Market watch: Stocks close mixed on profit-taking

Benchm­ark KSE-100 index gains 40 points. Benchmark KSE-100 index gains 40 points.

KARACHI: The Karachi stock market witnessed a mixed trading session on Tuesday. The bourse closed with clipped gains after an early rally saw investors cash in at higher levels. Profit-taking was witnessed in the cement, banking and oil sectors; while the fertiliser sector dominated bullish activity after reports that an increase in the Gas Infrastructure Development Cess had been rejected.

Furthermore, “[The] market failed to sustain the rally after pressure on [the] Pakistani currency. Investors preferred to book gains at upper level[s] after realising that local currency is posting record lows,” reported Topline Securities equity dealer Samar Iqbal.

“Local institutional investors remained largely inactive ahead of the budget … Banking stocks remained under pressure over conflicting news ahead of the budget regarding the imposition of taxes on banks’ income from investment in government securities,” added JS Global analyst Jawad Khan.

The Karachi Stock Exchange’s (KSE) benchmark 100-share index climbed 0.29% or 40.34 points to end at the 14,071.85 point level. Trade volumes fell to 160.18 million shares compared with Monday’s tally of 181 million shares. The value of shares traded during the day was Rs5.84 billion.

“The bourse had to succumb to the technical call, thereby disallowing the high attained during early trade to sustain,” said Invisor Securities SVP Hasnain Asghar Ali. “While market participants await the federal budget … economic and financial grievances, along with fast depleting value of local currency … [have] added to the nervousness.”

“Fauji Fertilizer and Engro closed on higher notes as traders rebuilt offloaded positions,” said Elixir Securities analyst Haris Ahmad Batla. “Mixed sentiments in cements on anticipation of the removal of Federal Excise Duty and budgetary increase in the Public Sector Development Plan moved DG Khan Cement and Lucky Cement in different directions.”

Jahangir Siddiqui Company was the volume leader with 11.59 million shares gaining Rs0.11 to finish at Rs16.25. It was followed by Bankislami Pakistan with 8.84 million shares gaining Rs0.43 to close at Rs12.04 and DG Khan Cement with 8.68 million shares losing Rs0.76 to close at Rs43.14.

Foreign institutional investors were net buyers of Rs457.89 million, according to data maintained by the National Clearing Company of Pakistan Limited.

Published in The Express Tribune, May 30th, 2012.

JGBs rise against backdrop of European debt fears

TOKYO: Japanese government bonds were higher on Tuesday on the back of continuing worries about the euro zone debt crisis.

Spanish 10-year bond yields jumped to 6.53 percent on Monday, their highest since November 2011, which pushed the yield premium over German Bunds to 515 basis points, its widest in the euro’s 13-year history.

The benchmark 10-year JGB yield fell two basis points to 0.855 percent, within four basis points of its May 18 low of 0.815 percent, which was its lowest since July 2003.

The 10-year JGB futures contract ended morning trade up 0.22 point at 143.35.

The yield curve flattened slightly, with the 5-year yield shedding half a basis point to 0.220 percent, while the 30-year bond yield fell 2.5 basis points to 1.815 percent.  * The yield on the 20-year bond fell two basis points to 1.665 percent, pushing the spread between the between 10-year and 20-year yields to 81 basis points.

That topped this year’s high of 80.5 basis points on a last-trade basis, and brought it to its widest since September 2011.

“We still some room to have a steeper curve in the 5/10 years, and maintain our steepeners in the 2/5 years, and are waiting for a chance to add some 5/10 year flatteners,” said a fixed-income fund manager at a European asset management firm in Tokyo.

“We maintain our 10/20 flatteners. I don’t think the 10/20 moves quite a bit, so we have to hold the current position to gain our carry from the spread,” he added.

The 2-year note was untraded. The finance ministry offered 2.7 trillion yen of those notes with a coupon of 0.1 percent, the seventh consecutive auction with that coupon.

The sale is expected to proceed smoothly because the Bank of Japan now purchases bonds with up to three years left to maturity, and is currently buying most of the new issuance of 2-year notes.

Air India not to take Dreamliners until compensation fixed-min

NEW DELHI: State-owned Air India will not take delivery of any Dreamliner aircraft from Boeing Co until the two parties agree on a compensation package for a delay, India’s civil aviation minister Ajit Singh said.


The debt-strapped and loss-making Indian carrier, which was supposed to take delivery of the first of 27 Dreamliners by the end of May, is seeking nearly $1 billion in compensation for the delayed aircraft.


Air India is studying all legal options including arbritration in case the two parties fail to reach an agreement, Singh said, while declining to say how much compensation Air India was seeking.


Fuel price adjustment: Power tariff increased by Rs1.97 per unit

This will be charge­d in Nov bills, KESC; lifeli­ne consum­ers are exempt.  Reference fuel price for April was set at Rs7.69 per unit but the actual price was Rs9.69 per unit. PHOTO: FILE


ISLAMABAD: Amid protests across the country against power outages for 16 to 20 hours in a day, the National Electric Power Regulatory Authority (Nepra) has increased electricity tariff by Rs1.97 per unit on account of fuel price adjustment for April.


This increase in tariff will be reflected in bills of November 2012. However, lifeline consumers using up to 50 units per month and consumers of Karachi Electric Supply Company (KESC) will be exempt from the hike.


Nepra, which regulates the power sector, approved the increase in tariff for distribution companies in a public hearing held on Tuesday with its Acting Chairman Ghiasuddin Ahmed in the chair.


Earlier, the Central Power Purchasing Agency (CPPA) told Nepra that the country was relying on import of expensive furnace oil to generate electricity as hydropower production had gone down due to water shortage. It had demanded a tariff increase of Rs2 per unit to cover the fuel cost of power companies.


It said the reference fuel price for April was set at Rs7.69 per unit but the actual price was higher at Rs9.69 per unit. Fuel cost of power companies stood at Rs63.69 billion for the month.


Electricity consumers have been experiencing tariff rises for many months on account of fuel price adjustment. Tariff has been increased by Rs0.58 per unit for February and Rs1.79 per unit for March, which will be recovered in bills of September and October 2012.


Earlier, the tariff was pushed up by Rs6.03 per unit for four months from October 2011 to January 2012.


Inefficiency, bad governance


According to experts, the energy sector is plagued by inefficiencies and bad governance, but the government instead of addressing these issues, shifts the burden to consumers with tariff increases.


Besides the fuel price adjustment, the government increased power tariff by 16% on May 16 this year. Total addition to the tariff may be over 20% in the current financial year as two more jerks of over Rs3 per unit are on the cards before the close of year on June 30.


In previous financial year 2010-11, the tariff rose by 22% in addition to fuel price adjustment surcharge.


Since coming to power in 2008, the present government has increased power tariff by 94% in addition to revisions on account of fuel price adjustment. However, the condition of the power sector has deteriorated as no major reform except for dissolution of Pakistan Electric Power Company (Pepco) was undertaken due to political compulsions.


Under the reforms, the government was to dissolve Pepco, reconstitute board of directors of power companies and hire professionals from private sector as chief executive officers (CEOs). Pepco stands dissolved and boards were reconstituted in 2009-10, but several companies are still being run by acting heads.


According to an official of the Ministry of Water and Power, it is shocking that the prime minister has approved appointment of new heads of distribution companies, but orders are not being issued for fear of protests from employees.


Earlier, the government had hired a professional from the private sector as head of Quetta Electric Supply Company, but the order was withdrawn to placate angry employees.


