Pakistan In Focus

Economic times of Pakistan

Pakistan’s textile sector opposes debt surcharge

The Towel Manufacturers Association of Pakistan has urged the government not to impose debt servicing surcharge on the industry, especially on the export-oriented sector, as the textile industry is already facing a financial crunch due to tax refunds withheld by the Federal Board of Revenue.

“We appeal to the govt to avoid putting further financial burden on the industry, especially the export-oriented sector,” said Muhammad Haroon Shamsi, Senior Vice Chairman of the Towel Manufacturers Association. “The government should adopt corrective measures and put the responsibility of inefficiency on the entire power sector, rather than on consumers.”

According to media reports, the Ministry of Finance has made amendments to the National Electric Power Regulatory Authority (Nepra) Act under the Finance Bill 2020 and is trying to get it passed before July 1.

The amendments are aimed at empowering the regulator to pass the cost of inefficiency of the power sector on to consumers by imposing the debt servicing surcharge.

The benchmark for transmission and distribution (T&D) losses was 4.3 percent on a yearly basis, but the Nepra report for 2018 showed 20.4 percent T&D losses, which meant the losses were five times higher as compared to the benchmark, Shamsi said.

On the other hand, the benchmark for Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL) in terms of unaccounted for gas (UFG) was 7.3 percent but both the gas utilities recorded UFG losses of 12-13 percent on a yearly basis.

He pointed out that the industrial sector was the main victim of the Covid-19 pandemic but only the industrial sector could reduce the adverse impact of coronavirus on the national economy.

Pakistan’s c/a turns into surplus

After a gap of seven months, Pakistan’s current account balance – the difference between government’s foreign income and expenditure – once again turned into a surplus of $13 million in May 2020 but at the expense of economic growth.

“The surplus was primarily achieved after Pakistan’s export earnings dropped to a 13-year low at $1.27 billion and import payments fell to a 10-year low at $2.8 billion in May.

The slowdown in imports and exports clearly indicated a significant drop in economic activities in response to the coronavirus pandemic, he said.

Besides, improvement in the receipt of workers’ remittances, decline in trade deficit of services and increase in other current transfers (remittances received through currency dealers) helped to turn the current account balance into a surplus from deficit.

Pakistan achieved current account surplus of $13 million in May compared to a deficit of $530 million in the previous month of April and $1 billion in May 2019, the State Bank of Pakistan (SBP) reported on Wednesday.

With this, the current account deficit narrowed 73.6 percent to $3.29 billion in the first 11 months (July-May) of outgoing fiscal year 2019-20 compared to $12.45 billion in the same period of last year.

“The significant drop in exports (to over a decade low) is indicating a massive hit to local economic activities amid the Covid-19 pandemic,” he said. “The government should immediately set its focus on increasing exports by finding new markets, introducing value-added products in export markets and through policy initiatives,” he added.

He said exports may bounce back quickly, even next month, if the government put extra efforts as the world gradually resumed economic activities. Major economies (Pakistan’s trade partners) like European nations, the US and China have reopened in recent days and weeks.

Pakistan still exports basic commodities rather than value-added and branded products. “The demand for basic commodities always remains intact,” he stated.

The world is talking about the outbreak of the second wave of Covid-19. It, however, seemed impossible the world would re-impose lockdowns to contain the Covid-19 going forward. Countries would rather make sure that people adopt precautionary measures to deal with the situation despite shutting down their economies again.

“There is increased awareness among people globally, including Pakistan, for the adoption of precautionary measures and SOPs (standard operating procedures) to stay with the infection till its successful vaccine is launched in a period of 9-10 months,” he said.

Cumulatively in the 11 months, the central bank reported, the import of goods shrank almost 19 percent to $38.88 billion compared to $47. 83 billion in the same period of the last year.

Govt abandons K-Electric’s coal project

The Cabinet Committee on Energy (CCOE) has approved the abandoning of the proposed 700-megawatt Datang coal-based power project of K-Electric. The power project had been designed to run on local coal, once it is commercially available. Sources told that in its letters written to the Ministry of Energy, the power utility had requested for a notification of the tariff approved by the National Electric Power Regulatory Authority (Nepra) on August 11, 2016 and November 7, 2018 in respect of Datang Pakistan Power Generation (Private) Limited.

K-Electric said the delay in tariff notification was impacting the project’s commercial operation date and consequently the power demand-supply gap within the company’s service area. In addition to managing the demand-supply gap, the 700MW project was supposed to diversify K-Electric’s fuel mix and help move away from using furnace oil, which was significantly more expensive than imported coal, it said.

Accordingly, the project would enable K-Electric to offer affordable power to consumers along with ensuring sizable fuel cost savings to the national exchequer.

Furthermore, K-Electric said it was pertinent to mention that imported coal was approximately 70 percent cheaper than furnace oil and 33 percent cheaper than regasified liquefied natural gas (RLNG) on a fuel cost comparison basis.

Since it was a power project that would sell electricity directly to K-Electric, without involvement of the Central Power Purchasing Agency-Guarantee (CPPA-G) and no role of the Private Power and Infrastructure Board (PPIB) in the issuance of Letter of Intent or Letter of Support, the implementation agreement and the power purchase agreement would be signed with K-Electric exclusively.

The Datang power project was not covered under any power policy. Therefore, no concessions under any policy were allowed. However, the tariff was supposed to be notified by the Power Division and electricity had to be provided to K-Electric consumers at the basket price.

