minister Ishaq Dar reportedly told Prime Minister Nawaz Sharif that load-shedding is shaving off roughly 2% growth

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OIL AND GAS

Ambiguity in 18th Amend hurting investment in oil, gas

The Planning Commission has asked government to constitute a committee to clarify federal and provincial (governments) responsibilities and jurisdiction on the oil and gas sector so that investment could be boosted in this vital sector, sources told The Nation. “If the government seriously wants to meet the target of self-sufficiency in the oil and gas sector and control energy crisis it has to expedite the developmental works in the sector, which in turn need billion of rupees of investment, but with vague rules and regulations no company will be ready to risk their money, the official said. The government has sought the opinion of the energy wing of the Planning Commission on the impact of 18th amendments on the energy sector. The Planning Commission in its comments has asked the government to constitute a committee, consist of constitutional and energy experts and the federal and provincial representatives, to clarify the federal and provincial government responsibilities and jurisdiction. In some of the sectors transferred to provinces under 18th amendment, both the provincial and central governments have done a lot of legal work but in the oil and gas sector no homework has been done and this is the reason that a lot of ambiguity still persists there, the official informed. Ambiguity in the 18 amendment regarding Oil and Gas sector and lack of expertise and fund availability for the power generation projects, with provinces, is hurting the development and investment in the Energy field, the official maintained. The Planning Commission really appreciates the devolution of oil and gas sector, and allowing the provinces to install power plants but there is ambiguity in the account. The official said that we have conveyed our concern regarding the 18th amendment to the government.For example one clause is saying that federal and provincial governments are equally and jointly responsible for the development in Oil and Gas sector as the amendment gives joint and equal rights over mineral and natural resources in a province to the Centre and province. With the insertion of a new sub-section in Article 172 of the Constitution, the mineral and natural resources within the province vests jointly and equally in that province and the federal government, which leads to the duplication of authority, the official maintained.As a result taking advantage of the ambiguity both center and the provinces are giving their own versions.“It was generally misconstrued and created a number of misconceptions among the center and federating units,” the official maintained. For example the Khyber Pukhtoonkhwa government has even demanded the Federal government to transfer the

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right to collect the oil royalty to the provincial government. Currently the federal government is collecting oil royalty for the province and charging some percentage of the royalty as a collection charges and transfer the royalty to the concerned province, the official maintained. Now the constitutional and legal experts have to clarify what are the legal hurdles in meeting such demands. Although this year record exploration licenses have been issued but it doesn’t mean that everything is fine as first these licenses were issued after 5 years and second even today we are not exploiting our full potential, the official said.“If the ambiguity becomes clearer, within next few years, the investment may become double or even triple” the official added. Similarly though the provinces had been given powers to generate electricity, they could not do so because certain limitations, including lack of expertise and resources, inability to provide sovereign guarantees for international funding and absence of a national coordination plan. The best example in this regard can be given of the KP government, as they announced the construction of about 300 small dams but what is the net result after the lapse of two year? The official asked and answers only work on few dams has been started.When the provinces cannot construct small dams how can you expect them to make big reservoirs or install power plants with billions of rupees of investment and tons of expertise? The official maintained. Similarly the Sindh province has demanded from the Center that, instead of Nepra, the provinces be authorised to determine tariff for the provincial power projects. To develop the energy sector, the Center should help the provinces in getting expertise and issue guarantees for the provincial power projects, as according the constitution the provinces couldn’t issue guarantees. This is because of this ambiguity in 18th amendment that the federal government also seems reluctant to address concerns of Sindh and the other provinces pertaining to oil and gas matters. Pakistan Today - May 12, 2015

Oil production registers 22pc increase in 2 years Director General Oil, Ministry of Petroleum and Natural Resources Abdul Jabbar Memon Tuesday said that local oil production from different gas fields across the country had registered 22 percent increase during last two years. "The local oil production across the country to-date is around 90,000 barrels per day (bpd), out of which 80 percent is crude and 20 percent is condensate. Whereas,

