Foreign office warns against unsanctioned comments
The Foreign Office has warned government functionaries against issuing unauthorised comments about the China-Pakistan Economic Corridor (CPEC) after a statement by a senior official of the Planning Commission caused stir in Beijing.
Barring government officials may further raise transparency concerns, as contracts under CPEC are shrouded in mystery.
In an article published on July 22, the Wall Street Journal had quoted the Planning Commission’s chief economist as saying that China should rescue Pakistan with an interest-free loan. Otherwise “for what do we have this friendship [for]?”
Terming such remarks ‘highly irresponsible’, the Foreign Office asked the Ministry of Planning to urgently devise a “system whereby all government functionaries are barred from giving unauthorised comments”.
In an official correspondence sent to the ministry, the Foreign Office highlighted the sensitive nature of the issue and critical nature of Pakistan’s relations with China, and asserted that devising such a system was necessary.
Pakistan is currently facing severe problems in managing its external sector debts. The country has already acquired a $2 billion concessionary loan from Beijing last month, easing pressure on domestic foreign exchange reserves and stabilising the rupee-dollar parity.
There are indications that Pakistan may also have to obtain a loan from the International Monetary Fund (IMF). However, the IMF’s financial assistance will be seen by many as coming at the expense of CPEC’s future expansion.
Pakistan and China signed deals worth $46 billion in infrastructure and energy sectors in 2014.
Since the beginning, controversies loomed large about the quantum of loans and investment, and the cost of those loans. There are also concerns about allowing sweeping tax concessions to CPEC projects.
Three years into the CPEC programme, Pakistan is hurtling towards a debt crisis, caused in part by a surge in Chinese loans and imports for projects such as the Orange Line, Lahore, Wall Street Journal asserted in its July 22 article.
The Foreign Office insisted that if government functionaries still make unauthorised comments, they should be held accountable because such utterances had the potential to seriously damage Pakistan-China ties.
Government enhances inspection fee of lpg filling stations
The government and the liquefied petroleum gas (LPG) industry have agreed on increasing the fee for inspection of LPG installations amid concerns over new rules framed by the Department of Explosives which have restricted the flow of fresh investment.
Earlier, the LPG industry was paying Rs20,000 for the inspection of LPG auto-filling station, Rs25,000 for the inspection of LPG plant, Rs5,000 for examining gas storage for self-consumption and Rs5,000 for monitoring gas transportation.
Now, the fee will be enhanced to Rs25000, Rs35,000, Rs15,000 and Rs7,000 respectively.
However, the industry is facing problems as it is forced to pay the same fee to two different departments.
Under the new rules framed by the Department of Explosives of the Ministry of Industries and Production, it has hired its own third-party inspectors while Ogra has different inspectors.
In this situation, the LPG industry has to pay the fee to the Ogra inspectors as well as third-party inspectors of the Explosives Department.
Before 2010, the rules of the explosives department and Ogra were similar. In that year, the department introduced the Mineral and Industrial Gases Safety Rules that empower the chief inspector of explosives to test, inspect and monitor petroleum, compressed natural gas (CNG) and LPG operations.
However, these rules sparked concerns as they were different from the regulations designed by Ogra which were amended from time to time in line with international standards.
The LPG industry also challenged the rules of the explosives department in the Lahore High Court, arguing that the regulations were discouraging new investment in the sector.
According to industry officials, these rules give discretionary powers to the chief inspector of explosives and create hurdles in the way of fresh investment because of new conditions for the capacity expansion of LPG companies like safety distance.
“New rules are different from the safety rules drawn up by Ogra, so the industry is unable to decide whether to base its investment plans on rules of the explosives department or the conditions placed by Ogra,” an official commented.
Despite some disruption, cement sales rise in July
The cement industry continued to remain on the growth path at the start of new fiscal year despite some disruption caused by hectic electioneering before polls on July 25.
The industry posted a 5.10% growth in sales for July following conclusion of its most successful financial year on June 30, 2018.
According to data released by the All Pakistan Cement Manufacturers Association on Friday, fiscal year 2018-19 started on a positive note for both domestic sales and exports.
In July, total cement sales were recorded at 3.554 million tons, up 5.10% compared to sales of 3.382 million tons in July 2017.
According to the association, economic and construction activities generally slow down with intensifying election campaigns as some workers return to their respective towns and villages for casting ballot.
However, it did not restrict the sales growth which indicates that cement and construction industries are on the rise and will continue to advance for a long time to come.
In July 2018, cement exports rose 9.25% from 0.476 million tons in July 2017 to 0.520 million tons whereas domestic sales increased 4.42% from 2.906 million tons to 3.035 million tons.
The export growth was consistent, but was higher year-on-year due to a low base effect. The increase in domestic sales was comparatively lower in percentage terms because of a high base.
The industry looked happy with the recent surge in exports that had been going down for the past many years from 2008-2017 and had started recovering in the last few months.
