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FDI drops 35pc as investors wait for economic policy changes

Foreign investors largely remained shy of driving up investments in Pakistan’s economy as they waited for clarity on economic policies to be announced shortly by the new government.

Foreign direct investment (FDI) dropped 35% to $160.1 million in August compared to $246.8 million in the same month of previous year, the State Bank of Pakistan (SBP) reported on Friday.

“Foreigners are determined to invest in Pakistan at a quick pace,” Overseas Investors Chamber of Commerce and Industry (OICCI) Secretary General Abdul Aleem told. “They may have held back investment plans while looking for emergence of clarity on economic policies.”

“Majority of our (OICCI) members have replied in a recently conducted investment survey that they will raise their investment in Pakistan this year compared to the previous year,” he revealed. “The growth in investment numbers will be in double digits.”

Foreigners have sluggishly invested in Pakistan since political uncertainty erupted following disqualification of former prime minister Nawaz Sharif by the Supreme Court in July 2017 and in the wake of political parties gearing up to contest general elections on July 25, 2018.

Pakistan Tehreek-e-Insaf (PTI), which came to power in August this year, is expected to make substantial changes to economic policies. Finance Minister Asad Umar is scheduled to present an economic roadmap – revised finance bill – for the current fiscal year 2018-19 on Tuesday.

Arif Habib Limited analyst Tahir Abbas said announcement of the economic roadmap, which must include measures to rein in the huge current account deficit, fiscal deficit, strategy to boost sluggish exports and curb excessive imports, would give clarity to the investors.

“But for giving a significant boost to the FDI, the government has to shape such policies that encourage foreign investment in Pakistan,” he said. “Hence, the government should focus on FDI-centered projects.”

Cumulatively, in the first two months (July-August 2018) of the current fiscal year, FDI dropped 40% to $288.2 million compared to $480.6 million in the corresponding period of last year, the central bank said.

China has remained a blessing in disguise for Pakistan on the FDI front as it has continued to lend in the form of investment under the multibillion-dollar China-Pakistan Economic Corridor (CPEC).

If Chinese investment is set aside, the FDI will dip to less than half in July-August FY19 and on many previous occasions.

Only in August, China invested a net $96.1 million, which translated into 60% of the total FDI of $160.1 million in the month.

Switzerland was the second largest investor with net FDI of $25.3 million while the United Kingdom came at the third place with net investment of $15.6 million. The Netherlands invested $5.9 million in August 2018.

Norway divested a net $20 million while Kuwait pulled out $4 million in the month.

Tarbela extension project: 2nd unit resumes power production

The second unit of Tarbela 4th extension project resumed power production as engineers of the Water and Power Development Authority (Wapda) managed to lift draft tube gates of the unit.

The second unit is generating 300 megawatts of electricity, which is being contributed to the national grid.

The first unit of the project restarted power generation last week following concerted efforts of Wapda engineers to lift the draft tube gates, which were earlier stuck due to silt following unprecedented slide in water reserves to the dead level and technical issues with the valves.

The first unit is generating power up to its maximum capacity of 470MW.

Thus, both the units of the Tarbela 4th extension project are cumulatively providing 770MW to the system. Side by side, various tests are also being conducted because they are still in defect liability period.

Third unit of the project is also complete and is expected to start power generation by the end of this month.

The Tarbela 4th extension project has been constructed on tunnel four of the Tarbela dam. The project has three generating units of 470MW each with total installed capacity of 1,410MW.

Cross-border partnership: China to create green economic belts in BRI states

China has launched cross-border partnerships with several international, non-governmental and civic organisations to create three “green economic belts” in the countries involved in the Belt and Road Initiative (BRI), including Pakistan.

Three belts will be created using poplar trees, under a plan released by the China Green Foundation at the Belt and Road International Forum on public cooperation for ecological remediation, which was held in Wuwei, Gansu province, the China Daily reported on Friday.

The belts are expected to start in northwest China and connect countries in central and west Asia, such as Pakistan, Kazakhstan, Iran and Turkey.

“Under the plan, a cooperative partnership will be established to encourage more exchanges of experience in developing a green economy in different countries,” said Chen Shuxian, chairman of the foundation.