Owing to the bad condition of power companies, the central government has also offered provinces to run them but provinces have refused due to heavy losses. Especially, Khyber-Pakhtunkhwa, Sindh and Balochistan are not ready to operate these firms because of bad governance.


Published in The Express Tribune, May 30th, 2012.

US bonds steady, Europe still a focus

TOKYO: US Treasury bond prices were steady in Asia on Tuesday, with investors waiting to gauge US market reaction to the latest developments in Europe’s debt crisis.

US markets were closed Monday for the Memorial Day holiday, and so have not yet reacted to Spain’s worsening debt situation.

Spanish 10-year bond yields jumped to 6.53 percent, their highest since November 2011, which pushed the yield premium over German Bunds to 515 basis points, its widest in the euro’s 13-year history.

Spain appeared ready to use more public debt to recapitalise its banks, which could make its refinancing efforts even more challenging.

“Yields can go either way in US trade, but the risk-off trend still remains because of Spain, so I think we’ll see some lower yields in the US as well,” said a fixed-income fund manager in Tokyo.  

“The 10-year yield is so low already, but we have to position for even lower yields to come. And even if they stabilize, higher yields aren’t coming soon,” he added.

The yields on 10-year notes stood at 1.75 percent, steady with their levels in late U.S trading on Friday and not far from the 1.67 percent level reached in September, which was the lowest in at least 60 years.

The 30-year bond yield was at 2.84 percent, matching its level in late US trade on Friday.

Looking ahead this week, investors await US economic data, including the key monthly payroll data on Friday that is expected to show that employers added 150,000 workers in May.

Data on Thursday is expected to show that US gross domestic product grew 2 percent in the first quarter.

Any sign that the economy is weakening would be bullish for Treasuries, as it would increase the chances that the Federal Reserve will announce new bond purchases.

Economic ties: Iran ready to support Punjab in energy, agri sectors

Senato­r Khosa says Punjab govt was taking all possib­le measur­es to increa­se trade, econom­ic relati­ons with Iran. Senator Khosa says Punjab govt was taking all possible measures to increase trade, economic relations with Iran.

LAHORE: 

The Governor General of the southern Iranian province of Fars Hossein Sadegh Abedin has offered support to Punjab in the fields of energy, agriculture, research in medicinal plants and fibre glass manufacturing. The governor general was speaking at the Lahore Chamber of Commerce and Industry (LCCI) as the head of an Iranian business delegation on Tuesday.

Abedin said that the province of Fars enjoys the highest level of expertise in exploration and development in the petroleum and gas sectors, and invited Pakistani businessmen to initiate joint ventures in these areas.

Abedin added that Fars is ready to help Pakistan in overcoming energy crisis by providing technological assistance and exporting energy resources.

Senator Zulfiqar Khosa said that the Punjab government was taking all possible measures to increase trade and economic relations
with Iran.

Published in The Express Tribune, May 30th, 2012.

Pakistan ‘heading for crisis without reforms’

The IMF says Pakist­an needs to raise tax revenu­es substa­ntiall­y to reduce the defici­t sustai­nably. The IMF says Pakistan needs to raise tax revenues substantially to reduce the deficit sustainably.

ISLAMABAD: Minuscule tax revenues, mismanagement and overgenerous subsidies mean Pakistan is heading for a new financial crisis, say diplomats and analysts, with this week’s budget unlikely to offer any respite.

The budget deficit stood at 6.6 percent of GDP last year, according to the central bank, the State Bank of Pakistan (SBP), which warned that government borrowing was crowding out the private sector from access to credit.

That reduces the prospects for economic growth in a country that is on the front line of the war against al Qaeda and where more than 5,000 people have been killed in bomb and gun attacks by militant insurgents since 2007.

External forecasts for the current fiscal year see the budget deficit rising to about seven percent of GDP, while economists warn the government is running out of ways to fund it — and reluctant to embrace reform with polls looming.

Some see little alternative to a major financial crisis or a return to the IMF, which bailed out Pakistan with an $11.3 billion loan package in 2008 that stopped last November after Islamabad rejected strict reform demands.

“I think it’s possible they could have a real financial crisis by the middle of this year or the fall. I don’t think it’s a question of if, but when they go back to the IMF,” one Western diplomat said.

Pakistan’s tax revenues are among the lowest in the world at just 9.8 percent of GDP in fiscal 2010-2011, says the Asian Development Bank, and less than two percent of the population pays tax on their income.

On top of this, the government shells out huge sums on electricity subsidies — about 1.5 percent of GDP in 2010-11, according to the IMF — for a sector so blighted by mismanagement that most of the country suffers crippling power cuts.

Pakistan has also missed out on payments from the United States for its efforts to fight militancy under the Coalition Support Fund (CSF).

This brought around $8.8 billion into Pakistan’s coffers between 2002 and 2011, including $1.5 billion in 2009-10, but Islamabad stopped claiming the money as ties with Washington collapsed in the wake of the raid that killed Osama bin Laden last year.

“There’s not really any money coming in, and that being the case, the government is financing itself by borrowing from the local banks and the local banks aren’t seeing deposits coming in to keep up,” said Liz Martins, an economist with HSBC.

The pressure on finance houses “means they have very limited money to lend to the private sector,” she said.

“There’s no money coming from the IMF, no money coming from the bond markets, and international investors are very cautious.”

Islamabad borrowed 365 billion rupees ($4 billion) from the banking system — both private banks and the SBP — in the first half of the current financial year, the central bank said in its second quarter economic report.

With inflation already running at around 11 percent, the alternative of printing money to pay debts opens the way to the nightmare of hyperinflation.

The IMF says Pakistan needs to raise tax revenues substantially to reduce the deficit sustainably, but with an election due within months analysts do not expect Finance Minister Abdul Hafeez Shaikh to follow its advice in his budget on Friday.

“I don’t think the government is able to bear the terms that come with going back to the IMF,” said Sartaj Aziz, former finance minister and vice chancellor of Beaconhouse National University.

The situation was already serious, he warned. “The total expansion of currency is higher than ever, so it is already reaching dangerous levels. It has to be arrested by drastic remedial measures,” he said.

Officials from the finance ministry were repeatedly contacted by AFP, but declined to comment on how they planned to finance the deficit.

In Pakistan, once a general election is called, an interim government takes power for three months while campaigning is under way and Aziz said he thought this would give the government a way to duck difficult budget decisions.

“I think the government will be happy to wait until the election is called and hand the problem over to the caretaker government,” he said.

Qantas pulls directors from Fiji airline

SYDNEY: Australia’s Qantas on Tuesday withdrew its four directors from the board of Air Pacific, saying it was clear that Fiji’s military regime wanted to take complete control of the carrier.

Qantas, which has held a 46 percent stake in the airline since 1998, said the withdrawal would have immediate effect in the Pacific nation controlled by strongman Voreqe Bainimarama who took power in a 2006 coup.

“The action is a response to intervention in the management of Air Pacific by the Fiji government, including the issue of a decree designed to reduce Qantas’s role on the board,” it said in a statement.

“The government has made clear its intentions to unilaterally take absolute control of Air Pacific under the new decree. In the circumstances Qantas believes it is appropriate to remove its four directors.”

Under Fiji’s Civil Aviation (Ownership and Control of National Airlines) Decree issued in March, at least two-thirds of Air Pacific’s board of nine must be Fijian citizens, meaning only three directors can be foreigners.

As a result, Qantas’s four directors will step down to ensure Air Pacific remains compliant with the decree, the Australian airline said.