the country's total requirement/ consumption is around 400,000 bpd," he said while talking to APP. When the present government under the dynamic leadership of Prime Minister Muhammad Nawaz Sharif came into power in 2013, the daily production of crude oil was about 74,000 barrels while now it has touched the 90,000 bpd figure. Replying to a question, he said presently as many as six oil refineries were operating in the country and they had full capacity to refine the product as per needs of the country. "We are self-sufficient in refining crude oil, but a lot of work is still has to be done in exploration sector to achieve autarky," he added. Memon said the country's success rate in oil and gas exploration is `very high' as compared to other discoveries at international level. "After almost every three to four drillings, there is a find, while at international level discovery comes after eight to ten attempts," he added. The present government, he said, was pursuing a practical and aggressive petroleum strategy to achieve selfsufficiency in oil and gas sector, which would help bring the import bill to the lowest level. To another question, the DG said the Byco Petroleum Company had set up the country's largest oil refinery complex in Hub, Balochistan, with the capacity of refining 120,000 barrels crude oil per day. "The facility will increase energy security and reduce dependency on others," he added. The country's oil refining capacity had dropped from the 50 per cent mark, which was not considered a good sign for national economy. The Byco Refinery will fulfill around 39 per cent of the country's energy needs and considerably bring down the oil import bill. Memon said another petroleum company Trans-Asia was also going to set up a refinery having capacity to develop 100,000 barrels oil per day. "The company has imported all the required machinery and equipment, and the company will itself announce the launching date after completing all the required codal formalities," he added. Pakobserver- June 24, 2015

CEMENT

Sharp decline in cement exports an eye opener for policy makers The All Pakistan Cement Manufacturers Association has said that sharp decline in cement exports from North should be an eye opener for the policy makers. The APCMA spokesperson said Pakistan’s export to both Afghanistan and by-sea routes suffered. The decline in exports to Afghanistan was due to influx of Iranian cement and slowdown in economic activity. He appealed the government to support local manufacturers in winning back the Afghanistan market by giving freight subsidy enabling them to compete with highly subsidized Iranian cement. He said slower growth in cement exports to India were mainly due to non-tariff barriers erected by the Indian authorities. Going forward, the spokesman pointed out the increase in cost of production after federal budget 2015-16 and warned that cement prices are likely to increase after Eid due to increase in duty on imported coal, imposition of GIDC and increase in electricity tariff. Consequent to the announcement of budget 2015-16, APCMA has approached FBR for the issues impacting cement industry and hopes positive response from the government in the larger interest of the country. The Nation-05-Jul-2015

Cement: all hopes on local sales Fauji There was a time when cement manufacturers in the country were viewed in terms of their respective abilities to capture turf in international markets. But the past 12 months in the cement industry have been all about domestic dispatches. According to the All Pakistan Cement Manufacturers Association, total cement dispatches in the country have climbed by 3.47 percent in 11MFY15, when compared to similar period of the previous year. The data show that cumulative exports have dropped by almost 11 percent during this period, while local dispatches have more than compensated with a growth of eight percent. Export tallies have been shriveling even since the Afghan economy began slowing down and North African markets began sputtering. Restrictions on Pakistani cement by South Africa are the most recent in a series of blows to the countrys cement exports. But if you were to judge the sectors performance by solely relying on the observation of stock prices; youd be excused

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for not even noticing the slowdown in exports. The BR Cement index has outperformed the KSE100 index significantly, even as the benchmark has rallied to unseen heights. As far as investors are concerned, weak exports are not a red flag as long as the domestic demand continues to grow. After all, who wants to rely on a far away market with high cost of sales, when you can just as easily fetch a strong price in the local market with lower distribution expense. Sajjad Hussain, cement analyst at BMA Capital highlighted that "the property price boom in the South (especially Karachi) and execution of mega private projects such as Bahria Town and DHA Phase-9 are expected to continue to upward momentum" of the sector. Cement makers in the North region, on the other hand, stand to be the biggest beneficiaries of big ticket government funded projects including Dasu and Diamer Bhasha dams as well as a number of infrastructure projects. In fact with major capacity upgrades and captive power installation as a recurring theme across the cement sector, it seems that most domestic manufacturers are priming for a sustained run of ample domestic demand, firm prices and profits galore. Little wonder then that the export constraints have not spoilt the party for cement sector. Published in Business Recorder dated June 25, 2015

Pakistan is a reform story like India’s but only better: Economist Construction and infrastructural development have been cited as the primary drivers behind Pakistan’s emergence as a frontier market by a Bloomberg report. The construction sector grew at 11.3 per cent through FY14-15, nearly double the 5.7pc target, according to State Bank of Pakistan data. London-based chief economist at Renaissance Capital Ltd Charlie Robertson said of Pakistan: “It is the best, undiscovered investment opportunity in emerging or frontier markets,” adding, “What’s changed is the delivery of reforms and privatisation, an improved fiscal picture and good relations with the IMF.” Nawaz’s government has boosted infrastructure expenditure by 27pc to Rs 1.5 trillion for fiscal year 20152016 (FY15-16), as interest rates are the lowest they have been in 42 years and the economy is expanding at its quickest since 2008.

