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Pakistan In Focus

Pakistan: coal gasification

Pakistan imports more than 45 percent of its total energy requirement annually.

With dwindling gas resources and lack of discovery of new oil and gas resources, energy dependence will increase unless dedicated efforts are made to discover new resources and increase the utilisation of existing resources.

Pakistan has one of the largest lignite (brown coal) resources, which can be termed almost limitless (185 billion tons). Despite this, coal imports have been increasing and are projected to increase to 20 million tons ($2 billion) in the current year.

It is due to installation of power plants based on imported coal unnecessarily in the past and also due to rising cement and brick production.

There is an urgent need to increase the utilisation of Thar resources, although there is growing international opposition to the use of coal due to greenhouse gas (GHG) emissions and the consequent unsavoury impact on climate.

Energy requirement is not limited to the power sector. We have power surplus, causing an increase in circular debt due to unutilised capacity. There is thermal energy demand from transport, industry, fertiliser, residential and other sectors.

We have noted price and supply instability issues recently in the case of liquefied natural gas (LNG). LNG prices shot up so high that the suppliers could not honour their contractual commitments. Qatar gas contract is posing its own challenges. It has been noted that LNG is no panacea. As opposed to burning coal in boilers and producing steam which, in turn, turns steam turbines and power generator, coal is gasified in gasifier vessels by heating it under low supply of oxygen/air.

Rice exports need greater than lip service

Banks’ lending to rice processing mills more than doubled to Rs57 billion in Jul-Dec 2020 from Rs26.5 billion in Jul-Dec 2019, according to the latest statistics released by the State Bank of Pakistan (SBP).

However, this huge growth in lending to rice millers came in the form of restructuring of old loans under the special financial stimulus package announced by the SBP in March 2020 to mitigate the economic fallout of Covid-19 pandemic.

That’s why despite this massive lending – and that too at low interest rates – rice exports did not rise. In fact, Pakistan exported a little below 1.825 million tonnes of Basmati and non-Basmati rice in Jul-Dec 2020, against exports of 2.083 million tonnes in the same period of 2019, according to the Pakistan Bureau of Statistics (PBS).

Variety-wise, exports of Basmati showed a much sharper decline, from 428,590 tonnes in Jul-Dec 2019 to 265,672 tonnes in Jul-Dec 2020. Exports of non-Basmati rice also fell from about 1.61 million tonnes to 1.559 million tonnes. In terms of value, total rice export earnings slipped from $1.033 billion to $963.4 million, the latest PBS data shows.

So, what actually happened? And, is there any chance for Pakistan to recoup the export losses and boost its annual rice export earnings at the end of current fiscal year in June?

A breakdown of export data reveals that export earnings went down due to lower earnings from Basmati rice.

Energy security: few suggestions

Energy security appears to be the biggest challenge confronting the country since long. The following paragraphs are an attempt at a quick health check of Pakistan’s energy supply chain and recommending the way forward.

Despite all of our cash flow issues and heavy debt, we have somehow ended up with a highly lethal energy mix which compels us to spend around $16 billion on fuel imports annually. The main reason is that during the past more than 40 years, instead of considering a long-term strategy and its execution, we have mostly reacted to crisis.

A few examples are failure to build any major dam after Tarbela Dam in 1976 and Thar coal taking decades to commence its monetisation– though its effective utilisation could substantially increase the reserve life of oil and gas.

Similarly, despite negligible progress on gas reserve replacement, we continued to use it liberally. The optimal use of indigenous resources could help in delaying the import of expensive liquefied natural gas (LNG). The replacement of oil and gas reserves requires a sustained focus on the exploration and production (E&P) activity. We instead have not been very consistent in this regard.

Hardly 35 percent of the country has so far been explored with the last major hydrocarbon discovery in 2002 in Tal block.

Lack of interest by most of the E&P MNCs for the past 15-20 years adds to the challenge. Pakistan has a rich past with respect to the presence of MNCs such as UTP, BP, Occidental, BHP, Tullow, OMV, Premier, BG, etc. Only a few such as MOL, PGNiG, UEP and Eni are still active in Pakistan.

SBP reserves decline $59mn to $12.8bn

The foreign exchange reserves held by the central bank fell 0.45 percent on a weekly basis, according to data released by the State Bank of Pakistan (SBP) on Thursday.

