INTERVIEW: MOHAMMAD WASI KHAN PRESIDENT & CEO BOSICOR PAKISTAN LTD
HUGE CURRENCY DEVALUATION HURT MARGINS OF REFINERY SECTOR
GOVERNMENTS SHOULD REDUCE TAXES TO CHECK PRICE INFLATION
Oct 27 - Nov 02, 2008
Mohammad Wasi Khan, President & CEO Bosicor Pakistan Limited while commenting on the unusual rise in international oil prices and drastic cut in prices suddenly, said that there were some fundamentals as well as some sentimental which played a role in pushing up the oil prices. The primary reasons for price hike were the increase in demand globally as well as advance purchases anticipating future demand. The geo political conditions in different regions also aggravated the situation. However, the dollar factor including depreciation of different currencies and exchange rate was the primary reason behind unusual swings in oil prices. Hedging funds, speculative and paper market and the future contracts in London's commodity market that created a price bubble around the world.
The sub-prime issue in the United States also played a crucial role in seriously affecting the financial regime including banking system as well insurance sector which consequently turned into an economic slowdown. This economic slowdown naturally resulted in tapering off the demand for oil. In fact this was the economic theory of demand and supply which dictated the price factor, he remarked. He said the immediate effect of the economic slowdown emerges in the form of a drastic cut in price level however that price level does not last long and sooner or later correction comes to bring price stability hence now is the time for correction in oil prices. He was of the expert opinion that the oil prices will oscillate at $90-$100 going forward this price level is in accordance with the global fundamentals including GDP growth and supply demand situation in different regions of the world.
OPEC & GOVERNMENTS
When asked to comment on OPEC'S decision to curtail their production and is it justified in the present scenario as any deliberate effort to increase oil prices may adversely affect the developing and under developed economies. Is there no responsibility of the oil producing countries to contribute and play a positive role in addressing the global economy?
Wasi with a smile on his face nodded slightly yet came out with the remarks that each and every government or economy has some responsibilities for addressing or redressing the sufferings of the people. Tell me why the governments including in Pakistan did not reduce levies and taxes on energy products, so much so they did not bother even to remove the GST imposed on oil or for that matter on natural gas. OPEC countries have a very logical point that why the respective governments are not reducing and taxes and levies on the oil products, how you can expect from the oil producing countries to curtail their profits? Wasi put the counter question. In fact, it's a commercial matter, every country has its own economic responsibilities and obligations and they would act in that parameter.
In fact, the oil producers' cartel just desire to stabilize oil prices, otherwise if the cartel decides to ignore the human angles they can develop a consensus to have a drastic cut in oil production which ultimately ignite fire into oil prices, Wasi pleaded.
There is no justification of 50-60 percent taxes on oil products by different governments and if the governments claims having people friendly policies they should demonstrate it by reducing taxes on oil products. Actually some government took advantage of the oil situation and raised funds by putting the burden on their people. The oil is not the only sector from where the governments should generate revenues. It is the oil prices or energy prices which have a multiplier effects on general prices, hence it is imperative for the governments to check mounting price inflation by shedding some of the taxes to reduce oil prices, he said in a firm tone. As far as the matter of OPEC'S oil production was concerned this matter should be discussed at a global forum with a view to develop a global consensus on oil production.
Replying to a question regarding future strategy to overcome the energy crisis, Wasi was of the strong opinion that the government should tap the available energy resources within the country. In fact, that important factor looks suffering from negligence. Contrary to that behavior, efforts are needed on war footings to develop energy resources including alternatives like coal, wind, hydel and natural gas etc. A serious effort and constant campaign to tape energy resources can take the economy out of energy crisis.
Discussing the impact of the global oil price situation on refining sector, the Bosicor Chief said actually the refining sector should not be looked in isolation as it the part and parcel of the economy hence it also received the global shocks. However in particular the refining sector in general suffered a serious set back due to huge currency devaluation especially against dollar which had its effect on margins of the refinery sector, he remarked.
Pakistan has a chequered economic history and has gone through even more disturbed conditions than what it is today said Wasi Khan while talking to PAGE on oil situation and its fall out effects on the economy.
He recalled that days when country's reserves were reduced to the level of $700 million yet we got out of the financial quagmire at that time and will do the same once again under the present team and the dynamic leadership at the helm of affairs. He however was critical of the attitude of media in Pakistan which is equally responsible for paving the way for the current financial mess. People having no background knowledge are free to give their expert opinion on the economic situation on electronic media. Some anchor persons having insufficient knowledge about economic affairs forecasting economic doomsday of the country in an authoritative tone.
Wasi said that generally speaking countries like Pakistan never opt for bankruptcy but some people in media are creating panic among the people specially the investors by making irresponsible statements.
He said that he was not against any body but made an earnest appeal to the people having no know how of a particular subject should avoid to be championed at the cost of country's economic and financial stability, in fact such irresponsible statements send a bad message about the country which ultimately hurt the image of the economy in the eyes of the foreign investors. It was not only the media but some political elements also contributed in creating a mess, for example our former Finance Minister Mr. Ishaq Dar made some statements abroad about the state of the economy which really damaged the image of the economic regime of the country, this was purely a sentimental behavior which hurt the fundamentals of the country.
PAKISTAN'S LIQUID FOREIGN RESERVES POSITION
The total liquid foreign reserves held by the country stood at $ 7,323.3 million on 18th October, 2008.
The break-up of the foreign reserves position is as under:-
i) Foreign reserves held by the State Bank of Pakistan:
$ 4,036.8 million
ii) Net foreign reserves held by banks (other than SBP):
$ 3,286.5 million
iii) Total liquid foreign reserves:
$ 7,323.3 million