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Pakistan is a reform story like neighboring India’s, but only better, said Renaissance’s Robertson. Cement producers DG Khan Cement Co and Cherat Cement Co have announced plans to expand, while steelmakers Amreli Steels Ltd and Mughal Iron and Steel Industries Ltd are raising equity capital. Bloomberg data shows the cement industry has rallied 57pc over the FY14-15 nearly thrice the benchmark target with Maple Leaf surging 161pc, Fauji Cement jumping 81pc, and DG Khan making gains of 62pc. Chief Executive Officer UBL Fund Managers Ltd Mir Muhammad Ali said: “The construction industry is seeing a boom, and there is still juice left in the cement rally. Overall economic improvement has also helped.” Pakistan’s $46 billion deal with China for the ChinaPakistan Economic Corridor includes $28b in investments which are expected to have a trickle-down effect. A builder in Karachi Hassan Baskhi says: “Business has been very good, and there’s no doubt my work has tripled in five years. There’s huge demand from the middle class for affordable housing.” The economy has shown resilience to environmental instability. The KSE Index among the world’s top 10 performers has grown 16pc over FY14-15, despite sectarian violence, bomb attacks, targeted killings and kidnappings. Inflation has shown a downward trend over the past 12 months with the annual inflation for the just-concluded fiscal year resting at 4.53pc. Earlier this year, the International Monetary Fund said Pakistan had been making significant progress on targets in the $6.6bn loan programme. The IMF predicted growth of 4.5pc this year following a 4.1pc growth rate last year. Moody’s Investors Services, as well as Standard and Poor’s (S&P) upgraded Pakistan’s credit rating. The S&P attributed the improvement to diversification in income generation, the government’s efforts towards fiscal consolidation, improvement in external financing conditions and performance, and stronger capital inflows and remittances. Dawn - Jul 02, 2015

FERTILIZER

DHCL, after holding interminable discussions with the government and other relevant institutions, has developed an impression that there would be no network gas available for DHFL going forward. "So we thought why to unnecessarily incur a huge operational loss of Rs 100 million," Shafiq told Business Recorder. The DHFL whereas required what the company official said a continuous supply of 38 mmcfd gas for smooth operation, the SNGPL was hardly able to ensure supplies of 45 days in 2014 and 10 days this year (2015).

Rs 6.6 billion deal signed with PAFL: DHCL sells fertilizer subsidiary for want of gas Dawood Hercules Corporation Limited (DHCL) is selling its 100 percent shareholdings in Dawood Hercules Fertilisers Limited (DHFL) to Pakarab Fertilisers Limited (PAFL) due to shortage of gas. The development came to give a setback to the federal government's efforts to make the fertilizer companies run on the imported liquefied natural gas (LNG) that a DHCL official said was not commercially viable for the company. DHFL, a wholly-owned subsidiary of DHCL, is being sold out through a Share Purchase Agreement (SPA) the Corporation signed with PAFL on Monday. The monetary value of the deal totals at Rs 6.6 billion. However, minus the company's Rs 4.6 billion long-term debt obligations the amount of transaction has been calculated at around Rs 2.2 billion. "The price is essentially the differential between the agreed enterprise value of DHFL... and the total long-term loans... and, at present, the price is approximately Rs 2 billion," reads a stock filing by the DHCL. According to Company Secretary Shafiq Ahmed, under the SPA 100 million shares of DHFL would be bought by Pakarab at Rs 22. The materialisation of the deal, however, is subject to what Ahmed said certain corporate procedures like regulatory approvals, clearance of bank loans etc. "It was not feasible for us due to shortage of network gas," the secretary replied when asked as to what made his company sell its fertilizer manufacturing subsidiary while the government's current monetary and budgetary policies, seemingly, favour the heavily-leveraged sector like cement and fertilizer.

