Govt working on funds for Karachi package

Govt working on funds for Karachi package

The federal government plans to seek the help of the private sector to cover its share of Rs736 billion in the recently announced Rs1.1 trillion development package for Karachi because of fiscal constraints. 

They said that the Centre planned to fund around Rs100 billion worth of projects from the budget, as it sought to cover the remaining cost with help of the private sector, adding that the limited fiscal space did not allow the Centre to finance all the projects through the development budget.

According to the Planning Ministry sources, if the federal government decided to fund the majority of the Rs736 billion projects from the budget, particularly the Karachi Circular Railway, the additional financing requirements over a period of three years – 2020-23 – would be Rs347 billion even after the contribution of the Supreme Court and the private sector.

Therefore, the sources said, the government had decided to use three financing modes, the Public Sector Development Programme (PSDP), the Supreme Court funds, and the Public-Private Partnership (PPP).

Prime Minister Imran Khan on Saturday announced the Rs1.114 trillion Karachi Transformation Package to improve the civic services in the country’s largest metropolis, which is also the financial backbone of the country.

The Planning and Development Ministry confirmed on Monday that the share of the federally-financed projects would be Rs736 billion, while the remaining Rs375 billion would be the responsibility of the Sindh government.

Of the Rs736 billion, the ministry said that the government “plans to request the Supreme Court of Pakistan to allow the use” of part of a settlement fund (up to Rs125 billion) of a real estate developer, “expected to be available during the three years period of the package”.

So far, Rs62 billion had been deposited in the Supreme Court. Hence the funding estimated to be arranged by the federal government is Rs611 billion, said the planning ministry.

The federal government has committed to undertake Rs46 billion Greater Karachi Water Supply Project (K-4), Rs300 billion Karachi Circular Railway (KCR), Rs131 billion Railway Freight Corridor, Rs5 billion Green Line Bus Rapid Transit besides Rs254 billion for the rehabilitation of river, nullahs and storm-water drains and the resettlement of affected people, according to the ministry.

Federal Financing Plans

Of its share of Rs611 billion – excluding Rs125 billion Supreme Court funding – the federal government wanted to complete projects worth Rs347 billion from the PSDP and the remaining Rs260 billion through the PPP mode.

The Rs347 billion is inclusive of the Rs250 billion cost of the KCR. The remaining Rs50 billion of the KCR is planned to be funded by using the funds deposited in the Supreme Court, said a source.

The government was now planning to also construct the single-largest project – the Rs300 billion KCR – with the help of the private sector on build-operate and transfer (BOT) mode, according to planning ministry officials.

In case, it did not find a partner in the private sector to construct the KCR on the BOT model, there would be a constant financing gap during the three-year implementation period of the Karachi package, they added.

KCR-budget funding scenario

At present, the government has shown the KCR as part of the federally-funded PSDP, which has increased its PSDP component to Rs347 billion. Under the current scenario (KCR inclusive), the federal government needs Rs124 billion additional amounts in this fiscal year.

But, the officials said, there was no fiscal space available within the budget, adding that if the government constructed the KCR in BOT mode, the financing gap would reduce to Rs17 billion for the current fiscal year.

For fiscal 2021-22, the additional requirements were also estimated at Rs123 billion, including a foreign loan component of Rs83 billion. For the last year of the package – fiscal 2022-23 –, the additional financing requirements had been estimated at Rs101 billion, said the officials.

Therefore, they added, it was prudent to shift the KCR to the BOT model. However, in the case of the BOT model, the project might not remain part of the China-Pakistan Economic Corridor (CPEC), as China was undertaking the infrastructure projects in engineering procurement and construction mode.

In a handout, the planning ministry said that during the meetings held for finalisation of the Karachi package, the Sindh government expressed the desire to take responsibility for the KCR project. However, Railways was a federal subject while the Supreme Court had also directed that the federal government should undertake this project, it said.

“The federal government is, therefore, duty-bound to implement this project and as such, the execution responsibility and the financial burden of the same which is estimated at Rs300 billion has been included in the federal government responsibility under the Karachi package,” it added.

The officials said that the federal government wanted to finance two projects through the Supreme Court funds. The Rs74 billion worth of roads astride Gujjar, Mahmoodabad, and Orangi nullahs and the remaining portion of the Lyari Expressway is planned to be fully funded by using the Supreme Court funds. Similarly, the KCR would be partially financed (Rs50 billion) from these funds.