Qantas said since its involvement in Air Pacific, the carrier had been effectively controlled by Fijians and its only right under law had been to have four directors on a board where a two-thirds majority must endorse major decisions.

Qantas retains its rights as a shareholder and will continue to consider options for the potential sale of its stake, it added. The Fiji government said this month it was in talks to buy the Australian flag carrier’s holding.

Bainimarama seized power in a bloodless coup, pledging to root out corruption and introduce a one-person, one-vote system intended to end entrenched racial inequalities in the nation of 840,000.

But he reneged on a promise to hold elections in 2009, tore up the constitution and introduced emergency measures that muzzled the media and banned public meetings.

He repealed the emergency laws earlier this year, but also strengthened decrees giving the police and military sweeping powers.

The government has already announced that Air Pacific, which posted a loss of Fj$3.6 million ($2.0 million) in the 12 months to March 2011, will change its name to Fiji Airways next year.

Copyright AFP (Agence France-Presse), 2012

Budget: Widening the pie – Govt seeks additional revenue

Plans to raise Rs50 billio­n in additi­onal taxes, Rs35 billio­n admini­strati­vely. The tax target will be Rs2.338 trillion in the fifth budget of the PPP -led coalition government, which will be announced by Finance Minister Dr Abdul Hafeez Shaikh on June 1. DESIGN: FAIZAN DAWOOD

ISLAMABAD: 

A significant increase in non-development expenses has prompted the government to raise Rs50 billion through additional taxes in the next federal budget, in addition to assigning the Federal Board of Revenue with the task of raising roughly Rs35 billion through administrative measures and by broadening the tax base.

The tax target will be Rs2.338 trillion in the fifth budget of the Pakistan Peoples Party-led coalition government, which will be announced by Finance Minister Dr Abdul Hafeez Shaikh on June 1.

Proposed changes

According to tax officials, rates on certain items will be decreased in the hope of enhancing compliance. Among them are tyres of agriculture machinery and passenger cars – on which there is a proposal to decrease customs duties by 5% and withholding tax by 2% to discourage smuggling. Duties on import of cars may not be changed, sources said.

For additional revenue, the government will withdraw certain sales tax exemptions, increase federal excise duty on cigarettes by 5% on all categories and, for the first time, levy 10% federal excise duty on liquor. Currently, the provinces charge excise duty on liquor sold to diplomats, non-Muslims and five-star hotels.

On sugar, sales tax is proposed to be increased to 16% from the current 8%,  fetching roughly an additional Rs9 billion.

Income tax measures

The tax exemption threshold is proposed to be increased to Rs400,000 per year, from the current Rs350,000, and the tax to be calculated on net income, excluding the threshold amount.

There are also proposals to simplify the tax brackets and reduce income tax slabs to 5, from the current 16.

Sources said there will not be any revenue losses, despite relief on income tax, as the tax liabilities of the two highest income groups will increase.  Income tax exemptions granted to the president, provincial governors, chief of army staff and judges of the superior court, however, will not be withdrawn.

So far, the government has not decided the exact increase in employees’ salaries. The finance ministry advocates a maximum 20% increase but the final decision will be taken by the Cabinet. Pensions will also be increased by the same percentage.

“No one will be worse off after the budget”, said Finance Minister Dr Abdul Hafeez Shaikh while talking to The Express Tribune. He said there will be no radical changes in the budget and continuation of policy will be assured.

Total size of the budget

As of May 29, the government has not formally finalised the size of its total expenditures. Sources said so far the expenditures have been assessed at Rs2.98 trillion, or 18.8% higher than the outgoing fiscal. Another official said that the finance ministry was resisting to project expenditures above Rs3 trillion.

Officials said that the size of the budget has increased due to greater allocations for power subsidies, grants to Azad Jammu and Kashmir, Fata and Gilgit-Baltistan.

Published in The Express Tribune, May 30th, 2012.

Ministry rejects NBP claim of Rs4b for oil payments

Bank demand­s money for oil purcha­ses on credit from Kuwait. Bank demands money for oil purchases on credit from Kuwait. PHOTO: APP

ISLAMABAD: The Ministry of Finance has blasted the National Bank of Pakistan (NBP) for claiming Rs4.14 billion from the government on account of oil import payments to Kuwait.

Kuwait is the only country which supplies oil to Pakistan on two-month credit, an arrangement put in place during the 2008 financial crisis. Other Middle Eastern countries, including Saudi Arabia, export oil on credit for 30 days.

According to sources, under the existing mechanism, PSO can defer payments for one month while credit facility for another month is availed by the government. PSO pays $300 to $350 million to the government by the end of every month and the amount is deposited in accounts of NBP for one more month.

In this cycle, NBP keeps $300 to $350 million of the government in its accounts for the whole year, but it is interesting that the bank is now claiming a huge amount totalling Rs4.14 billion. Rather, it should have paid interest to the government for keeping its money for the whole year.

When contacted, a senior NBP official told The Express Tribune that “NBP has not claimed any such amount from the government in any account. Moreover, your other queries primarily pertain to director general of oil rather than NBP.”

To resolve the issue, officials of the finance ministry held a meeting with representatives of NBP last week, a senior official of the Ministry of Petroleum and Natural Resources said. Officials of the petroleum ministry also attended the meeting.

The official said the representatives of the finance and petroleum ministries were surprised that the bank had claimed such a huge amount in different heads despite keeping millions of dollars of the government in its accounts.

Finance ministry officials termed the matter a “scandal”. “Everyone in the meeting was caught unawares by claims of NBP, which demanded a big amount rather than paying mark-up to the government,” the official added.

However, the NBP representatives could not come up with satisfactory answers to questions from the finance ministry, which asked them to refrain from making such claims in future.

PSO imports three million tons of diesel a year from Kuwait. Total diesel consumption of the country is 6.8 to 6.9 million tons per annum, of which domestic refineries produce 3.2 to 3.4 million tons. The rest is imported. PSO also imports one million tons of furnace oil per annum on 30-day credit.

In the current scenario where circular debt has plagued the entire energy chain, oil imports from Kuwait on deferred payments definitely help the country.

Last week, PSO’s receivables from its clients, particularly power companies, crossed Rs209 billion. PSO also owes around Rs95 billion to international fuel suppliers, including Kuwait Petroleum Corporation. Total payables of the oil marketing giant to domestic and world fuel suppliers stand at Rs180.82 billion.

Published in The Express Tribune, May 30th, 2012.

Pakistan’s first solar power system goes online

Premie­r seeks to attrac­t invest­ors for additi­onal projec­ts.  Pakistan seeks investment in renewable energy to combat a power crisis which has adversely affected economic growth.


ISLAMABAD: Prime Minister Yousaf Raza Gilani on Tuesday said that realising the country’s growing demand for power to operate industries, agriculture and domestic sector, the government has initiated several projects to resolve energy crisis.


Addressing the inaugural ceremony of Pakistan’s first on-grid solar power generation system, Gilani said, “The projects commenced by the government not only look to tap conventional sources but also the renewable energy resources including wind, solar and biomass.”


“We are seeking international investment in this vital sector to build projects that can rid Pakistan of scourge of load-shedding, which has adversely affected our economic growth” he added. The premier said that apart from large hydel power potential, the identified potential of power generation from wind is about 43,000 megawatts (MW), whereas for solar, it is higher than 100,000MW.


The prime minister said that under the scenario of climate change and melting of glaciers, power generation from renewable energy resources has been given priority. Gilani assured that administration has been utilising all available resources to resolve the energy crisis in the country. He stated that an efficient and well planned energy mix will certainly help alleviate the crisis as well as meet future requirements, which will lead to economic sustainability.