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"Since 2012 the graph of gas supplies has constantly been declining," he claimed. About the LNG factor, the secretary said the government had offered his company to run its manufacturing units on the imported thus costly regasified fuel. Imported by Pakistan State Oil at $ 8, the price of LNG, all the taxes added, accumulates to $ 14. "This is not viable for us commercially," he said adding "It does not even take us to the breakeven stage". Then how would the buyer, PAFL, be managing its operational costs? "I have no idea about that. They may but we can't," the DHCL official was outright. Pakarab Fertilisers, according to Petroleum Minister Shahid Khaqan Abbasi, was one of the private sector buyers of the first 150,000 cubic meters LNG commissioning cargo brought by FSRU-type M/v Exquisite to Port Qasim later in March. Any source of fuel priced over and above $ 8, Shafiq maintained, was not feasible for his company.

BRecorder- 16th June 2015 Fertiliser sales go up 10% Fertiliser production during the first five (Jan-May) months of calendar year 2015 (5MCY15) has jumped to 2.871 million tons, up 10% compared to 2.6 million tons in the same period of previous year. According to recent data published by the National Fertilizer Development Centre (NFDC), urea production for 5MCY15 surged by 6% year-on-year to 2.025 million tons compared to 1.904 million tons in the same period of previous year. Diammunium Phosphate (DAP) cumulative production also depicted a significant increase of 22% to 281,000 tons in 5MCY15 from 230,000 tons. However, on a monthly basis, overall production increased by a meagre 2,000 tons with decline in urea production by 7% to 389,000 tons during May 2015.

Fertiliser off-take clocked in at 690,000 tons in May 2015 up by 37% month-on-month as compared to 503,000 tons in April 2015. Urea off-take witnessed a growth of 15% year on year to 422,000 tons during May 2015 as against 367,000 tons in the last month. The DAP volumes also ascended by considerable 62% during May 2015 to 110,000 tons compared to 68,000 tons in April 2015. Off-take of other fertiliser products also increased on a monthly basis. During 5MCY15, cumulative off-take also increased by 11% year on year with 12% and 4% increase in urea and DAP volumes, respectively. Company wise analysis revealed that all companies during 5MCY15 showed an increase in off-take except for Fauji Fertilizer Bin Qasim (FFBL). The highest contributor was Fatima Fertilizer, which posted an increase of 37% followed by Engro Fertilizer with growth of 16% on yearon-year basis during 5MCY15. InvestCap Research on Friday reported that during the remaining months of the Kharif season 2015, fertiliser production is expected to increase owing to increase in demand. The import of DAP is forecasted to remain nil in upcoming months of Kharif season. Off-take of fertiliser will also remain on the high level during initial months of upcoming Rabi season.

during the same period last year that is due to increase in production of pulses, vegetables and fruits which recorded positive growth of 13 percent, 2.5 percent and 0.9 percent respectively on account of better water availability, more fertilizer offtake and relief in prices of agriculture inputs and enhanced availability of agriculture credit. Similarly, the data further revealed that livestock sector which contributes 56.3 percent in agriculture recorded a positive growth of 4.1 percent in 2014-15 against 2.8 percent growth during same period last year while fishing sector contributed 2.1 percent in agriculture value addition recorded a growth of 5.8 percent as against last year’s growth of 1.0 percent. Moreover, forestry sector posted a growth of 3.2 percent this year as compared to the negative growth of 6.7 percent last year. It is mentioned here that Pakistan has two crop seasons, Kharif, being the first sowing season, starting from April-June and harvested during October-December. Rice, sugarcane, cotton, maize, moong, mash, bajra and jowar are Kharif crops. The Rabi, a second sowing season begins as on October-December and is harvested in April-May. wheat, gram, lentil (masoor), tobacco, barley and mustard are Rabi crops.—APP

BRecorder- June 20, 2015 TEXTILE

Published in The Express Tribune, June 27th, 2015.