Of the remaining federal government projects, the Rs36 billion worth of 12,000 flats were also planned to be funded through the PSDP. At present, the government was showing only two projects in the PPP mode, the Rs130 billion worth of development of areas astride cleared or rehabilitated nullahs and the Rs130 billion construction of additional dual track (50 kilometers) and freight terminal at Pipri, said the officials.

The federal government also wanted to use Rs7 billion funds of the National Disaster Management Authority (NDMA) for clearance of rivers and nullahs and temporarily displaced persons said the officials.

Pakistan looks for Chinese help in corporate farming

Pakistan looks for Chinese help incorporate farming

Pakistan is seeking support from China for corporate farming through the inclusion of agriculture in the China-Pakistan Economic Corridor (CPEC) program in the hope of triggering a green revolution.

In a recent meeting of the cabinet, its members expressed satisfaction over the inclusion of agriculture as well as science and technology in the CPEC program. It was emphasized that Pakistan’s economic development was intertwined with that of China and a green revolution would come in cooperation with Beijing.

It was pointed out that in the agriculture sector, support was being sought for corporate farming as well as joint farming. It was suggested that joint research should be undertaken in the field of agriculture as Pakistan had the research infrastructure, which had the potential to become a center of excellence.

The minister for national food security and research told the cabinet that his team was working on raising wheat productivity for which timely announcement of support price and availability of quality seed was crucial.

He requested the prime minister to direct provinces to keep an appropriate quantity of good quality wheat, which would be used as seed.

The prime minister directed the food security minister to prepare short, medium and long-term plans for achieving food security and enhancing crop productivity.

The National Food Security and Research Division informed cabinet members that in September, around 0.5 million tons of imported wheat would be available in the country. It was stated that steps taken by the government had resulted in a reduction in wheat prices. It was pointed out that the transportation cycle should be astutely managed as with the sudden influx of imported wheat, the cost of the carriage could increase.

It was also suggested that after the 18th Constitution Amendment, the prime responsibility of the Ministry of National Food Security was to ensure food security for which buffer stocks of essential commodities over and above the annual national demand should be maintained for supply-side intervention to keep prices in check.

The prime minister emphasized that shortage of wheat could not be allowed in the country in any circumstances as it was a staple diet of the common man. The minister for communication requested the cabinet that financing for the Zhob road project, approved in the last Joint Cooperation Committee (JCC) meeting, may also be taken up with the Chinese side as it was the main entry point to the western route.

The minister for industries and production apprised cabinet members that prices of sugar had already gone down by Rs4-5 per kg on expectations of the arrival of imported sugar ordered by the private sector.

Chinese team discusses investment avenues with Pakistan

Chinese team discusses investment avenues with Pakistan

Pakistan holds vast investment opportunities in the telecom, energy, and processed food sectors, said the head of a three-member Chinese trade delegation, Goa Bao Jun.

During a meeting with Lahore Chamber of Commerce and Industry (LCCI) Vice President Mian Zahid Jawaid, issues of mutual interest between both the countries were discussed.

“There is a need to work on the untapped potential in the field of clean drinking water in Pakistan,” said Goa.

“The need for clean drinking water is a big part of life and its scarcity causes many diseases, which further aggravates problems in hospitals.” He called for investment in the clean water sector. The delegation toured the chamber and showed keen interest in the One Window Smart Services offered by the chamber to facilitate its members.

The LCCI vice president welcomed the Chinese delegation’s interest in investing in the food sector in Pakistan and voiced hope that more Chinese companies would invest in Pakistan. 

Power sector woes: Pakistan reins in Rs2.2tr circular debt

Power sector woes: Pakistan reins in Rs2.2tr circular debt

The prolonged power outages in Pakistan are deeply rooted in the poor state of governance, particularly at the hands of distribution companies supplying electricity to end-consumers, and ill-planned growth in surplus supplies and stagnant demand.

The poor governance - like low recovery of monthly bills and high power theft - has given birth to the complicated ‘circular debt’. This has continued to compromise working capital at power production, transmission, distributions, and oil and gas supplying firms.

Moreover, the non-stop addition of new production plants despite stagnant demand for years has continued to inflate ‘capacity payment’ to the standby plants. This is another huge financial burden and a grave cause of making power expensive for the end-consumers.

The two capital burdens - circular debt at Rs2.2 trillion and capacity payment at Rs1 trillion in 2020 - have crippled the power sector in the country.