SBP warns against external sector vulnerabilities
The State Bank of Pakistan (SBP) has projected deterioration in bank earnings, inter-bank borrowing, foreign currency market and external sector vulnerabilities in 2018.
This carries a potential risk to dent financial stability of the country in the current calendar year.
The central bank has, however, raised hope that commercial banks would meet almost all the financing demand as they maintain ample liquidity under their management. Whereas, the money and capital markets are expected to become stable with relatively steady inflation in the country, it added.
“At the aggregate level, macroeconomic vulnerabilities are identified as the greatest risks to financial stability at present; whereas financial market risks are perceived to be critical for the next six months,” SBP said in its Financial Stability Review (FSR) for the calendar year 2017.
Among all the risks, the highest cited, at present, are deteriorating balance of payments position (foreign currency reserves), volatility in exchange rate (rupee-dollar parity), and a widening fiscal deficit.
“For the next six months (January-June 2018), respondents (of SBP Systemic Risk Survey conducted in January 2018) believe that political uncertainty, deterioration of balance of payments and uncertainty over exchange rate could potentially undermine financial stability,” it added.
“Encouragingly, under resilience analysis, banks are expected to absorb shocks in domestic and global stressed scenarios in the medium-term. Nevertheless, declining profitability and deceleration in deposit growth are key concerns,” the central bank said.Equity market volatility, within reasonable bounds, is essential to restore investor confidence. The projected path of financial vulnerability index does not show any major deviations in CY18. Nevertheless, the uncertainties surrounding the projections reflect rising odds of upside risk.
The likelihood of occurrence of a high-risk event in the financial system of Pakistan over the short-term is relatively higher than the medium-term, it said.
In the short-term, risks to domestic financial stability may elevate further “if external account challenges remain, fiscal imbalances persist, and savings in the economy (especially, deposit growth) stay low,” the review said.
In the medium-term, risks to the financial system may decline in perspective of sustained growth momentum, rising opportunities from the China-Pakistan Economic Corridor (CPEC), improving energy availability, and expected increase in exports on the back of improving global demand, it added.
“State Bank of Pakistan (SBP), taking a proactive and holistic view of the emerging vulnerabilities, is not only strengthening its own regulatory and supervisory regime but is also collaborating with the Securities and Exchange Commission of Pakistan (SECP) to address systemic concerns,” it said.
The assets of financial sector grew 12.8% to Rs24.8 trillion in the year ended December 2017, revealed SBP data. The share of banks in the total assets stands at 74%.
The banking sector has registered an asset expansion of 15.86% largely due to robust growth in advances to private sector. The key thrust in financing demand has come from textile, sugar, cement, and agribusiness sectors.
Owing to rise in advances, non-performing loans to advances ratio – at 8.4% – has touched a decade low level and Capital Adequacy Ratio (CAR) at 15.8% is well above the minimum regulatory requirement of 11.275%.
The challenging macro-financial conditions, particularly in the second half of 2017, have influenced the performance of the non-bank financial sector as well.
Lakhra power plant losses ‘reach Rs12 billion’
A parliamentary panel was informed on Thursday that Tehran has halted power supply to Balochistan following rising domestic demand in Iran due to a heat wave.
The Senate Standing Committee on Power in its meeting was informed that Iran had been exporting 80MW of electricity to Balochistan but stopped supply due to rising domestic demand.
The panel was also informed that Iran had also stopped exporting electricity to Afghanistan and other Central Asian states for the same reason.
“Iran has stopped supplying 80 megawatts of electricity out of 100 megawatts in total that it normally exports to Pakistan,” Power Division officials said.
“This is because of the heat wave in Iran that has increased the power demand domestically,” they added.
Tehran’s move has affected power supply in areas along the Makran coast, including Gwadar, Panjgur and Pasni.
Meanwhile, Lakhra Coal Power Plant CEO informed the committee that the power plant consisted of three units each of 50 megawatts.
“From 2007 to date, its losses amount to Rs12 billion,” he said, adding, “Administrative expenditure along with employee-related costs are the reasons for the losses.”
The committee demanded a complete list of employees and expenditure incurred on salaries and pensions.
The committee met with Fida Muhammad in the chair and stressed that the Lakhra Power Plant should be upgraded and tariffs should also be discussed with National Electric Power Regulatory Authority (Nepra) in accordance with the situation.
The power ministry official also informed the committee that 650 megawatts of electricity was being supplied to K-Electric (KE) on the directions of the Sindh High Court (SHC).
The committee was told that the agreement to supply electricity to the power utility in Karachi had expired in 2015 while work on a new agreement has been completed.
“Other related issues will be discussed when the Shanghai Cooperation takes over the power utility from the Abraaj Group,” the panel informed.
The Nespak managing-director briefed the committee that the institution was established in 1973 and it is a public institution with a board of directors chaired by the Power Division secretary.
The total number of employees working in Nespak is 5,323. Its work is divided among 10 divisions and 652 projects have been completed during the last three years.
The institution has earned Rs6 billion and 150 different projects are running in 37 countries around the world.