Positive steps ensure 2.9pc growth in Agri sector this year The overall performance of agriculture sector has recorded a growth of 2.9 percent during 2014-15 as compared to 2.7 percent last year due to positive steps in all related agriculture sub-sectors. During the period, crops witnessed a growth of 1.0 percent, livestock 4.1 percent, forestry 3.2 percent and fishing 5.8 percent. The agriculture’s crop sub-sector component which includes important crops, other crops and cotton ginning showed growth of 0.3 percent, 1.1 percent and 7.4 percent respectively. A data in budget document revealed that the important crops carry great significance by having a share of 25.6 percent in agricultural value added, has experienced a meager growth of 0.3 percent in fiscal year 2014-15 against growth of 8.0 percent during the same period of last year on account of revised production estimates of wheat crop. The important crops such as cotton and rice production recorded positive growth of 9.5 percent and 3.0 percent respectively. Other crops contributed 11.1 percent in value addition of agriculture recorded an increase of 1.1 percent during 2014-15 against negative growth of 5.4 percent

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Textile sector: Stitching excuses for poor growth The textile sector is probably the most vocal of them all. From gas supply issues to stuck up refunds with the Federal Board of Revenue, the sector continues to make noise and keeps stressing how it generates revenue and employment opportunities for the economy.It was no surprise when the textile fraternity started with their recommendations for the budget and piled on the pressure. But, even after the budget announcement where the government somewhat favoured textiles, the sector continued to lament, saying that Finance Minister Ishaq Dar has poured cold water on “high expectations” it had

from the government. It argues that no “significant relief” was offered. Using its card of being a critical sector for growth in the country, the textile industry has continued to cry over energy shortages and security concerns in the country. No one denies that those problems exist and still persist. Due to its size in the economy, textile has been hit pretty badly. Despite all these hurdles that have virtually stopped the industrial wheel, it is equally true that there are some that rely – a bit overly – on government support and incentives to perform well. A large number of experts believe the textile sector is one of those sectors that excessively seek government aid. Similarly, there are some who say that the industry has gained a lot in the budget announcement. “The budget 2015-16 is a big positive for the textile sector,” Emerging Economics Research Managing Director Muzammil Aslam said. “The reason why leading textile associations are not happy is, perhaps, because if they say it’s all good, it may put a full stop on government incentives that are coming their way.” These are strong words and convey a lot about how businesses think and operate. Some of the incentives Reduction in export refinance rate to 4.5% and bringing long-term financing to 6% — the most reasonable rates in the history of the country – are some of the few, but huge, incentives that the government has announced for the manufacturing sector, Aslam added. In the last budget, the government had reduced mark-up rate on exports finance from 9.4% to 7.5%. This rate was then brought down to 6% in February 2015 and has now come down to 4.5%. Similarly, the government reduced the mark-up rate on long-term financing facility, between three to 10 years, from 11.4% to 9% to allow export-oriented industries to make investments on a competitive basis. This was then reduced to 7.5% in February and has now been brought down to 6%. However, Aslam said one of the major issues facing the export-oriented textile industry was the blockage of refunds by the FBR. This problem is also going to be solved by August 31, 2015 as per the latest commitment of the government in the budget announcement. Exports data An analysis of export figures also reveals a not-so-rosy picture. In the first 10 months of fiscal year 2015, overall textile exports were recorded at $11.28 billion, down 1.2% compared to the same period of previous year. This comes despite Pakistan securing the Generalised System of Preferences (GSP) Plus facility that granted it

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duty-free access to markets in the European Union (EU) in December 2013, which helped the country earn more than a billion dollars in additional exports in the first 12 months. However, analysts say that the positive impact was off-set by the euro’s depreciation, which lost about 20% of its value against Pakistani rupee in the last one year. Commenting on the current conditions of the textile industry, renowned businessperson Zubair Motiwala put most of the blame on the rising cost of doing business. “Textile companies are not even sustaining their businesses, how can they grow in the current environment?” he said, when asked why the textile sector is continuously failing in producing value-added products. The budget 2015-16 will not be able to resolve the major issues of the textile sector, he said. “We have told the government to hire an international agency to do a comparative analysis of the cost of textile industry inputs in Pakistan, India and Bangladesh – the three main competitors in textile after China. “This will authenticate our claim that the cost of manufacturing is much higher in Pakistan compared to our competitors.” Published in The Express Tribune, June 15th, 2015.