“The high inefficiencies of distribution companies (like Queso and Pesco) are contributing 60% towards the ever-growing circular debt, which is estimated to reach Rs4 trillion by 2025,” Engro Energy Limited CEO Ahsan Zafar Syed said while talking to The Express Tribune.

His comments were made in the wake of a study his firm conducted to sort out problems in the power supply chain titled ‘Fixing Pakistan’s Power Sector.’

The study indicated seven challenges in Pakistan’s power sector. Five of them are imminent ones. Putting them in a sequence, he said, circular debt has remained the biggest challenge among all. The government has to fix distribution companies to address the debt, as the companies’ inefficiencies are contributing 60% to the debt every year.

There are a total of nine distribution companies in Pakistan, excluding K-Electric. They are allowed to incur 16% line losses (which is recoverable from consumers through monthly bills). In addition to this, they book another 12% line losses, including due to theft.

Secondly, their recoveries remain low by up to 40% against the monthly bills. A large number of consumers are in the habit of not paying their bills despite many of them being capable.

He suggested that provincial governments should be given ownership of the distribution companies in partnership with corporate entities. The governments should be given the task of recovering bills and law enforcement agencies should come into action against those who don’t pay their bills, he said.

At present, distribution companies are a federal subject while law enforcement agencies remain provincial subject, he added.

The federal government may link recovery of monthly bills from consumers with the NFC award through which the federal government transfer resources to provincial governments every year, he said.

The corporate entities should be given the responsibility of operating the distribution companies on professional lines, he said.

“Pakistan and Turkey had similar issues in their respective power sectors in 1994. Turkey has resolved them by taking strict measures. We have been given three power policies since then but are still facing the decades’ old issues today as well,” he stated.

The second biggest challenge in the sequence is excess power production capacity. The government should not approve of setting up new production plants. “We still have 7,000MW surplus production capacity in the system as of today. It is estimated to be around 3,500MW in surplus by 2025.”

The third imminent issue is the lower demand for power. The demand has remained low over the last decade despite an increase in economic activities. “The demand increased by 4% CAGR (compound annual growth rate) compared to GDP growth at 5.3% CAGR over the decade (2007-2019),” he said.

Surprisingly, the demand for power from households has remained higher than the one from the industrial sector. “This happens nowhere in the world,” he highlighted.

Syed said the GDP grew on the back of the services sector instead of the manufacturing one. “The government should create an enabling environment for industrialization to increase power demand and reduce capacity payment.” Besides, industries should be offered incentives to use power from the grid instead of producing their 5,000MW through captive power plants.

The fourth challenge is the high cost of power. Pakistan produces the most expensive power in the world. “Our cost of power production is 26% higher for the industrial sector compared to other regional countries like Vietnam, Sri Lanka, Malaysia, Bangladesh, South Korea, Thailand, and India. It is 28% costlier for residential areas than the regional countries,” he said.

Pakistan has added 10,000-12,000MW production capacity in recent years and another 10,000 to 12,000MW is in the pipeline. Surplus power production and capacity payment to the standby plants has remained a major cause of producing expensive power.

“The capacity payments are estimated to soar to Rs4 trillion in 2025 due to ill-integrated planning in the sector in the past,” said the company official. The government should allow independent power producers to pay previously acquired expensive loans through acquiring new cheaper loans. And the period of paying off loans should be increased to 20 years from 10 years at present. This will also reduce the cost.

The fifth challenge is the import of fuels (furnace oil, RLNG, and coal) to produce electricity. Almost 50% of the fuels are imported for generation at $5.5 billion. This is another huge burden on the national exchequer. “Pakistan should shift focus on renewable energy solutions (solar and wind power) and Thar coal to get rid of expensive import of fuels,” he suggested.

“Power outages and expansion of transmission infrastructure are not imminent challenges. They can be fixed later on...after a couple of years,” Syed emphasized.

Post-Brexit era to open new trade vistas between Pakistan, UK

Post-Brexit era to open new trade vistas between Pakistan, UK

The Pakistan-UK Business Council has expressed hope that the post-Brexit era will open new opportunities for trade and investment between the two countries and will further deepen bilateral economic cooperation.

During the second meeting of the Pakistan-UK Business Council of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), Council Chairman Sheikh Muhammad Tariq discussed the economic outcome for the UK, which had been badly hit by the coronavirus pandemic.