NET FDI In Pakistan ($ Million)
Country 2017-18 2018-19 2019-20 Jul-DecFY21 (P)
China 1,311.90 130.8 844.1 358.9
UK 304.6 185 117.3 63
USA 161.7 88.1 97.2 64.8
Hong Kong 183.6 171 190.7 86.3
Switzerland 78.5 21.2 61.8 48
U.A.E. -4.4 103.7 -44.2 16.3
Italy 56.6 51.9 56.4 17.4
Netherlands 100.3 69 133.2 72.3
Austria 27.4 7.6 3.8 0
Japan 59.8 117.3 52.4 23.2
Turkey 29.8 73.8 24.9 7.1
Others 470.5 343 1,023.60 195.3
Total 2,780.30 1,362.40 2,561.20 952.6

On February 12, the foreign currency reserves held by the SBP were recorded at $12,889.7 million, down $59 million compared with $12,949.1 million in the previous week.

According to the central bank, the reserves decreased due to external debt repayments.

Overall, liquid foreign currency reserves held by the country, including net reserves held by banks other than the SBP, stood at $20,058.6 million. Net reserves held by banks amounted to $7,168.9 million.

Pakistan received the first loan tranche of $991.4 million from the IMF on July 9, 2019, which helped bolster the reserves. In late December 2019, the IMF released the second loan tranche of around $454 million.

The reserves also jumped on account of $2.5 billion in inflows from China. In 2020, the SBP successfully made foreign debt repayment of over $1 billion on the maturity of Sukuk.

In December 2019, the foreign exchange reserves surpassed the $10 billion mark owing to inflows from multilateral lenders including $1.3 billion from the Asian Development Bank (ADB).

Importers of bike spare parts in trouble

Stakeholders of the motorcycle spare parts segment of the automobile industry have said that the sector is overburdened with a high customs duty and additional customs duty applicable to the import of spare parts of two-wheelers.

Speaking to source, All Pakistan Motorcycle Spare Parts Importers and Dealers Association Chairman Khalid Waheed criticised the government for slapping a cumulative 85.5 percent duty on commercial importers of auto parts.

“This has left the legal motorcycle spare parts importers in trouble and encouraged smuggling of the merchandise,” he said, adding that the motorcycle spare parts industry was contributing to strengthening the country’s economy.

To discuss the issue, the association chairman held a meeting with Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Mian Nasir Hayyat Magoo.

He stressed that trade bodies including the FPCCI should highlight the issues facing the motorcycle spare parts importers with the government departments and ministries concerned for their swift resolution.

During the meeting, former FPCCI vice president Khurram Ijaz said the trade bodies were repeatedly appealing to the government to reduce duties and taxes on motorcycle spare parts and abolish the additional duty to discourage smuggling.

Former motorcycle spare parts importers body president Faisal Khalil recalled that the rate of customs duty used to be low a few years ago and as a result, smuggling was significantly lower.

“Smuggling of spare parts surged following the increase in taxes.” Waheed told Magoo that the government had imposed 35 percent customs duty, 11 percent additional customs duty, 17 percent sales tax, 3 percent additional sales tax and 5.5 percent income tax on the motorcycle spare parts importers. “Importers are carrying the burden of 85.5 percent duties and taxes,” he said.

Experts say Pakistan to join RCEP

It is important for Pakistan to be part of the Regional Comprehensive Economic Partnership (RCEP) in order to expand the country’s network of free trade agreements (FTAs) and facilitate its participation in the global and regional supply chains, said Pakistan Institute of Development Economics non-resident senior fellow Anabel Gonzalez.

Speaking at an online webinar titled “Pakistan’s Trade Potential and the Regional Comprehensive Economic Cooperation Agreement”, she said RCEP had the capacity to inject new momentum into Pakistan’s export strategy for increasing and diversifying exports.RCEP is an FTA between the Asia-Pacific nations. Its 15 member countries account for about 29 percent of the global gross domestic product (GDP).

Shedding light on main features of the RCEP, Gonzalez said the programme was aimed at establishing a modern, comprehensive, high-quality and mutually beneficial economic partnership framework.

“RCEP plans to liberalise and facilitate trade in goods and services, and to create a liberal, facilitative and competitive investment environment in the region,” she added.

Highlighting the risks and opportunities for Pakistan, the expert stated that after participation in the RCEP, Pakistan may suffer potential export losses and face potential investment diversion.

“However, on the other hand, the RCEP can help Pakistan enhance export competitiveness through reduced tariff costs and access to competitive inputs,” Gonzalez underlined. “Moreover, it will introduce simplicity, transparency and predictability in trade policymaking for Pakistan along with reversing the decline in investment flows by reigniting the reform drive in trade and investment.”

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