Moreover, the government is continuously working to facilitate the investors and making reforms in the sector, he added. In this regard he praised the efforts of Pakistan Engineering Council and other partner organisations for implementing this first project of its kind to reduce the load on the national grid”. Gilani pledged that potential investors will receive the government’s full cooperation in this regard and urged the strategic partners and donors for their active role in renewable energy sector.


Published in The Express Tribune, May 30th, 2012.

Roundtable conference: Education, training vital for prosperity

SAARC member­s should take steps urgent­ly to bridge skill gap: Srivas­tava. SAARC members should take steps urgently to bridge skill gap: Srivastava.

LAHORE: Dr Aarti Srivastava, speaking at a conference on ‘Skills for Employability in South Asia’, said that skills development and right technical education are the key drivers for economic growth as productive workforce helps improve competitiveness in global world. Srivastava is an associate professor of National University of Education Planning and Administration.

The Indian professor also briefed the participants about human resource development, skill development requirements and technical skills required by all the South Asian Association for Regional Cooperation (Saarc) members including Pakistan.

She added that surveys must be employed to investigate human resource requirements in different sectors and tailor the courses and training programmes accordingly to bridge the gap between demand and supply of human capital.

Saarc Vice President Iftikhar Ali Malik said that the roundtable will help to identify the sector specific skill gap all across South Asia. He said that it is the need of the hour to take up this matter on priority basis because in the region, despite being no shortage of labour supply, the big question mark on relevant skills remains an evident factor. “We need to address this problem thoroughly because there has not been any aggressive and comprehensive action plan exercised to improve this alarming situation”, he said.

Published in The Express Tribune, May 30th, 2012.

Railways unable to ship NATO containers: Bilour

Minist­er says compan­y needs bailou­t to get back on feet.  Railways Minister Bilour says, “How can we transport Nato containers at a time when the company is unable to run its normal operations smoothly.” DESIGN-ANAM HALEEM


LAHORE: Pakistan Railways is uninterested in seeking a share of Nato supplies through Pakistani territory, saying it will not be able to meet its commitment if some percentage of the cargo is offered to it because of the weak infrastructure and finances of the company.


Addressing a press briefing here on Tuesday, Railways Minister Ghulam Ahmad Bilour ruled out the possibility of accepting the logistics share from possible opening of Nato supply routes.


He was referring to suggestions from government officials that the railways should be allowed to ship some Nato goods to Afghanistan in order to create a new income source and stabilise the company’s condition. The railways ministry has been continuously asking for money for rehabilitating the company and putting it on sound footing.


Ruling out the suggestions categorically, Bilour asked, “How can we transport Nato containers at a time when the company is unable to run its normal operations smoothly.”


The minister lashed out at the finance ministry for not releasing the funds approved by the government for locomotive purchase, maintenance of rail tracks and other rehabilitation programmes.


“Since January 2010, we have been continuously asking for money. We are now in mid-2012, not a single penny has been given to the railways yet,” he said.


Bilour pointed out that new locomotives were not being purchased while the current fleet was expiring despite the overhaul of over 20 locomotives from the company’s resources.


However, the government has approved few projects for the railways including purchase of 150 new locomotives for which tenders will be opened on June 4, rehabilitation of 150 locomotives, purchase of 40 power vans and 500 wagons and construction of a 12km track along the Afghan border from Chaman to Spin Boldak.


Bilour termed these long-term projects as locomotives would start arriving in two years. “Had these projects been kicked off at the start of our tenure, things would have been much better. Now these projects will benefit the next minister,” he commented.


“We are anxiously waiting for a loan of Rs6.1 billion from bank, so we can rehabilitate 98 locomotives to meet our short-term plan,” he said.


“The payments and other issues we have faced with the management of Business Express (a train service run by a private company) have been sent to the Economic Coordination Committee (ECC) of the cabinet for review. ECC will take up the matter as we don’t want to be blamed for any misappropriation,” he said.


Published in The Express Tribune, May 30th, 2012.

Oil imports: Mistrust hounds plan to import fuel from India

Over-relian­ce on India for strate­gic produc­ts could imperi­l securi­ty. Over-reliance on India for strategic products could imperil security.

ISLAMABAD: Pakistan has refused to import jet fuel from India citing security reasons, The Express Tribune has learnt.

The mistrust between the neighbours still seems to prevail and Pakistan is reluctant to place its reliance on India for strategically important products. Instead, the Pakistani establishment maintains there is a need to engage Gulf countries in oil imports, sources say.

“Pakistan refused to import diesel from India in a two-day meeting which concluded on Tuesday as it has a long-term supply contract with Kuwait Petroleum Corporation (KPC),” said an official source privy to the matter.

“If Pakistan relies on India for high-speed diesel and jet fuel, there is a threat to the country’s security if supplies are withheld for any reason.”

The official added that India is keen on providing all the mentioned products to Pakistan and expressed its desire to lay an oil pipeline connecting the two countries.

On the other hand, a senior official from the ministry of petroleum said that Pakistan has not refused to import diesel from India. He maintained that Pakistan has expressed the desire to import furnace oil, diesel and petrol from its neighbour, adding “we have surplus jet fuel and thus we do not want to import that from India.” “We want India to export diesel through Karachi and furnace oil and petrol via the Wagah border to meet the requirements of Punjab.” He added that the commerce ministry has been directed to look into the required infrastructure in this regard.

According to the official, functionaries from both states will meet again in the first half of July in New Delhi to finalise the quantity as well as prices of the products.

Published in The Express Tribune, May 30th, 2012.

Cutting edge: Taking your business into the ‘clouds’

Pakist­an’s first cloud comput­ing servic­e launch­ed in Islama­bad.  The availability of such a service was exciting for the IT sector, according to Acting Information Technology Secretary Farooq Awan. PHOTO: MUHAMMAD JAVAID/EXPRESS

ISLAMABAD: 

Imagine having access to all your important data at any time, anywhere in the world, with no need to constantly back it up. Imagine a fully functional computer with less storage space needed than a flash drive. That is the concept behind cloud computing.


Much to the delight of the tech-savvy, Cybernet unveiled RapidCompute – Pakistan’s first cloud computing service – at a local hotel here on Tuesday.


Breaking down the etymology, the ‘cloud’ refers to the internet, while computing refers to the use of computers for any activity.


Cloud computing is the use of shared resources distributed through a network to achieve economies of scale. For corporate users, this leads to a great reduction in capital expenditure, operating costs, and reduced stress vis-a-vis having to wait for updates and backing up data.


At the unveiling ceremony, Cybernet Corporate Sales Vice President Imran Khan explained that cloud computing leads to an almost immediate reduction in initial and running costs; in installation and management times; while the increased scalability and flexibility makes it ideal for big businesses that want to focus more on their core product and less on server maintenance.


Clearly, cloud computing has a plethora of advantages over traditional hosting.


Khan said cloud computing eliminates the need for a company to maintain its own servers, leaving maintenance, updates, and the addition of server space up to the service provider. The service is essentially disaster-proof as the servers are spread out, slashing expenditure on backing up most information. Also, clouds help avoid obsolescence as the provider handles software and hardware updates, with hardware redundancy built-in.


Although “only a few clicks are needed to set up” a company’s network, clouds are highly fault tolerant, while physical hardware is not.