Pakistan textiles industry needs a big shot in the arm The reason for the industry to come to see such bad days is its lack of new investment in technology, new machinery, failure to upgrade itself, or come up with innovative products. Pakistan’s textile industry needs a big shot in the arm to survive, compete and grow as the biggest foreign exchange earner. Textile sector considered as Pakistan’s biggest industry, the largest employer, credited with earning 60 per cent of overall export receipts, the key to country’s survival and make its economy sail or sink.Until recent years it competed successfully worldwide but now it is being beaten down by low prices and good quality production of upstarts like Bangladesh, Vietnam, Thailand, and China. The reason for the industry to come to see such bad days is its lack of new investment in technology, new machinery, failure to upgrade itself, or come up with innovative products and sticking to just low-value products like cotton yarn. Its failures are made all the more sickening because Pakistan is the world’s fourth largest cotton producer. It is amazing that it continues to produce huge quantities of cotton yarn, exported to new comers like Bangladesh and Vietnam.

Such countries, in turn, beat Pakistani textile exports down on the strength of their low export prices, high quality with a good degree of innovation. The government’s blind policy to tax the industry and its export products has a big role to blame as it is killing the goose that lays the golden egg.

Bureau of Statistics reports. Ijaz Khokhar, chairman of Pakistan Readymade Garments Manufacturers and Exporters Association said: “No proper marketing plan was prepared to achieve the benefits prior to EU’s grant of GSP+ status to Pakistan. We failed to plan early.”

The potential, prospects and prosperity inherent in the industry to bounce back is proven buy just two examples: One, China and some other regional countries are buying Pakistani textile plants to export their products because the global demand for textile products and apparel is surging, as World Bank reports. Two, Pakistan’s vibrant and highly innovative fashion designers are moving fast into huge and prosperous markets like Europe and Middle East. Its topclass models are hitting the fashion ramps and parading, highly artistic Pakistani designers’ fashion wears ranging from bridal to party and day wears in Paris. As also recently seen at Dubai and Doha, these designers are coming up with hundreds of new, beautiful fashions and new lawn designs. The new lawn, especially for the summer season is now estimated to have a Rs250 billion production and exports have crossed Rs50 billion a year. The innovative lawns have virtually eliminated most of the silk material, which was smuggled in Pakistan in huge quantities.

Pakistani investment in machinery for replacement and inducting new technology to produce high-value added products from 2008 to 2013 was small. It added only 1,320 shuttle-less looms, and 1.02 million spindles. Compare it with Bangladesh — the next low investor adding 22,370 shuttle-less looms and 1.987 million spindles.

How does the international community view the Pakistani textile industry? The World Bank has just reported out of a conference on Pakistani textile industry, its problems and its standing in the international market. The conference came out with encouraging words saying it has “an immense potential”. But, “as compared to the regional textile producers, Pakistan lags far behind.” This is sad to hear because the World Bank projects the global apparel market to shoot up to $1.8 trillion by 2020 and $2.2 trillion by 2025. All regional countries are gearing up to cash on this projected growth. The conference noted “Pakistan’s compound annual growth rate in textile and apparel exports from 2005 to 2013 stands at measly 3.6 per cent. Compare that with India’s 11.3 per cent and Bangladesh’s 16.2 per cent.” What went wrong and what caused this downtrend in once booming industry? The bank reports, Pakistan’s share in the global market dropped from 2.2 per cent to 1.8 per cent over the last five years. What forms part of textile exports? More than 80 per cent are made of cotton. The value added portion of the exports — including readymade garments, knitwear, and bed wear — total up to 60 per cent of the sales abroad. The remaining 40 percent exports are raw cotton, cotton yarn and cotton cloth. Textiles exports in the first 11 months of fiscal year-2015 totalled Rs114.158 billion against Rs117.50 billion in the like period of FY-14, Pakistan

