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Pakistan In Focus

ECONOMIC TIMES OF PAKISTAN
Promotion of foreign direct investment stressed

The Islamabad Chamber of Commerce and Industry (ICCI) has expressed concern over 50percent fall in foreign direct investment (FDI) and asked the government to frame more conducive policies for attracting hefty investment in the country, which was essential to steer the economy out of trouble. According to the State Bank of Pakistan’s latest report, Pakistan has fetched FDI amounting to $1.74 billion in July-June FY19 compared to $3.47 billion in FY18, depicting a decline of 50percent, which should be a cause for concern for policymakers, said ICCI President Ahmed Hassan Moughal and other senior ICCI officials in a statement. They said the economy was facing many challenges as exports were not growing according to the potential and the trade deficit had widened.

PKR stable against $

The rupee remained stable against the dollar at Rs159.75/160.25 in the inter-bank market on Friday compared with Thursday’s close of Rs159.75/160.25, according to forex.pk. Earlier, the SBP let the rupee depreciate massively in the inter-bank market after finalising an agreement with the International Monetary Fund (IMF) for a loan programme on May 12. The IMF has asked Pakistan ich finances some of the infrastructure and social safety net projects in Pakistan, has supported the idea of leaving the rupee free from state control in a bid to give much-needed boost to exports and fix a faltering economy. Cumulatively, the rupee has depreciated almost 49percent since December 2017, according to the central bank.

UAE to open visa centre in Karachi in Sept

United Arab Emirates (UAE) Ambassador Hamad Obaid Alzaabi has revealed that the UAE Consulate will open a visa centre in Karachi, which will become operational in the first week of September this year. Another visa centre in Islamabad would also become functional in the first week of October and would provide all facilities in Pakistan, he said. Speaking at a meeting during his visit to the Karachi Chamber of Commerce and Industry (KCCI) on Friday, the UAE envoy said, “Everything will be including medical insurance, check-ups, contracts, etc to facilitate visa issuance from the visa centre in Karachi, which will be the biggest visa centre of Asia.” The entire team for the centre would come from the UAE, he said. The ambassador said relations between Pakistan and the UAE had always been very strong but there was a need to further build the ties by exploring opportunities and potential areas for enhancing trade and investment. “Governments of the UAE and Pakistan are working very hard to narrow the gap, find opportunities and tap the potential for trade and investment,” he added. “We are trying to find new areas of cooperation where we can work together and are also examining the challenges so that these could be addressed by the UAE authorities.” He informed businessmen that the UAE was now offering Silver Investment Visa for five years and Golden Investment Visa for 10 years, which were being issued under specific criteria and depending on the size of a company and the amount being invested. Alzaabi stressed the need for establishing a legal framework between the UAE and Pakistan in order to encourage and save investments made in either country.

Sensitive Price Indicator (Base 2007-08)
QuintilesIndices% Change June, 2019 over
June, 2019 May, 2019 June, 2018 May, 2019 June, 2018
1236.50232.70213.741.6310.65
2245.92242.41223.041.4510.26
3247.85244.41225.461.419.93
4262.69259.24231.261.3313.59
5270.12266.47231.081.3716.89
Combined257.34253.78228.001.4012.87
France to provide €50mn credit for energy plants

France on Friday committed to provide €50 million in credit and €0.2 million worth of grant for the rehabilitation of Chitral and Dargai hydroelectric power plants.

The main objective of the funding is to meet current and future electricity needs of Chitral and Malakand regions.

France, through the French Agency for Development (AFD), is already providing technical and financial support in the energy and urban development sector in Pakistan, where financial support worth €610 million has been committed since 2016.

Economic Affairs Division Secretary Noor Ahmed, French Ambassador Marc Baréty and AFD Country Director Jacky Amprou signed the credit facility agreement worth €50 million and the grant agreement worth €0.2 million. This funding will allow the modernisation of Chitral and Dargai hydroelectric power plants as well as increase the generation capacity from 20 megawatts to 22MW for the Dargai plant and from 1MW to 5MW for the Chitral plant.

The main objective of the project will be to provide adequate facilities for generation, transmission and distribution of energy to meet current and future needs of Chitral and Malakand regions. This will also result in industrial, agricultural and economic development in the regions.

 

Power tariff stays high on rise in capacity payments

Power tariff in Pakistan has remained exorbitantly high despite pulling the plugs on plants producing expensive electricity and going for cheaper supplies over the past five years.

The major reason behind the high tariff has been a sharp increase in capacity payments to power houses in case they were not asked to add power to the national grid, according to the State Bank of Pakistan’s (SBP) Third Quarterly Report on The State of Pakistan’s Economy.

“In absolute terms, capacity payments are estimated to be around Rs664 billion for FY19, representing an increase of around 60percent over the preceding year,” the SBP stated in the report issued earlier this week.