Cybernet CEO Shahid Ahmed Khan called RapidCompute an important step for Cybernet, and highlighted how the service performs well on PC or iOS systems. “Latency goes down by up to 90%, while databases, email, and other services are fully supported. Local developers and organisations can work on new applications in Pakistan, lending the country potential in becoming a fully-engaged electronic nation.”


Acting Information Technology Secretary Farooq Awan – chief guest of the event – said cloud computing services such as RapidCompute will assist local content development for the Pakistani market. He noted that the availability of such a service was exciting for the IT sector.


Speaking to The Express Tribune, Imran Khan highlighted how “many of us already access clouds on a daily basis without noticing any difference,” before listing Google, LinkedIn, Twitter and Facebook among just a few high volume tech-related companies that run on clouds.


He also noted that as a Microsoft Service Provider Licensing Partner, RapidCompute allows access to all licensed Microsoft software on monthly schemes; which is useful for smaller developers as they can buy relevant software for however long they need to use it, instead of paying the full price.


He said personalised services for consumers will be made available in a year or so, once they have settled into a corporate market where Karachi’s municipal body and a number of big businesses have already migrated.


Given intermittent power breakdowns in the country, it is pertinent to note that no data is lost in cloud computing in case of an electricity failure. Khan said the operating system will resume from where it was when it shut down, “down to the very last keystroke.”


On the investment climate in Pakistan vis-a-vis new technologies, Cybernet Director Danish Lakhani thanked investors for having confidence in the venture. “How can we stop in investing in our country at a time when it needs it the most? Pakistan is all we know. Pakistan is all we are,” he noted.


Published in The Express Tribune, May 30th, 2012.

Japan firm unveils radiation-gauging smartphone

TOKYO: Mobile phone operator Softbank on Tuesday unveiled a smartphone that can measure radiation as consumers in Japan clamour for reassurance following last year’s Fukushima nuclear disaster.

The latest model in the firm’s Pantone series comes complete with a sensor that enables users to see at the touch of a button how much radiation they are being exposed to.

The phone, which the company is putting on general sale from July, can also keep a record of exposure in every location the phone has been to, Softbank said in a statement, adding that it can detect gamma rays in a range of 0.05-9.99 microsieverts per hour.

Japan’s top operator NTT DoCoMo at a tech fair last year showcased a smartphone with a changeable “jacket” that measures radiation levels. DoCoMo at that time said they were undecided on the product’s commercial launch.

Many people in Japan remain concerned about radiation since the 9.0-magnitude quake and tsunami of March 2011 sparked the world’s worst nuclear crisis in a generation at the Fukushima atomic plant.

Worries over the health implications of the radioactive leak have sent demand for radiation-measuring devices soaring in Japan.

Copyright AFP (Agence France-Presse), 2012

Posco completes construction of first Indian plant

SEOUL: South Korea’s Posco, the world’s third largest steelmaker by output, said on Tuesday it has completed construction of its first steel mill in India.

The mill in the west-central state of Maharashtra, is capable of producing 450,000 tonnes of hot galvanized steel plate per year for cars and household goods in India and other countries.

Maharashtra has auto plants run by GM, Volkswagen, Tata Motors and Mahindra.

In the same state, Posco plans to open a 300,000-ton electric steel plate facility by October 2013 and a 1.8 million-ton cold-rolled mill in June 2014.

The company also hopes to start work in the second half of this year on its long-delayed plant in Orissa state on the east coast, a spokeswoman told AFP.

The $12 billion project, which would be India’s biggest foreign investment, has been the focus of protests by locals and rights groups since it was first mooted in 2005.

Locals say the plant would deprive them of their traditional forest-based livelihoods and cause lasting environmental damage.

Copyright AFP (Agence France-Presse), 2012

Indonesia Central Bank to keep supplying dollars to market

JAKARTA: Indonesia’s central bank will keep supplying US dollars to ensure sufficient liquidity in the market, deputy governor Hartadi A. Sarwono said on Tuesday after the bank moved to start issuing dollar term deposits.


Bank Indonesia will start offering dollar term deposits in two weeks to help stabilise the tumbling rupiah currency. It said on Monday there was no intention of implementing capital controls.


Huge Australian coal mine wins conditional approval

SYDNEY: A huge Aus$6.4 billion (US$6.3 billion) coal mine in Australia’s Galilee Basin owned by Indian infrastructure giant GVK and the world’s richest woman Gina Rinehart Tuesday won conditional approval.

The Alpha Coal Project in Queensland state is expected to generate 3,600 jobs during construction and nearly 1,000 once in operation, producing around 30 million metric tons of thermal coal each year.

Queensland Minister for State Development, Infrastructure and Planning Jeff Seeney said the mine was given the green light subject to 128 conditions following a four-year process.

“There’ll be an estimated Aus$11 billion boost to the economy during the mine’s three year construction phase. 80 percent of that will be retained in Queensland,” Seeney said in a statement to the local parliament.

“Once operational, Queensland’s economy should see an economic boost of Aus$1 billion per year from this mine alone.

“Australia can expect an Aus$80 billion dollar rise in exports over the life of the mine,” he added.

The federal government still needs to sign off on the mine that Rinehart’s Hancock Coal describes as the jewel in the crown of the untapped and resource-rich Galilee Basin.

Hancock anticipates construction between 2013 and 2016 with the mine having a 30-year life.

Indian companies are competing for global coal assets as they build power projects, steel and other plants to fuel the country’s fast-growing economy. India is heavily dependent on coal for power generation.

Copyright AFP (Agence France-Presse), 2012

Digital funds: E-banking transactions rise by 6.4%

Payment system infrastructure continued to grow as 203 more ATMs were added during the quarter. PHOTO: FILE

KARACHI: 

The volume and value of e-banking transactions in the country rose by 5.9% and 6.47% to reach 70.9 million and Rs6,871 billion respectively in the third quarter (January-March) of the current fiscal year compared to the preceding quarter, says the State Bank of Pakistan’s Payment Systems Quarterly Review for the third quarter released on Tuesday.

According to the review, the payment system infrastructure continued to grow as 203 more automated teller machines (ATMs) were added during the quarter, bringing the total number of ATMs to 5,612 whereas 269 bank branches were upgraded to real-time online branches.

Elaborating the year-on-year growth trend, the review said the volume and value of e-banking transactions grew by 19% and 18% respectively in January-March 2012 as compared to the same period of last fiscal year.

Published in The Express Tribune, May 30th, 2012.

China key money rate rises; central bank drains funds

SHANGHAI: China’s key money rates rose slightly on Tuesday after the Chinese central bank started to drain funds via open market operations.

China’s central bank will drain 50 billion yuan ($7.88 billion) from the money markets through 28-day bond repurchase agreements on Tuesday, traders said.

When set against 23 billion yuan worth of bills and repos set to mature Tuesday and Thursday, injecting liquidity, the central bank is set to drain a net 27 billion yuan from the market this week.

The People’s Bank of China intends to use open market operations to balance market funds and avoid excess liquidity, but the impact should be limited, traders said.

Dealers said some small banks and institutions still need money for the end of the month, which is boosting money rates. They expect the 7-day rate to move up and down within a 2.5 percent range in the next few days.

“The rise is caused by a month-end cash demand,” said a dealer at a state-owned bank in Beijing. “Although big banks do not lack money, some smaller banks, such as joint-stock banks and city commercial banks, still need to borrow.”

The benchmark weighted-average seven-day bond repurchase rate rose slightly by 8.52 basis points to 2.5814 percent from Monday’s close of 2.4962. It hit its lowest level in 13 months on May 24, at 2.23 percent.