He said the UK was one of the important trading partners of Pakistan, which played a pivotal role in the socio-economic development of the South Asian nation.

Tariq stressed that Pakistan had been blessed with all kinds of resources including natural, economic, and human, which needed to be utilized in a manner to create wealth and employment in the country.

“Trade between Pakistan and the UK will prove to be beneficial and strengthen bilateral ties between the two sides,” he added. Speaking on the occasion, FPCCI Vice President Sheikh Sultan Rehman shed light on the significance of bilateral trade between the two countries.

He said Pakistan and the UK enjoyed a friendly and cordial relationship as the UK was an important and old trading partner of Pakistan. “Relations between the two countries need to be strengthened further by tapping new areas of investment,” he emphasized.

Rehman stressed that the FPCCI would extend full cooperation and facilitation to remove barriers to bilateral economic and trade relations between the two countries.

Australian firm to transfer technology to Pakistan

Australian firm to transfer technology to Pakistan

Adviser to Prime Minister on Commerce and Investment Abdul Razak Dawood on Monday hailed Australian inventors for injecting capital into different sectors of Pakistan.

During a meeting with a delegation of Fortescue Metals Group Limited, headed by Group Chairman Andrew Forrest, Dawood said the approach of Fortescue Group was unique and it would result in the transfer of knowledge and technology to Pakistan.

He added that the workforce of Pakistan was quite capable of learning and adopting new technologies quickly and the investment would result in improving the labor market.

The adviser underlined that the Board of Investment (BOI) would act as the focal point for the group and would actively resolve any issues that may arise during different stages of implementation of its plans.

He appreciated the approach of the group for giving employment opportunities to local communities, which was a benchmark of its investment plans in Pakistan.

In the meeting, the Fortescue Group gave a presentation on its proposed plans for investing in Pakistan. It revealed that Pakistan was one of the shortlisted countries, which were being actively explored for investments.

Forrest appreciated the support and enthusiasm of the government of Pakistan.

He said the investment would focus on the green industry, starting from the generation of hydroelectric power and development of industry in the associated land, which would be owned and operated by the group with the help of local partners.

It was highlighted that active engagement on the part of the government and local communities, sustainable environmental practices, rapid decision-making, and speedy access to markets were the criteria considered for shortlisting Pakistan as a potential investment destination.

Forrest said the investment from Fortescue Group would generate economic opportunities for the local communities, employment, and large-scale development of the green industry for the export market and domestic consumption.

Besides, it will result in diversification, broadening, and better skills of the workforce in Pakistan.

“Pakistan is one of the few countries in the world ensuring gender balance in employment opportunities,” he said, adding, the group also made a plan to train and employ women to endorse efforts of the government.

He said the group intended to invest in Pakistan to introduce new technologies with zero carbon emissions, particularly green fertilizer and green steel production plants.

IEA sees no major slowdown in oil market

IEA sees no major slowdown in oil market

The global economy is likely not headed for any major slowdown due to Covid-19 but piled-up storage and uncertainty over China’s oil demand cloud oil markets’ recovery, an official with the International Energy Agency (IEA) said.

Keisuke Sadamori, IEA Director for Energy Markets and Security, told Reuters the outlook for oil was in the midst of either a second wave or a steady first wave of the coronavirus.

“There is an enormous amount of uncertainty, but we don’t expect any additional serious slowdown in the coming months.” “Even though (the market is) not expecting real robust growth coming back soon, the view on demand is more stable compared with three months ago,” he said in an interview.

Crude prices LCOc1 and CLc1 plunged in spring to historic lows as the pandemic’s lockdowns crushed demand and have pared losses but remained stuck near $40 a barrel.

The IEA cut its 2020 oil demand forecast in its monthly report on August 13, warning that reduced air travel would lower global oil demand by 8.1 million barrels per day (BPD). The Paris-based agency downgraded its outlook for the first time in three months, as the epidemic continues to wreak economic pain and job losses worldwide. With Brent crude registering its first weekly loss since June on Friday, markets have grown increasingly nervous over demand, poor refining margins, and slow economic growth, reducing incentives to draw crude and products from abundant stocks.

“We are not seeing a robust pickup in refining activity, and jet fuel is the big problem,” he added.

China, the world’s largest crude importer, emerged from an economic lockdown sooner than other major economies and used its financial muscle to make record oil imports in recent months, a rare bright spot amid global demand destruction.