Poplar trees now cover about 648,000 hectares worldwide, according to the foundation. Most of them are located in 17 countries that are involved in the BRI.

China holds 61% of the world’s total poplar tree forests, which provide important economic value to people. For example, the poplar forest covering an area of 31,840 hectares in Hotan, Xinjiang Uygur autonomous region, generates an annual income of 672 million yuan ($98 million), according to the National Forestry and Grassland Administration.

In Inner Mongolia’s Ejin Banner, residents developed a tourism industry themed on poplar tree forests, which attracted more than 1.1 million tourists from home and abroad in 2015, generating 1.4 billion yuan annually.

At the forum, the foundation also announced the launch of an international ecological restoration fund, drawn from donations worldwide to promote green economy in countries involved in the BRI.

Government likely to amend petroleum policy 2012

With high prospects of finding oil and gas reserves, the new government of Pakistan Tehreek-e-Insaf (PTI) is likely to amend the Petroleum Policy 2012 and announce an incentive package for oil and gas exploration companies interested in working in the frontier region.

Officials told that the Ministry of Energy (Petroleum Division) would take all provinces on board in a meeting of the Council of Common Interests (CCI) and seek approval for creating one more zone in order to offer incentives to oil and gas exploration companies in the frontier region along with other amendments in the Petroleum Policy 2012. Currently, there are three zones for onshore exploration activities based on risk and investment. Zone-I comprises west Balochistan, Pishin and Potohar basins, Zone-II consists of Kirthar, east Balochistan, Punjab and Suleman basins while the Lower Indus Basin falls in Zone-III.

Under the new policy, the government has set the wellhead gas price in Zone-III at $6 per million British thermal units (mmbtu), $6.3 in Zone-II and $6.6 in Zone-I.

The Petroleum Policy 2012 provides an incentive package for onshore areas on the basis of risk and investment requirements as per the zones.

Pakistan Petroleum Exploration and Production Companies Association (PPEPCA), a body of exploration companies, had approached the Petroleum Division and informed it that a limited and unexplored area of Kharan, Pishin and Fata in zone-1 had the potential for hydrocarbon reserves and was likely to have over 21 trillion cubic feet (tcf) of hydrocarbons.

It pointed out that only three wells had been drilled there so far, adding frontier areas needed higher prices and additional incentives due to exceptionally higher investment. Therefore, it asked the government to create new zone-1 (F) in this regard.

Officials said the Petroleum Division agreed to the proposal of creating the new frontier zone, which would comprise Kharan, Pishin and Fata and suggested that the producer gas price as applicable to the offshore shallow Zone-O may be offered to the new frontier zone.

Under the Petroleum Policy 2012, oil and gas exploration companies were offered $7 per mmbtu for hydrocarbons found in Zone-O offshore shallow.

 

Financiers suffer heavy losses at Bin Qasim industrial park

Five companies, including three from the auto sector, are at advanced stages of construction of industrial plants in the Bin Qasim Industrial Park (BQIP) Special Economic Zone (SEZ), but due to unavailability of utilities, they are suffering heavy losses.According to an official of one of the five companies, combined investment of the five companies amounts to Rs35 billion at BQIP, which comes under the National Industrial Park (NIP).

The official, requesting anonymity, said the companies were incurring losses of millions of rupees due to unavailability of utilities. Things have been aggravated by the exchange rate losses as the rupee has devalued by 18% in the past nine months.

“The biggest loss is due to the fact that equipment has arrived but there is no power to install and start commercial production. Delay in plant start-up is a huge cause of stress for the investors,” the official added.

He said banks’ financial charges on loans were also taking their toll.

“However, the worst loss is that Karachi has become unviable (for business) as compared to Faisalabad and Lahore due to basic utilities and infrastructure.”

The source reiterated that companies were now moving to Punjab where they were being more welcomed.

According to the official, the BQIP has delayed provision of utilities by two years and as things stand there is nothing in sight for the next one year.

Another company’s top official said although they were not in a haste to receive utilities as their installation was in process but they were now forced to do the work, which they were not supposed to do.

