SBP’S RESERVES FALL 2.61PC, AMOUNT TO $15.3B
Foreign exchange reserves held by the State Bank of Pakistan (SBP) decreased 2.61% on a weekly basis, according to data released on Thursday. On June 9, the foreign currency reserves held by the central bank were recorded at $15,296.3 million, decreasing $410.3 million or 2.61%, compared to $15,706.6 million in the previous week, according to the central bank. Total liquid foreign reserves held by the country, including net reserves held by banks other than the SBP, stood at $20,157.8 million. Net reserves held by banks amounted to $4,861.5 million. Last week, the SBP made payments of $1,239 million on account of external debt servicing, which included principal repayment of $750 million against Pakistan’s sovereign bond.
CONSUMERS SUFFER AS MISUSE OF GOVERNMENT SUBSIDY GOES UNCHECKED
The misuse of government subsidy goes on unchecked in Pakistan as happens in cases of sugar and wheat. Ramazan package, an annual feature, is no exception, though it is supposed to provide some solace to the country’s citizens from rising prices in the holy month. But subsidy under this package proves to be a blessing for some suppliers, who provide adulterated products to the Utility Stores Corporation (USC) at higher prices. Other market players, particularly fruit vendors, also become active in Ramazan to extract extra money from the pockets of consumers. Fruit prices go up exorbitantly whether they are melons, bananas and mangoes, which are in high demand in the month. Perturbed over unbelievably high prices and lack of any significant action on the part of government, the consumers this time around launched a social media campaign and announced a three-day boycott of fruits a couple of weeks ago. According to some reports, this move succeeded in bringing down prices for at least a short while. Besides substandard goods supply to the USC under the subsidy package, there are other methods that are applied to misuse the facility in Ramazan. In one such tactic, USC regional heads join hands with the retailers. They sell subsidised products to the retailers instead of offering the goods to consumers at utility stores. This way, they deprive the common man of subsidised essential commodities and share hefty profits with open market retailers. Consumers have no choice but to buy subsidised goods at market prices from the retailers. With this black market of subsidised items, the government fails to achieve desired results of the subsidy programme. Secondly, USC retail outlets charge more than the subsidised rates in remote areas where people are not properly aware of the subsidy. The outlets pocket the subsidy that is actually allocated for the common man. Apart from these, the history of USC is replete with many scams in the purchase of edible and other products at higher prices.
SHARIF DIRECTS PROBE INTO CHANGE IN STATUS OF POWER PLANT
Prime Minister Nawaz Sharif has directed the Ministry of Water and Power to initiate a probe and fix responsibility for the change in status of Fatima Energy Limited from a captive power plant to an independent power producer (IPP). The premier has called for initiating appropriate action in this case against all the officials concerned including those associated with the Private Power and Infrastructure Board (PPIB), a senior government official said. Under the co-generation policy of the government, Fatima Energy was incorporated as a special purpose vehicle. The company was originally set up by Fatima Sugar Mills as a captive power plant for energy supply to the bulk consumers. Later, Fatima Energy applied for switching its status from the captive plant to an IPP. The company was then registered as an IPP with the PPIB for setting up a 118.8-megawatt co-generation (bagasse and imported coal-based) plant. After registration, Fatima Energy filed a tariff petition and the National Electric Power Regulatory Authority (Nepra) announced a levelised tariff of Rs7.83 per unit on ‘take-and-pay’ basis. According to the government official, the PPIB, in its meeting held on February 15, 2017, agreed on the issuance of the Letter of Support to the Fatima Energy co-generation power project. It suggested that after negotiations an implementation agreement should be submitted to the PPIB or in case of increase in financial obligations of the government, the Economic Coordination Committee’s (ECC) approval may also be sought. Consequently, a project-specific implementation agreement and power purchase agreement were finalised after talks with Fatima Energy by the PPIB and Central Power Purchasing Agency (Guarantee) Limited respectively on take-and-pay basis.
GOVERNMENT REDUCES SALES TAX FROM 2% TO 1%
The government’s decision to reduce sales tax from 2% to 1% on raw material supplies for five export industries, during the approval of budgetary proposals for 2017-18 by the National Assembly, was positively received by the Pakistan Hosiery Manufacturers and Exporters Association (PHMA). However, its Chairman Adil Butt expressed concern over the meagre allocation of funds for the duty drawback claims of exporters under the prime minister’s export package. So far, only Rs4 billion has been released for the exporters against total claims of over Rs24 billion. “When reservations were raised during sixth meeting of the Federal Textile Board last week, officials of the Finance Division assured textile exporters that funds will be released for duty drawback from the budget allocations as well as supplementary grants based on the claims submitted in the State Bank of Pakistan,” he said. But no such commitment was fulfilled in the final approval of the federal budget 2017-18. He said their major working capital was stuck with the Federal Board of Revenue (FBR) as exporters had not received payments under the Drawback of Local Taxes and Levies (DLTL) scheme for the past many years. “The textile industry will remain unviable if the government fails to return local taxes and levies on exports.” Butt urged the government to act decisively and rescue the value-added textile industry from financial crisis as the worst-ever cash flow crunch had brought the country’s largest industry on the verge of disaster. The PHMA chairman called on the prime minister to intervene and direct the FBR to make payments without any further delay, adding only immediate payments of the outstanding refunds of sales tax could save the industry.