 

However, the energy ministry was of view that the imported fuel-based power plant would be covered by the ban on imported fuels. A meeting was held on October 24, 2019 wherein demand-supply position in K-Electric’s service areas and the possibility of additional power supply to K-Electric from the national grid was discussed.

During the meeting, it was agreed that the National Transmission and Despatch Company (NTDC) would supply additional 500MW to K-Electric from K2/K3 power project subject to necessary approvals and would conduct a joint study with K-Electric to increase total supply from the national grid to 1,400MW from FY23.

Furthermore, it was agreed that the 700MW coal-power project was critical for K-Electric in managing the demand-supply gap despite availability of 1,400MW from the national grid and hence the same should be pursued by the company on a fast-track basis. It was also agreed that the Ministry of Energy would table a case before the CCOE for the notification of project tariff.

State-owned enterprises caused loss of Rs692 bn two years ago

State-owned enterprises (SOEs) caused a colossal loss of Rs692 billion two years ago – a figure that was believed to rise further – but the government on Wednesday set up yet another committee to find a way to stop the bleeding despite having a solution at hand.

The Cabinet Committee on State-Owned Enterprises decided to set up a sub-committee to study the status and implementation of recommendations of the task force on austerity and government restructuring, according to a statement issued by the Ministry of Finance.

The cabinet committee discussed governance reforms with regard to SOEs and reconstitution of the board of directors of Sarmaya-e-Pakistan Limited, stated the finance ministry. Minister of Industries Hammad Azhar will chair the sub-committee.

The cabinet committee was informed by the Ministry of Finance that around 85 commercial SOEs were working under the administrative control of 19 federal ministries but the overall performance of SOEs had remained unsatisfactory despite a considerable financial support provided by the federal government from time to time.

The meeting was further informed that during fiscal year 2017-18, an amount of Rs143 billion was provided to various SOEs in subsidy, Rs204 billion in cash development loan, Rs27 billion in equity injection and Rs318 billion in sovereign guarantees. Despite such a large support amounting to Rs692 billion in a single year, the SOE sector, as a whole, registered net losses of Rs265 billion in 2017-18, according to the finance ministry.

A key reason for every government’s failure, including that of Pakistan Tehreek-e-Insaf (PTI), to undertake reforms in these enterprises was the vested interest of bureaucrats, who charged a hefty fee for attending board meetings of SOEs and a secretary or an additional secretary was a member of many boards at the same time, said sources in the ministry.

The finance ministry did not share latest figures of losses caused by SOEs but the earlier reported data suggested a massive increase in their losses in the past couple of years.

Lahore faces 60pc petrol shortage

The petroleum dealers and retailers, who are doing business in Punjab, said that they fear an additional shortage of petroleum products from next month due to a high possibility of the price hike by the government.

The petroleum dealers said that currently provincial capital Lahore was facing a fuel supply shortage of 60 percent, which could get worse if the authorities concerned fail to take stern against the oil marketing companies.

“Lahore is getting a fuel supply of 40 percent and a big chunk of it comes from the Pakistan State Oil, as supplies from other private oil marketing companies are not regular these days, Petroleum Dealer Association of Pakistan Secretary General Khwaja Atif said.

He further said supplies were running dry and long queues of people were seen at many filling stations.

“There is news about a price hike in petroleum products circulating these days, we are expecting Rs6-7 per litre hike if government adjust this price hike by lowering some petroleum levy or other tax for the same amount, then things might get better, else we may see people drifting from petroleum products from next month.

As per stakeholders, Lahore needs an approximate fuel supply of three million litres per day for over 400 petrol pumps, whereas the Punjab province required over40 million litres of fuel for over 5,000 petrol pumps. There are more than 9,000 fuel stations across Pakistan.

The representatives of the PSO, the government-owned company, said that they were providing ample fuel not only to its retail centres but also to other small scale companies. The company said that it has received a cargo of around 58,000 MT of Mogas on May 30, which is followed by five more cargoes of around 60,000 MT for this month.

Enabling environment main for economic revival

Creating evidence-based policy and establishing a level playing field for all is as important as an enabling environment for businesses to revive the economy and ensure a better regulatory environment.

This was stated by economic and business experts on Wednesday during an online dialogue on ‘The prerequisites for a better business environment’. The dialogue had been organised by the Sustainable Development Policy Institute (SDPI) on Wednesday.

Sohail Qadri, the director of policy at the Punjab Board of Investment and Trade, said that the Punjab government has taken several steps to ensure a better business regulatory environment. He added that evidence-based legislation and policy is required for all future endeavours to ensure easy and low compliance-cost for businesses.

Pakistan’s tractor sales rise as subsidy hope fades

Tractor sales are gradually picking up as farmers, who have been waiting for a reduction in tractor prices following the announcement of a subsidy by the Economic Coordination Committee (ECC) last month, have started buying as no notification has been issued so far.

According to details provided by industry stakeholders, a subsidy of Rs2.5 billion on sales tax on locally manufactured tractors was announced under the Rs50-billion agricultural package. It hampered sales of tractors and the industry sold only 1,843 units in May 2020 as compared to 3,599 units in the same month of previous year as many farmers, who were willing to purchase tractors for planting new crops, awaited clarity.

However, in the federal budget, the government focused on providing subsidy on fertiliser and preventing farmers from locust attack, and there was no clarity on the announced tractor subsidy.