The 14-day repo rate rose slightly to 2.6659 percent at midday, while the overnight rate was up 0.72 bps to 1.9125 percent.

Interest rates swaps (IRS) were little changed, with benchmark five-year IRS falling to 2.85 percent and one-year IRS inching up to 2.55 percent from Monday’s close 2.52 percent.

Tax authority freezes PTA bank accounts

Mobili­nk settle­s with FBR to pay only 30% of outsta­nding dues. DEAL REACHED: 8.6b rupees were the outstanding dues of Mobilink 2.5b rupees will be paid by Mobilink while rest of the dues will be waived.

ISLAMABAD: Tax authority on Tuesday seized all bank accounts of Pakistan Telecommunication Authority (PTA) for recovering an outstanding amount of Rs3.6 billion, in a bid to achieve the revised collection target.

In a similar move, the Federal Board of Revenue last Thursday froze bank accounts of the country’s largest telecom service provider Mobilink for recovery of Rs8.6 billion dues.

“The Large Taxpayers Unit Islamabad has attached all bank accounts of PTA which owes Rs3.6 billion to the exchequer on account of income tax,” FBR said in a brief statement. FBR had earlier sent a notice to the telecom regulator to deposit the outstanding liabilities by May 28, 2012 but it failed to do so.

The PTA does not owe any dues to FBR, said PTA’s spokesman Mohammad Younus adding that “we have obtained a stay order against FBR’s decision of attaching PTA’s accounts”.

Various teams have been formed by Chief Commissioner, LTU, Islamabad to recover the amount from PTA through attachment of bank accounts and its receivables from mobile operators, wireless local loop (WLL) operators, long distance and international (LDI) operators, land line (LL) operators and IT ministry, said the FBR.

The FBR is struggling to achieve this year’s tax target of Rs1.952 trillion, which has unofficially been downward revised to Rs1.928 trillion. According to unconfirmed reports, FBR has started blocking refunds after witnessing significant shortfall in collection. However, FBR Chairman Mumtaz Haider Rizvi claims that he would prefer missing the target rather than blocking taxpayers’ refunds.

Last year, the FBR had fudged tax collection figures to achieve the collection target, which was lowered three times. I had taken Rs42 billion advances from state-owned enterprises and banks and showed them as tax collection.

The FBR’s actions indicate that the authorities were far behind the collection target, according to experts. It has already announced amnesty schemes for sales tax defaulters, for those who obtained illegal sales tax refunds in connivance of the FBR officials and for motorcycle dealers, steel millers and steel re-rolling mills.

Mobilink let off easy

In a surprising move, the FBR on Tuesday waived off Rs6.1 billion tax liabilities of Mobilink and also released its bank accounts.

According to the FBR, an understanding has been reached with the company and “Rs2.5 billion will be paid by Mobilink by May 30, 2012”. It added that rest of the amount has been waived off as the company availed tax surcharge and penalty waiver scheme of the FBR.

Earlier this week, the LTU Islamabad had attached bank accounts of the Mobilink and blocked its imports to recover suppliers of the company, which included other telecom companies as well.

However, it is not yet clear whether the FBR has the authority to waive off the penalties and surcharges in cases where the recoveries have been upheld by the Income Tax Tribunal. Earlier, the FBR said that Mobilink understated Rs8.6 billion in sales tax and federal excise duty returns.

Published in The Express Tribune, May 30th, 2012.

VIP treatment: OGDC lets SSGC cut the line to receive gas supply

State-owned gas provid­er will procur­e LPG on a priori­ty basis, while other compan­ies wait five days for their turn. LHC’s ruling forbids state-owned gas utility companies from getting exclusive rights for LPG supply from state-owned oil and gas explorers like OGDC. ILLUSTRATION: SAMAD SIDDIQUI

ISLAMABAD: 

The Oil and Gas Development Company Limited (OGDC) is reportedly letting Sui Southern Gas Company cut the line and receive LPG from one of its fields while other companies wait for their turn.

The country’s largest oil and gas explorer decided to supply LPG extracted from Kunnar Pasaki Deep field to all LPG marketing companies on a turn-by-turn basis, but this has changed and now SSGC-LPG is getting priority that may spark a controversy,” an industry source said.

“Rest of the companies have to wait for at least five days before receiving a second supply while SSGC is lifting supplies back to back, industry sources said adding that this preferential treatment has upset other companies.

SSGC entered the LPG business last year after purchasing Progas’ import terminal for a staggering Rs2.2 billion. The gas provider for the southern part of the country has been lobbying for exclusive rights to 120 tons per day of LPG from OGDC’s field Kunnar Pasaki that started operations earlier this year. The move contradicts Lahore High Court’s ruling that forbids state-owned gas utility companies from getting exclusive LPG rights from state-owned oil and gas explorers like OGDC.

OGDC official while talking to The Express Tribune ruled out any preferential treatment was being given to SSGC-LPG. He said the management decided to supply LPG to all companies from Kunnar Pasaki till the allocation of gas through bidding process is done.

Utility also eyes another
gas field

“In addition to this, SSGC has also demanded supply of 25 tons LPG from OGDC’s Adhi field that is already allocated to some LPG marketing companies,” reveals a letter written by SSGC-LPG, a copy of which is available with The Express Tribune.

Officials have confirmed that LPG extracted from Adhi is already committed to five LPG companies that have paid a hefty signature bonus and have entered into profit sharing arrangements with the producer. “Inducting a sixth company would violate OGDC’s existing commitments and may lead to litigation,” industry sources said.

A senior official of SSGC told The Express Tribune that the gas utility placed the request before OGDC to meet requirement for its LPG air mix plants. “We have four LPG air mix plants and are working to install another 100 MMCFD LPG Air Mix plant that would require 2,000 tons LPG,” official said.

“We have also requested LPG supply from Adhi field but this will probably be declined due to allocation of supply to some other companies already,” he added.

“We want the government to give priority to public sector companies and provide relief to consumers but the plan has not worked due to the stay order in court,” he said.

Published in The Express Tribune, May 30th, 2012.

Protectionism: Govt to impose 10% duty on tractor imports

Introd­uction of tariff will boost indust­ry, can enhanc­e sales of locall­y manufa­ctured tracto­rs, scale down its prices. Introduction of tariff will boost industry, can enhance sales of locally manufactured tractors, scale down its prices.

ISLAMABAD: 

The government is willing to impose 10% duty on tractor imports in order to protect Pakistan’s nascent tractor industry in upcoming budget 2012-13, say sources.

The introduction of tariff will boost local industry and can enhance the sales of locally manufactured tractors and scale down its prices. The core of government’s argument is that Pakistan’s infant industries do not have economies of scale that international competitors have, and thus need to be protected.

Currently, tractors can be imported duty free and federal treasury has been giving subsidy of Rs20,000  per tractor. The government has reduced general sales tax (GST) from 16% to 5% making it cheaper by Rs60,000 to Rs100,000 per unit. During the first nine months of fiscal year 2011-12 local tractor production declined to 27,131 units.

Published in The Express Tribune, May 30th, 2012.

Money transfer: Contribution of international students to economies

Malays­ia is the latest destin­ation attrac­ting many foreig­n studen­ts. One of the biggest benefits of having international students is the cost-effective export of local culture to the countries from where international students originate. ILLUSTRATION: JAMAL KHURSHID

LONDON: 

Overseas students, also known as international students, contribute immensely to many western economies, which have an open access policy to their higher education. It is estimated that overseas students bring about £5 billion annually to the UK in terms of tuition fees and living expenses.