The rise partially stemmed from an increase of approximately 729-megawatt capacity to the system during the year, modest growth in power supply, increase in payment of net hydel profit (NHP) to provincial governments and associated arrears, the central bank said.

The country has gradually reduced reliance on plants running on the most expensive fuel– furnace oil – and has set up new power projects on cheaper fuels like gas/re-gasified liquefied natural gas (RLNG), coal, nuclear, hydel, wind and solar.

The central bank maintained that the power generation sector in Pakistan had undergone significant change over the last five years. Overall electricity generation capacity has increased over 40percent since June 2013, with a visible shift in fuel composition towards cheaper sources.

The objective behind the transformation was to avoid power outages in the country and make energy affordable.

“While a significant containment has occurred in load management over the past five years, the affordability issues persist. Instead of declining, power tariffs determined by the National Electric Power Regulatory Authority (Nepra) remain stubbornly high, preventing the government from alleviating subsidy expenses meaningfully,” it said.

The SBP pointed out that capacity payments constituted the bulk of power tariffs in Pakistan and a sharp increase in these payments in recent years had completely offset gains from the declining fuel cost.

Prevailing laws allow power producing firms to calculate revenue requirements for an individual power producer based on capacity charges, which include costs pertaining to the design and construction of power units, guaranteed return on equity and debt financing charges among others, and an energy charge that covers variable costs primarily fuel (like gas, coal, furnace oil) and operation and maintenance (O&M) costs.

LPG dealers go on strike

Liquefied petroleum gas (LPG) distributors and dealers, who supply fuel worth Rs20-25 million per day in Karachi alone, started an indefinite shutter-down strike in the port city on Friday.

“LPG plants, which number around 15-20 in Karachi including those being run by companies listed at the Pakistan Stock Exchange (PSX), had to shut down when not a single distributor reached them to collect supplies,” LPG Action Committee Chairman Ishaq Khan told.

They staged the strike against alleged harassment of LPG distributors and dealers by police for over two weeks now, he said.

Police had arrested dozens of people involved in the business, alleging they were selling explosive material in the city, he said.

“If LPG distributors and dealers are selling prohibited explosives, then the crackdown should have been launched nationwide, which is not the case. Karachi is the only city where police are harassing us,” he said.

Elaborating, he said police had launched the crackdown on those selling explosive material, betel leaf and betel nuts in the city and counted LPG distributors and dealers among those involved in the business of prohibited goods.

Cabinet opposes renewal of IPP energy purchase contracts

The cabinet has backed a proposal that opposes the renewal of power purchase agreements with independent power producers (IPPs) having 5,000-megwatt electricity generation capacity, which are expiring in a couple of years.

The proposal was submitted by Special Assistant to Prime Minister on Petroleum Division Nadeem Babar to the cabinet, chaired by Prime Minister Imran Khan.

Now, the task force on energy is working on a policy, which will be submitted to the cabinet for formal approval.

“Power purchase agreements with the IPPs including Kapco and Hubco are going to expire in coming years and the government will not renew the agreements,” Babar told.

This means that the government will not continue to follow the power purchase agreements on a ‘take and pay’ basis, which binds the government to pay capacity charges. However, these power plants will be able to sell electricity to the Central Power Purchasing Agency (CPPA) in the summer season when demand is higher compared to the winter.

The power plants were set up under the Power Policy of 1994 and were based on furnace oil. The only flaw is that the past government had not foreseen the future scenario of prices of different fuels.

At that time, the price of furnace oil stood at Rs2,843 per ton, which was cheaper than the domestically produced gas. However, the price of furnace oil has now jumped up to Rs87,000 per ton, which is many times expensive than the price of indigenous gas.

“However, in the new policy, the government will examine the future scenario of fuel and gas prices,” said Babar. Now, the imported LNG and coal have also become part of the energy basket in addition to furnace oil and domestic gas.

The government will also forecast the future LNG price. At present, Qatar is the major LNG supplier to Pakistan. However, Australia and the United States are going to become potential suppliers in future, which may cause a decline in LNG prices. A senior government official said LNG prices may come down to $2 per million British thermal units (mmbtu) in the next 10 years.

FED on ghee, steel units in tribal areas to be cut to 7pc

The Prime Minister Office has issued directive to the Federal Board of Revenue (FBR) to reduce federal excise duty (FED) on the ghee manufacturing and steel units established in newly merged districts of erstwhile Federally Administered Tribal Areas (Fata), from 17percent to 7percent under the proposed rules and policy.

The directive was given after Standing Committee on Commerce and Textile Industry Chairman Mirza Muhammad Afridi wrote a letter in that regard.

Weekly Percentage Change Of SPI During June, 2019
Quintiles% Change with Previous week
03.06.2019 13.06.2019 20.06.2019 27.06.2019
Quintile 10.690.59-0.080.11
Combined0.680.31-0.090.03

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