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  1. The KASB review
  2. Finex week

An exclusive weekly Stock Market report for PAGE by Khadim Ali Shah Bukhari & Co.

Updated on Feb 21, 2000

Closing the last trading day of the preceding week on a somber note, dropping 81 points in one day, the KSE 100 bounced back in a very strong manner breaking through 1850 with relative ease. This was further augmented by positive developments regarding the banking and Oil and Gas sector. By the end of the week the KSE 100 had broken through all resistance to close the week up by 232 points at 1945.

We had stressed on the possibility of the market remaining firm. This 13.6% jump was largely supported by the announcements of various policy measures aimed at increasing the operational efficiency and enhancing the rules and guidelines of the banking sector. The 15% increase in furnace oil prices also spurred on the oil and gas sector. In addition the granting of autonomy to eight oil and gas sector companies indicates towards the efforts by the present government to expedite the privatization of the oil and gas sector.

We had assumed that the break of 1850 would result in the KSE 100 to move aggressively towards the 2050 levels, even breaking through that in the process. As the market lingers on at 1950, any upside movement might still drive the market upwards, largely as a result of any positive news regarding the fateful trip of President Clinton in the absence of which the speculation could leave the market quite vulnerable.

For the coming week, we believe the KSE 100 will continue to remain between 1950-2050. Within this trading range the nature of the market will turn quite fragile. We believe that investors should tread with caution and reduce exposure to reenter the market at pullbacks. Strength in the market will be derived from any policy measure development in the oil and gas sector followed by that in the banking and textile sector.

Oil and Gas Sector: Under Close Watch

• According to a news report, the government is considering the proposal to allow the private units to import furnace oil.

• In addition the government has made the review of furnace oil a monthly exercise, while POL prices will be reviewed after every quarter.

• This has been a major demand of the IPPs, especially Hubco, which has repeatedly called upon the government to remove the restrictions and allow it to import furnace oil for its use.

• Though the government continues to be well versed with the notion of boosting revenues through high taxation of POL products, the recent deregulation and linking of the local prices with international prices might give the government enough space to actually go ahead with this planned step.

• Eight oil and gas sector companies have been given autonomy in a major reshuffle in the sector.

• The government invites requests for proposals for financial advisory services for the privatization of PSO.

• With the government simultaneously announcing a major reshuffle in the petroleum sector, it seems that it is positioning the oil and gas sector for a smoother privatization process. As it continues to remain on top of the governments privatization list all efforts aimed at increasing operational efficiency in these companies would allow for the successful privatization of the units up for sale.

Opening up the sector

The oil and Gas Sector has recently been the focus of close government attention. We feel that this positive development as the government, by introducing an efficient regulatory and operating framework, will expedite sector fundamentals to improve. The recent linking of local POL product prices with international standards, the announcement of a gas regulatory authority and finally the granting of autonomy to 8 oil and gas sector units shows the government's attempts of allowing market forces to dictate future trends.

WAPDA likely to bear the brunt of the blow... yet again

Though the government continues to be well versed with the notion of boosting revenues through high taxation of POL products, the recent deregulation and linking of the local prices with international prices might give the government enough space to actually go ahead with this planned step. However, the Finance Minister has hinted at keeping electricity tariffs at current levels.

If the government does not allow for an increase in power tariffs, this cost increase will again have to be absorbed by WAPDA. Efforts to keep the masses happy by keeping electricity tariffs low have taken their toll on WAPDA, which are visible quite clearly.

Textile Sector might lead corporate growth

We continue to believe that strong earnings from corporate entities in Pakistan should boost activity in the second half of CY00, mainly led by the textile sector. On the flip side the rising oil prices do not augur well for the industrial sector, which was just showing signs of recovery, as input costs will definitely rise. The successful privatization of large government assets still remains the necessary catalyst to maintain and encourage foreign interest in the local capital markets.

With this in mind, we believe the government has taken the right route to privatization i.e. through the Oil and Gas sector due to the initial phases of privatization already being completed in some units.

• The huge size of the transactions

• The international conformity of working standards in this particular field.

• Much of the groundwork has already been achieved in the oil and gas sector.

What the government desperately needs in terms of rejuvenating the privatization process is one successful privatization, which has been eluding successive governments. The size of any deal in this sector would be quite substantial thus allowing the government to access handsome amount of funds. In addition this could set the precedent for other relatively smaller unit to be privatized once the foreign investors are assured of the capability of the government and the associated concerns of dealing with a larger unit's privatization.

Another aspect favoring this sector are the almost identical norms used in the operating of the various oil wells, pipelines and distribution companies globally. In this aspect the government is sure to target the well-known global oil and gas sector players and apprise them of the various investment opportunities available in Pakistan.

Looking at the recent maneuvers by the government with respect to the oil and gas sector, the privatization process will definitely be kicked off by the Oil and Gas sector. With all the pieces falling back into place, the prospects of reaching a successful conclusion on this issue remain high. Though foreign investor interest would very much be rekindled, the main source of apprehension still remains the lingering Hubco issue. An early and amicable resolution could prove to be the final touches in removing the obstacles to successful privatization. However it is still up to the government to make sure to take the matter its full course culminating into a closed deal.