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Pakistani textile exports turned out to be more expensive compared to the other regional producers due to a five per cent appreciation of its currency against the greenback between December 2013 and April 2015. Its cost of doing business also went up. The government provides no tax cuts, low-interest rate bank credit, zero rating on exports, or tax reduction on investment of capital in exportorientated industries. While most of the demands from the textile industry are still unmet, Finance Minister Ishaq Dar in his budget for FY-2016 that starts from July 1, announced a cut in the Export Refinance Rate credit, payment to the exporters of government-held export rebates and implementing the Textile Policy — 2014-19. “We will move exports fast,” Commerce Minister Khuraam Dasgir said. Khurram and Energy Minister Khwaja Asif also promise to shortly stop power outages. The government also has to reset the rupee-dollar parity, ensure zero rating on exports, cheaper bank credit, apply regulatory duty on import of yarn and fabrics, and full implementation of the Textile Policy. Textiles, and four other export-oriented sectors — including leather, sports goods, surgical and carpets — are demanding tax cuts and financial support. Mohsin Aziz, chairman of the Senate Committee on Textiles, supported them this week. They committee expressed its “serious reservations over the 14 per cent decline in textile exports during the current FY-15. It means, Pakistan will not be able to take full advantage of EU’s GSP+ status granted to Pakistan despite assurances by the government to double textile exports,” Aziz said. Aamir Marwat, Secretary, Ministry of Textiles explained to the Senate Committee the steps being taken to help the industry. Among these he said that the government has spent Rs3.6 billion to build Karachi Textile City but only the land is acquired. The situation requires full-blooded efforts by all the stake- holders to produce more, and export more, and cheaply, too. Published in Khaleej Times, June 29th, 2015.

Textile turmoil That country's textile manufacturing has come to a halt is something that constitutes a stigma on the face of a relatively stabilised economy. Cotton is one sector where this country used to enjoy a competitive advantage. Pakistan's foreign exchange reserves did cross the 18 billion dollar mark in mid-2012 - but it was from borrowed money. And, by September 2013 we were back in the arms of the International Monetary Fund as oil prices internationally soared and we were afraid of a default and feared that we would not be able to purchase crude oil. This time too, Pakistan's foreign exchange reserves have largely gone up on the back of borrowed funds; but at present there is a difference. The international price of a barrel of crude oil has softened and the present situation is a breather; if not properly availed it may continue to keep us in the embrace of the Fund. Is this position sustainable or envious? We understand that Pakistan like other Asian countries does see a fall in exports. Commodity prices the world over have softened. Countries that have the fiscal space are providing subsidy to their farmers as well as to their exporters in order to boost exports and maintain or gain market share. Unfortunately, however, Pakistan does not enjoy the fiscal space to do so. It increasingly appears that the textile magnates having failed to successfully persuade the Federal Finance Minister, Ishaq Dar, to weaken the currency parity to compensate for rising cost of doing business, have now decided to lean on the agriculture lobby ie the cotton growers to help them. Next season's cotton arrivals are expected to start in a month, ie by August 2015. If mills are shut then there will be no buyers of cotton and the farmers or growers would scream very loudly just like the sugarcane growers who forced the government to ensure sugar mills start crushing. But then decision-makers in this country are also sugar mill owners, at least in the three major political parties. Regulatory duties on sugar can be doubled; cash subsidy for export of sugar can also be provided. But sugar, unlike cotton, is crystalline white and overtime loses its lustre and turns yellow. Further, the cotton mill owners of Punjab and Sindh are also opposing each other or differ on supply of gas. Punjab mills want Sindh mills to observe two days of gas closure instead of one. And, would like more natural gas diverted to Punjab since Sindh is surplus in natural gas. And, the 18th Amendment gives a province pre-eminence on its mineral resources, Sindh feels otherwise. Sindh mills are also complaining about low pressure of gas and its diversion to Punjab.

The textile mill owners also question the rationale for increasing the electricity tariff, when international price of POL products has come down. They also point out that there has been a 21 percent fall in the quantity of cloth the country exported every year; besides a 43 percent fall in value terms. Citizens would like to know what is going on. After all, cotton-based textiles are indeed the country's largest employer and also constitute 55 percent of Pakistan's exports. It appears that the country is increasingly being divided into 'fiefdoms' and no one is prepared to take the ownership of the country as a whole. Also, the PML (N) government is not focusing on manufacturing which creates jobs and provides growth. When leading manufacturers like Syed Babar Ali and Mian Muhammad Mansha decide to establish shopping malls instead of manufacturing units something is amiss. It appears our economic policy and taxation structure are not working in tandem. Entrepreneurs generally invest in ventures through which they can milk maximum profits. The situation therefore gives birth to a question whether or not the margins in manufacturing are being squeezed. The federal government, headed by the Prime Minister, needs to step forward and impress on everyone that increasing exports is of prime importance. And, it needs to get the appropriate attention. A meeting of the Export Promotion Board is urgently needed to undertake steps towards boosting exports. BRecorder - Jul 1, 2015