International students are not only a source of revenue for such economies, but they also bring diverse skills and an international dimension to the labour force. This international dimension has proven to enhance productivity. Students from developing countries, working as part-time unskilled and semi-skilled workers, have proven to be more flexible in terms of working hours. As a result, many employers prefer to employ such students, especially as they also prove to be less costly.

Since the 1960s, many students from developing countries such as Pakistan and Bangladesh have been going to western universities for higher studies. Their decision to opt for foreign universities for postgraduate taught courses has been influenced by a desire to find a suitable job in the country of choice.

With the increasing interest in attaining a foreign qualification, a number of private colleges cropped up in countries like UK. Many international students were attracted by the flexibility such colleges offered in terms of granting permission for work on a part-time basis. The colleges benefited from the payment of tuition fees. Consequently, many ‘bogus’ colleges were set up in UK to help such students prolong their stay – legally, they could work while at the same time enrolled as full-time students.

The current Conservative Party government has pursued a very aggressive policy of cracking down on such colleges, which has resulted in the closure of many of them. Those colleges that are still in the business are expected to raise their standards, resulting in an increase in operational costs. Tuition fees have, therefore, risen. Consequently, it has increasingly become difficult for the foreign students to prolong their legitimate stay in UK. It has become “uneconomical” for many such students, increasing fees (as well as a clampdown on visa applications) are forcing them to return to their countries of origin.

Developed nations are not the sole destination for foreign students. From among countries of the Organisation of Islamic Conference (OIC), Malaysia is attracting a lot of foreign students from Africa and Asia. One finds students from Iran, Nigeria, Mauritania, Bangladesh, Pakistan, Saudi Arabia and others enrolled in various universities in Malaysia. In Pakistan, there were a large number of foreign students in universities and medical colleges throughout the country. Unfortunately, following 9/11, the problem of terrorism has had a negative effect on the number of foreign students coming to Pakistan.

Nevertheless, one of the biggest benefits of having international students is the cost-effective export of local culture to the countries from where international students originate. For example, many former foreign students of International Islamic University Islamabad from around the world learned Urdu language during their stay in the country. Having lived in Pakistan for three to seven years, these students attained fluency in the local language and adopted many of the cultural practices before returning to their countries of origin.

In this age of cultural suspicion and anxiety, inviting foreign students to Pakistan for studies can be used as an effective means of exporting local culture. It provides a channel through which the overall benignity of Pakistani culture can be espoused. The war on terror should not deter the country, by way of heavily scrutinising foreign student applications, to use education to counter other more aggressive forms of cultural invasion perpetrated by the media of many countries.

The writer is an economist and PhD from Cambridge University.

Published in The Express Tribune, May 28th, 2012.

Fiscal year 2012-13: MQM presents Rs3.61 trillion shadow budget

PM Gilani to thrash out budget propos­als with coalit­ion partne­rs today. PM Gilani to thrash out budget proposals with coalition partners today. DESIGN: SIDRAH MOIZ KHAN

ISLAMABAD: 

The Muttahida Qaumi Movement (MQM) presented a shadow budget of Rs3.61 trillion on Sunday, a day ahead of consultations with Prime Minister Yousaf Raza Gilani and prominent members of parties in the Pakistan Peoples Party (PPP)-led ruling coalition.

According to sources, the Muttahida Qaumi Movement (MQM) and the Awami National Party (ANP) delegations, led by Deputy Convener of the Coordination Committee of MQM Dr Farooq Sattar and ANP Senator Haji Mohammad Adeel, respectively, would call on the premier on Monday in a bid to discuss and hammer out budgetary proposals for the 2012-2013 financial year.

Besides the upcoming budget, the law and order situation in Karachi, the premier’s contempt sentence and other pressing issues are likely to be discussed in the meeting between coalition partners.

Meanwhile, Finance Minister Dr Abdul Hafeez Shaikh called on Prime Minister Gilani at the PM’s House on Sunday to brief him regarding the meeting with allies and to review decisions of the National Economic Council (NEC).

The prime minister expressed satisfaction that the coming year’s federal development budget would increase from Rs300 billion to Rs360 billion, adding that the additional funds would be used for a regionally balanced development and the completion of projects in energy, infrastructure and food security.

For the upcoming budget, it was decided that it should focus on ensuring macroeconomic stability, growth, utilisation of resources, protection of vulnerable groups, incentives for private sector development and relief to the public while ensuring fiscal balance.

The minister informed the premier that Gross Domestic Product (GDP) in the current fiscal year was 3.7%, continuing an upward trend of the last three years. Similarly, the rate of inflation will be declining for the third consecutive year, the minister added. Shaikh also informed the PM that tax collection in the first ten months had increased by about 24%.

According to sources, representation from the Pakistan Muslim League-Quaid and Federally Administered Tribal Areas in the meeting has not been confirmed but invites have been sent out to them.

Shadow budget

Meanwhile, the MQM is likely to share its shadow federal budget with the prime minister today.

“The MQM being a political party of Pakistan and especially being a coalition partner of the government has set a precedent in the economic parliamentary history of the country by presenting a shadow budget,” MQM’s Dr Farooq Sattar told The Express Tribune on Sunday.

Sattar went on to add that the proposed shadow budget would not focus on exposing the deficiencies and mismanagements of the government but would provide an opportunity to the masses to countercheck the statistics and figures in the upcoming budget to be presented in a week’s time.

MQM’s shadow budget

Income from all sources above the taxable limit be taxed

Reduction in sales tax rate from 16 % to 12 %

Reduction of maximum duty rate on imports to 10-15% with a minimum of 5%, exception only with the approval from parliament

No duty or sales tax on machinery and raw materials essential for industries

Abolition of petroleum levy

Reduction in the basic discount rate from 12 % to 10 %

Reduction of federal government expenditure due to devolution and austerity measures

Improving governance of public sector enterprises (PSE), prevent their hemorrhaging and assign a role to the private sector in public-private partnership models

Reducing misuse of Afghan Transit Trade, under-invoicing and curbing smuggling in Pakistan

Assigning a greater role to overseas Pakistanis

Availability of basic food items to the poor at subsidised rates

Improving equity in the taxation system by increasing the direct and indirect taxes ratio (45:55 from 35:65)

Published in The Express Tribune, May 28th, 2012.

India rupee woes highlight economic drift

A fallin­g rupee stokes India’s inflat­ion and it deters capita­l inflow­s. India’s rupee slumped to as low as 56.38 to the dollar last week. PHOTO: AFP

MUMBAI: India’s rupee, which hit an unprecedented string of all-time lows last week, is set for more falls unless policymakers move quickly to put Asia’s third-largest economy back on track, analysts say.

The rupee, which slumped to as low as 56.38 to the dollar last week, has lost around a quarter of its value in the past 12 months and is currently Asia’s worst-performing currency.

“The Indian rupee’s weakness is a symptom and not the underlying problem”, which is “policy incoherence, shifting global risk appetite and a comatose government”, said Rajeev Malik, senior economist at independent brokerage CLSA.

Ratings agency Standard and Poor’s has cut India’s credit outlook to negative, growth is slowing and the current account deficit — the widest measure of a country’s trade with the rest of the world — is at a three-decade high.

Prime Minister Manmohan Singh has admitted his squabbling Congress-led coalition must do more to get the once red-hot economy moving again.

“I will be the first to say we need to do better,” the 79-year-old said as he presented his coalition’s annual report card at a function last week.