“We are now directly working with K-Electric for the provision of electricity. All the utilities were supposed to be provided by BQIP but unfortunately that’s not the case,” the official commented.

Kia Lucky Motors, Techno Auto Glass, Hitech Auto Parts, Horizon Steel and Barkat Frisian have either completed work at their plants or would soon be doing so.

According to the companies, the projects will create direct job opportunities for around 3,500 skilled workers, technicians, engineers and management professionals in Karachi.

BQIP was set up in 2007 to develop a world class industrial park and commitments were made to provide one-window operations and complete infrastructure under the Special Economic Zones Act.

Based on these commitments, investors agreed to purchase BQIP’s Pakistan Steel Mill (PSM) land at almost double the land price in Port Qasim Eastern Zone, due to NIP’s commitments to deliver state-of-the-art industrial park with provision of free utilities, namely electricity, gas, water, sewerage, effluent plant. Moreover, infrastructure, namely roads, boundary walls, security and allied facilities were also promised. “Unfortunately, none of these facilities have been provided to date,” the source lamented.

Government to abolish fund allocation for gifts, entertainment

The Pakistan Tehreek-e-Insaf (PTI) government has decided to abolish budgetary allocation amounting to Rs516 million for gifts and entertainment under its austerity drive.

The allocation had been made by the previous Pakistan Muslim League-Nawaz (PML-N) government, which was approved by parliament.

Of the total allocation, Rs3.5 million had been earmarked under the head of entertainment and gifts at the disposal of the Prime Minister House.

A case in that regard was presented in a recent meeting of the cabinet during discussion on the discretionary funds set aside for different ministries and divisions.

During the meeting, the cabinet was informed that the Finance Division had been directed to work out in detail the funding for ministries and divisions that could be termed discretionary and present it before the cabinet within a week.

In its presentation, the Finance Division informed the cabinet that it had examined the entire budget of ministries and divisions and it showed no trace of discretionary funds in government spending.

However, there was some element of discretionary funds, which were being used for the creation of different account heads like allowances for travel, conferences, seminars and workshops, gifts and entertainment, purchase of transport goods and repair and maintenance.

After the presentation on the discretionary funds for ministries and divisions, the cabinet decided to create the Institutional Reform Cell (IRC) under the Cabinet Division with the adviser on austerity and institutional reforms as its head. The office of IRC will be set up in the PM Office.

It was also decided that the Establishment Division will notify the cell and work out its human resources requirement in consultation with the adviser on austerity and institutional reforms. This will be sent to the Finance Division for creation of the posts.

The cabinet decided that the IRC should undertake a comprehensive review to ensure efficiency in fund allocation.

It also decided that the Finance Division may process the case for abolition of the budgetary allocation for gifts and entertainment amounting to Rs516 million for financial year 2018-19. The Finance Division will take initiatives to scrap the budgetary allocation.

CPEC rail project: Govt seeks to avoid financial risks in $9bn deal

In a major development, Pakistan has announced exploring the possibility of shifting financial risks of a $9 billion railway project under the China-Pakistan Economic Corridor (CPEC) to contractors.

In addition, it also put at least one energy project of 1,320 megawatts on the back burner.

The expansion and reconstruction of Karachi-Lahore-Peshawar railway track, known as the Main Line 1 project (ML1), is an early harvest and a strategic project of the CPEC framework.

The change in the modus operandi of constructing the $9 billion project would require amendments to the framework agreement that China and Pakistan had signed in May last year.

The Pakistan Tehreek-e-Insaf (PTI) government has taken the corrective measures amid criticism that the last Pakistan Muslim League-Nawaz (PML-N) government did not fully protect Pakistan’s economic interests while signing the $46 billion deals under the Belt and Road Initiative of the Chinese president.

“The government is exploring the possibility of completing the $9 billion ML1 project of Pakistan Railways on build-operate-transfer (BOT) basis,” said Minister for Planning and Development Khusro Bakhtiar on Thursday.

He was speaking to the media after chairing the 56th monthly progress review meeting of CPEC. The minister also said Pakistan and China have also agreed to set up a new working group on socioeconomic development to deepen cooperation in education, health, agriculture and housing.

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