Aptma decides to shut textile mills The Chairman of the All Pakistan Textile Mills Association, Mr S.M. Tanveer, said on Sunday that the association had decided to ‘voluntarily’ close down the textile industry because of the losses it had been suffering. “An emergency meeting of Aptma’s general body has deliberated on the adverse circumstances and found it unfeasible to incur losses by operating mills partially,” Mr Tanveer said in a statement. According to the Aptma chairman, the cost of doing business in the textile sector has gone through the roof and the burden of incidental taxes, provincial cess, system inefficiencies and the punitive withholding tax regime have added fuel to the fire. The Aptma chairman said the owners of mills in Khyber Pakhtunkhwa, Lahore, Faisalabad, Multan and Karachi had decided to close down operations and lay off millions of workers because they had nothing to offer their international buyers against the regional competitors. Published in Dawn, June 29th, 2015

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EDIBLE OIL

form and the rest of five percent in finished form. Free trade agreements with edible oil exporting countries has resulted in giving 15 percent discount on fixed import duties, he said. He said that 40 to 48 percent oil could be extracted from sunflower, 32 percent from rapeseed while 10 to 12 percent could be obtained from cottonseed. Focus on local production, establishing new edible oil refineries and better functioning of the oilseed extraction industry can help improve situation, create a million jobs and improve forex reserves. The Nation – Jul 1, 2015

Country can save $2.5 billion by promoting edible oil sector President Pakistan Businessmen and Intellectuals Forum and Karachi Industrial Alliance and former provincial minister Mian Zahid Hussain on Tuesday said selfsufficiency in edible oil production can help country save 2.5 billion dollars annually. Pakistan for self-sustaining in edible oil production for thirteen years after independence but exploitation of farmers and lack of interest on the part of authorities resulted in imports which are now second largest after fossil fuel in which palm oil enjoys 90 percent share. Talking to the business community, he said that farmers of different oilseeds are at the mercy of middlemen which is the biggest reason behind lack of interest by growers. He said self-reliance requires to increase land under cultivation, support price, incentives, latest varieties of seed and preference to the coastal belt of Sindh and Balochistan over all other areas. Mian Zahid Hussain also called for enhanced research and development, subsidy on inputs, interest-free loans, gradual increase on duty of imports, employing better technology, improving capacity of grinding mills and empowering Pakistan Oilseed Development Board. He said that primitive grinding process result in wastage of two lakh tonnes of cotton seed while 30,000 tonnes could be extracted from rice bran. Pakistan per capita consumption stands at 12-13 litres which is increasing by three percent annually which will increase import bill. But we are producing one-third of the edible oil while rest is imported. Pakistan imports three different edible oils including RBD palm oil, palm olein, and crude palm oil. Moreover, it imports 95 percent oil in crude

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Edible oil import $ 1.377b in nine months

bill

reaches

The edible oil import bill during first three quarters of last fiscal year has reached US $ 1.377 billion with 1.789 million tonnes quantity, registering 4.07 percent increase. Local production of edible oil during 2014-15 (July-March) was estimated at 0.546 million tonnes. Official figures of Pakistan Bureau of Statistics on Monday revealed that total availability of edible oil from all sources is provisionally estimated at 2.335 million tonnes during 2014-15 (JulyMarch). The edible oil import bill during 2013-14 was Rs. 246.895 billion (US$ 2.50 billion). The local production of edible oil contributed 0.573 million tonnes while import of edible oil/oilseeds was 2.627 million tonnes. The major oilseed crops grown in the country include Sunflower, Canola, Mustard and Cotton and during 2013-14 total availability of edible oil was 3.2 million tonnes. The Bureau further revealed that due to slump in international market of edible oil and oilseeds, the local traders were offering Rs.2,050 to Rs.2,100 per 40 kg for canola crop produce in 2014-15. Low prices in local market discouraged the oilseeds growers resulting decline in edible oil production. Last year average price of oilseeds (canola/sunflower) prevailed around Rs. 2,500 to Rs.2,800 per 40 kg. BRecorder – Jul 6, 2015