. .



 1. INTERNATIONAL   2. INDUSTRY
 3. FINANCE  4. POLICY
 5. TRADE  6. GULF

A

POLICY

Dec 17 - 30, 2001

IMF against concessions to foreign investors: Energy sector

IMF has urged Pakistan to avoid the past practice of providing guarantees to foreign investors for minimum return on capital, protection and prices along with generous tax exemptions.

The advice was given by a Fund's mission in the context of discussions on a draft tax regime for fresh investment in energy sector. "Such privileges are at the root of many a current fiscal and structural problems," the IMF officials are believed to have told the government. The IMF felt that such privileges "should be allowed to lapse as soon as the contracts allow."

The government has promised to take up the issue in the discussions with the World Bank staff on energy policy.

The World Bank has provided special funding and expertise for financing independent power projects (IPPs) through the now defunct National Development Finance Corporation (NDFC) that assured the project sponsors "minimum guaranteed returns" on their capital. It took 8-9 prime ministers to approve the first IPP project and help forge financial model that was to be followed in other cases.

As a lender, the World Bank was an active participant in the cumbersome and complex procedures for evolving the financial model as a lender. Pakistani lenders and professionals did not have an expertise in funding IPPs. In the processing of IPP projects, local expertise was developed in the NDFC and Ministry of Water and Power but later the cells created in these two organizations disintegrated.

In the public offer of shares in 1994, Hubco had stated in its prospectus that returns to shareholders will be derived primarily from the equity return component of the capacity purchase price.

Hubco arrived at a real internal rate of return of at least 17 per cent, which was generated by the Financial Model under the base set of assumption. A 30-year power purchase agreement was concluded with Wapda and tariff formula was agreed upon. Hubco had prepared the financial model based on the terms of the agreement and some assumptions related to variables.

Slowdown in deposit growth reversed

Deposits mobilization earlier on wane, has recorded turnaround with surging propensity in the growth of banks' deposits.

Deposit mobilization by the banks, which dwindled considerably after calendar year 1997 as a proportion of GDP, declined from 42.4 per cent in 1997 to 38.5 per cent in calendar year 2000, informed sources said on Thursday.

Growth rate of overall deposits of scheduled banks have gone down from 10.1 per cent in calendar year 1997 to 6.7 per cent in calendar year 2000. However, the slowdown seems to have been arrested and reversed in 2000 with growth increasing from 3.6 per cent during 1999.

Group-wise performance of deposit mobilization is a reflection of the varying degree with which each group has been affected as a result of foreign currency accounts freeze.

Investors interested in public sector units

A number of Dubai-based international investors have shown their keen interest to participate in the privatization of some of the state sector enterprises including PTCL, Habib Bank , United Bank and government's 30 per cent shareholding in the oil and gas sector.

Informed sources said that Secretary Privatization Commission Ahmad Waqar left Islamabad on Tuesday for Dubai to meet some of the potential investors and apprise them about the new road map drawn for disinvesting some of the important public sector corporations by December 2002.

Package to facilitate KESC sell-off

The federal government has decided to make special budgetary allocations in 2002-03 to fund a special financial restructuring package for the Karachi Electric Supply Corporation.

The package would enable the government to take the utility to the sale counter by July 31, 2002 and complete its privatization process by Dec 31, 2002, official sources said.

PECO land offered for sale

Privatization Commission (PC) on Thursday offered for sale the land of Pakistan Engineering Company Limited (PECO) located at Badami Bagh, Lahore.

The land, known as "Badami Bagh Works" has been offered on 'as is where is' basis through a competitive process, sources at PC said. Pre-bid conference is scheduled to be held on January 24 at Islamabad to facilitate the prospective bidders, and the date for bidding has been set at January 28, 2002.

The land has been offered by PC in three lots-lot A1, A2 and B. Lot A1 has an area of 19 kanals 4 marla; lot A2 has an areas of 4 kanal 10 marla and lot B consists of 13 kanal one marla. All of that is located in the South of Lahore Railway station and in the North of Badami Bagh Railway station.

Public debt swells to Rs3,000 billion

Pakistan's increased fiscal and current account deficits have resulted in an explosive accumulation of Rs3,000 billion public debt and over $43 billion external debt.

According to latest official projections firmed up and shared with the World Bank, IMF and the Paris Club creditors, it was increasingly becoming difficult to have any meaningful debt management, keeping in view the massive public and foreign debt that especially accumulated during the last 8 to 10 years.