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Dec 25 - 31, 2000

World Bank seeks withdrawal of Rs11bn gas subsidy

The World Bank has asked Islamabad to withdraw Rs11 billion annual subsidy being extended to the local fertilizer industry on natural gas to make these units internationally competitive.

"Given the adverse nature of Pakistan's budget and trade deficit, gas subsidy for the fertilizer industry seems no longer a tenable policy," Abid Hasan, World Bank's Operation Advisor has pointed out to the concerned government officials.

The World Bank has already proposed 14 "best practice principles" and suggested Pakistan to make them part of its new fertilizer policy being announced next month. It said the withdrawal of subsidy was necessary to remove existing distortions in the economy.

WB sources told on Wednesday that in a December 19 letter, Hasan asked Islamabad to consider these proposals before announcing the new policy.

The WB said fertilizer industry consume over one-fourth of natural gas produced in the country. It enjoys an annual subsidy of Rs11 billion on natural gas used as input. "The direct cost of gas subsidy may be greater if one considers that around $2.5 billion a year was spent on oil imports this year," the WB said.

"Although need for a serious and urgent restructuring of fertilizer industry is clearly recognised by all the quarters, there is less consensus on the dynamics of the path clearly."

As a first step, the bank said, medium term vision behind the new policy framework should be efficient use of resources, not only in fertilizer industry but also in the rest of economy that is affected by the pricing policies in the fertilizer sector.

It said that support of fertilizer industry for the sake of increasing local production should not be at the cost of end- users, especially the farmers. The new policy should not be aimed at providing subsidised fertilisers to the farmers.

KESC gets loan guarantee

The Economic Coordination Committee of the federal cabinet has agreed to provide a government guarantee to the commercial banks, to enable Karachi Electric Supply Corporation (KESC) in obtaining a loan of three billion rupees, for bailing itself out from the "worst financial crises", a reliable source told.

The KESC is also the recipient of a $250 million Asian Development Bank loan, approved on December 15, for restructuring the organization.

The source said the looming threat over the KESC, regarding deduction of Rs3 billion from the current year's budgetary allocations by Islamabad, on account of recovery of foreign relent loans; had been removed after the ECC decided to provide a supplementary grant from the federal government, to the corporation, to overcome its problems.

$20m LPG terminal

Keloil has awarded a contract worth more than $20 million to Australian engineering company Process Control Technology (PCT) Pty Ltd, for the design, construction and commissioning of an LPG terminal, to be built at Port Qasim, Karachi.

According to a press release part of PCT's offer included equity participation in the operating company, Keloil Pakistan.

The Malaysian and Australian firms will be partner in the implementation of the first Engineering, Procurement, Construction and Commission contract (EPCC) of its kind to utilize the Islamic method of funding, to be provided by a consortium and managed by the Bank of Islam.

Financial adviser

The government has decided to appoint a Financial Adviser to assist in the restructuring of the gas utilities, prior to their privatization, it was officially stated on Thursday.

The Financial Adviser would undertake the restructuring and privatization of both the gas utilities. This was being done so that proceeds from the sale could be maximized while ensuring that the gas market developed in a competitive framework.

Early deregulation

Diesel prices may not be deregulated in 2001 as the government intends to allow oil marketing companies (OMCs) to import the product directly from April next year to avert any price surge, sources in oil industry said.

The biggest obstacle in price deregulation is how to dismantle the freight pool system under which the government ensures uniformity in prices throughout the country, sources told on Wednesday.

PSFL privatization

The Privatization Commission (PC) has completed the pre-qualification process for the privatization of Pak Saudi Fertilizers Limited (PSFL). A Pre-qualification Committee scrutinized the documents furnished by the applicants, it was officially stated on Wednesday.

The parties which met the conditions laid down by the Privatization Commission and were pre-qualified include Dawood Hercules Chemicals Ltd, Engro Chemical Pakistan Ltd, Fauji Fertilizer Company Ltd Consortium (subject to banks clearance one week before the bidding date) and Jaffer Brothers Consortium.

First mutual fund merger

Confidence Mutual Fund Limited (CMF) is to merge with BSJS Balanced Fund Limited (BBF) in what the two companies say would be "the first merger of mutual funds in Pakistan".

In a statement to the KSE on Tuesday, the two companies said that the proposed swap ratio would be one share of BBF for one share of CMF. The regulator, SECP, was said to have cleared the deal, subject to the compliance of the Companies Ordinance, 1984. Following the completion of the amalgamation of the two mutual funds, the paid-up capital of BSJS Balanced Fund will be raised to Rs250 million, from the Rs150 million at end-June 2000 and the net assets will increase to Rs257.5 million, from Rs154.45 million.

PSO selects five foreign firms

The Pakistan State Oil (PSO) has awarded term contract to foreign bidders for the supply of 3.8 million tons of fuel oil including 3.4 million tons of high sulphur fuel oil (HSFO) and 400,000 tons of low sulphur fuel oil (LSFO) for the period of January-December 2001. The three lowest bidders — Bakri Trading, Fal Oil and Marubeni — were selected to supply HSFO to the country under the term contract.