SBP GRANTS ENDORSEMENT FOR NIB BANK’S MERGER WITH MCB
The State Bank of Pakistan (SBP) has granted approval for the merger/amalgamation of NIB Bank Limited with MCB Bank Limited. The merger/amalgamation of the two banks is taking place through a share swap arrangement whereby one share of MCB Bank will be issued for every 140.043 shares of NIB Bank. The shareholders of NIB Bank will be entitled to receive the value of their shares at the rate of Rs1.70 per NIB share. The deal between the two banks also received the approval of the Competition Commission of Pakistan on June 2, 2017 and other required corporate and regulatory authorisations and consents have also been issued. The SBP has sanctioned the Scheme of Amalgamation of NIB Bank with and into MCB Bank in terms of sub-section (4) of Section 48 of the Banking Companies Ordinance, 1962, through its order dated 13th June 2017. This approval is subject to the compliance of the provisions of the applicable laws by both the banks. The Scheme of Amalgamation will become effective within 30 days from the SBP sanction on a date to be notified by the two banks to SBP (the “Effective Date”). On the effective date, all properties, assets, liabilities, rights and obligations of NIB Bank will stand amalgamated and vest permanently in MCB Bank and, as a consequence, NIB Bank shall be amalgamated with and into MCB Bank. NIB Bank will cease to exist on the effective date. Both banks will then start working towards technical migration of client data.
ABC CONCERNED OVER LACK OF MEASURES TO BROADEN TAX NET
American multinationals operating in Pakistan have expressed concern over the lack of initiatives to broaden the tax net in the federal budget 2017-18 and to simplify tax administration for existing taxpayers. Reacting to the federal budget, the American Business Council (ABC) welcomed the government’s decision on exempting sales tax until June 2019 on exports of IT services from Islamabad and other federal territories and extending the scope of penalties for curbing illicit trade in cigarettes in Pakistan. In order to spur investment in plant and machinery, the investors were looking for some tax relief measures such as the reduction in turnover tax from 1% to 0.5%. However, this was enhanced to 1.25% while there was no reduction in the duty on basic raw material. The implementation of predictable, consistent and transparent economic policies is a prerequisite for attracting investment, creating jobs and growing the economy, said ABC President Sami Ahmed. “Taxation policy measures should focus on the overall impact on the business environment, therefore, these should help improve the cost of doing business without burdening existing taxpayers,” he added. The ABC investor group was of the view that although certain aspects of the budget like reducing the corporate tax rate were favourable for promoting investment, additional levies actually nullified all the benefits of the reduced rate. A classic example is the super tax. In the budget 2015-16, the federal government levied a 4% one-time super tax on banking companies and 3% on individual and other companies having an annual income of Rs500 million. This was done to collect funds for the rehabilitation of temporary displaced persons, however, it has continued since then. Some of the suggestions in the proposed Finance Bill 2017-18 like 10% tax on companies, which do not distribute 40% of profits as dividend, will severely impact their growth as companies will have no funds to invest in expansion projects.
SHANGHAI ELECTRIC REAFFIRMS COMMITMENT TO ACQUIRE K-ELECTRIC
China’s state-owned Shanghai Electric Power Company Limited has reaffirmed its commitment to go ahead with its plan of acquiring K-Electric from Dubai-based Abraaj Group, brushing aside all rumours regarding its possible retreat from the $1.77 billion business deal. “We have received today [Wednesday] a copy of the fresh public announcement of intention for acquisition (directly or indirectly) or up to 66.40% of the voting shares of K-Electric Limited by Shanghai Electric Power Company Limited,” K-Electric Director Finance and Company Secretary Muhammad Rizwan Dalia said in a notification to the Pakistan Stock Exchange (PSX) on Wednesday. Shanghai Electric Power had agreed to buy the majority stake of K-Electric at a price of $1.77 billion from Abraaj Group in October 2016. The multination firm re-submitted the public announcement of intention (PoI) as the previous one lapses on June 30, currently pending due to required regulatory and other approvals. Despite the development, K-Electric’s share price dropped almost 3% or Rs0.20 to Rs6.77 with a volume of 7.59 million shares on a bearish day at the PSX. The information regarding its commitment to go ahead with the acquisition deal is available at the stock market since Tuesday’s afternoon. The manager to the offer Arif Habib Limited Chief Executive Officer Shahid Ali Habib told that the fresh submission of PoI does not deal with the acquisition price.”It [PoI] is silent on the pricing, which is part of the sales purchase agreement.” There was information in circulation that the Chinese firm would revise down its price in the fresh PoI. The information was linked with K-Electric’s dues worth billions of rupees upon Sui Southern Gas Company and others. Besides, the National Electric Power Regulatory Authority has significantly revised down K-Electric power tariff for end-consumers months ago, which is a negative development for the Karachi-based power firm and neutral for the end-consumers. Following the development, Shanghai Electric Power’s (SEP) officials approached Prime Minister Nawaz Sharif for review of the revised down tariff and since then there is complete silence on the issue. The silence had given birth to the rumours of SEP back out.