Singh is credited with opening India’s economy when he was the finance minister in 1991 but his premiership has been tainted by a series of policy U-turns and corruption scandals.

His once ambitious reform agenda has stalled amid coalition infighting, and the economic climate has been further strained by the announcement of new tax policies seen as hostile to foreign investment.

“India’s weak national government remains the single biggest drag on activity,” said Glenn Levine, senior economist at Moody’s Analytics.

Now the rupee’s free-fall appears to be bringing economic worries to a head.

Out of 58 economists and corporate chief executives polled, 53 said the economic situation had suddenly worsened, according to the Associated Chambers of Commerce and Industry of India (Assocham).

“The worst disaster is coming from a huge uncertainty on the rupee value and its freefall. Everybody out there in the business world is feeling shaky,” said Assocham when it announced the survey at the weekend.

Many analysts are eyeing 60 rupees to the dollar as the next big mark for the currency as lacklustre US data and a worsening European debt crisis prompt risk-averse investors to dump emerging-market assets.

A falling rupee stokes India’s inflation — already running at over seven percent — by making imports costlier and makes it harder for firms to service dollar-denominated debt.

It also deters capital inflows, making it much tougher to close the gaping current account deficit, which is already running at 4.3 percent of gross domestic product.

Analysts say India could take steps to temper dollar demand and support the rupee — such as having the central bank sell dollars directly to Indian oil firms, which would lower demand for greenbacks in the foreign exchange market.

Fuel-scarce India purchases 80 percent of its crude from abroad, using dollars.

India could also issue bonds to non-resident Indians at attractive rates.

But the central bank “at best, can only contain the pace of depreciation somewhat, while not being able to reverse it”, said Deepali Bhargava, chief India economist at Espirito Santo Securities.

Analysts said the rest was up to the government — which needs to press ahead with long-delayed economic reforms such as further opening up the retail and aviation sectors to foreign investment.

“The government will have to restore confidence in governance… and address investor nervousness on tax issues,” said private bank IndusInd’s head of trading Rajeev Mahrotri.

In the meantime, global banks have been taking a knife to their growth estimates following a string of weak economic indicators.

The government has forecast growth of 7.6 percent for this fiscal year to March 2013. But private forecasters are pencilling in numbers from six to seven percent — enviable by Western standards but not enough to reduce India’s crushing poverty, experts say.

Investment house Morgan Stanley said it expects growth for the fiscal year just ended to be 6.5 percent — lower than the government’s estimate of 6.9 percent, and below even the 6.7 percent achieved in 2008-09, the year of the global economic meltdown.

Externalities: Shale gas and the risks we are taking

Enviro­nmenta­l hazard­s must be taken into accoun­t before explor­ation. Output from the top five natural gas fields – contributing nearly half of country’s total production – falls on a yearly basis. DESIGN: MUHAMMAD SUHAIB

LAHORE: 

Present demand for natural gas in Pakistan stood at 8 billion cubic feet (bcf) per day during winters whereas production from conventional sources totalled 4.2 bcf. It is no secret that gas supply has been unable to meet demand for many years now. New fields brought online over the last three years have been barely able to maintain the current levels of production.

The reason for this flattening output is the reduced production from main natural gas fields.

This has forced policy-makers to look for alternative sources of domestic natural gas, ie, tight gas, shale gas and coal gasification (converting coal to gas). In the case of shale gas, the question is whether it can help resolve the energy crisis and what it means for the environment.

Geological studies show that gas could be found in deeper, denser “unconventional” shale formations (called plays). Natural gas is stored in shale in three forms – free gas in rock pores, free gas in natural fractures and absorbed gas on organic matter and mineral surfaces.

In the early 2000s, a combination of two existing techniques led to a breakthrough, allowing US companies to produce shale gas. One is horizontal drilling. Drillers penetrate the shale laterally and vertically. This exposes greater surface area of the rocks for extraction and enables multiple wells to be created from each drill pad.

The other is hydraulic fracturing (or fraking), a process involving water, sand and a chemical mixture pushed down a well at thousands of pounds of pressure (as much as 13,500 pounds of pressure per square inch) which causes cracks in the shale and releases the hydrocarbons.

Preliminary studies have shown that at least 33 trillion cubic feet, out of total 204 trillion cubic feet, of unconventional gas reserves trapped in rocks are recoverable from available technology. The Balochistan Basin, the Suleiman Foredeep Basin and the Lower Indus Basin offer significant potential.

In 2011, the Ministry of Petroleum and Natural Resources issued a fresh policy for exploration of unconventional natural gas. Exploration companies are being offered considerable financial incentive to explore and produce natural gas. Leases are being offered for 40 years.

It is for this reason that many international companies have shown interest in the project. Two such companies are Polish gas monopoly PGNiG and ENI of Italy.

However, the production of shale gas is not without its hazards. In addition to being technologically demanding and expensive to produce, the process can be very dangerous for the environment. The liquid used in fraking contains chemicals that are harmful to humans and the habitat.

Ingredients include water and sand (98-99.5%). The remaining chemicals can be hydrochloric acid (initiates cracks), methanol (inhibits corrosion), glutaraldehyde (kills bacteria) and ethylene glycol (winterizes product). In terms of weight, even 0.5% can amount to many tons of toxic material per drill pad.

The biggest risk from these chemicals is in the form of water contamination. These shale gas plays are supposed to be many layers of impenetrable rocks under the water table but when the fraking fluid goes down the well it can leak. The well walls are normally made of two layers of steel casing and two layers of heavy-duty cement. However, the risk exists.

The second possible source of contamination is the large amount of produced (waste) water that comes back out of the well. This chemical-laced water requires treatment before disposal or reuse. In the US, the waste water is emptied into a pit where a lot of it can seep right back down into the ground.

Evaporation techniques are used to reduce the quantity of waste water to be transported from site. This is also extremely dangerous and reports have shown that it can cause health risks to humans and animals alike.

Owing to these and other considerable environmental hazards, the production of shale gas should not be allowed to take place near populated areas or where our sources of water are present. It is clear that the exploration of natural gas is necessary if our economy is to survive, let alone grow.

The upshot is that the days of cheap energy are limited. We must get ready to pay more for our energy. Extraction and processing from unconventional sources will be more expensive and there are considerable environmental hazards that have to be taken into account in granting any concession. In the absence of tight regulations and close monitoring, the pollution of ground water could spell disaster for us and our agriculture.

The writer is a high court lawyer.

Published in The Express Tribune, May 28th, 2012.

Boosting country’s capital markets

Inhere­nt value of bourse­s, not cosmet­ic measur­es, fuels the rally. The average daily volume of the Karachi Stock Exchange (KSE) during FY11 was 94.83 million shares. When the FY12 budget did not improve the CGT regime, the KSE-100 index came down by 4.97% between July 2011 and January 2012 and the average daily volume fell to 61.8 million shares.

DUBAI: In the last one month, two major developments have taken place, which are likely to give impetus to Pakistan’s capital markets. Firstly, the Capital Gains Tax on Securities Trading Ordinance was promulgated in the last week of April, which has fuelled the rally on the stock market and on May 7, the Demutualisation of Stock Exchanges Act was signed which paves the way for the stock exchanges in the country to be integrated and corporatised.

Like anything that happens in the country, these have been decried by opposition politicians and people associated with the media as ways to ‘whiten black money’ and boost incomes of a few people.

The capital gains ordinance was the need of the time to correct a thoughtless measure ever since the budget for the financial year 2010-11, when capital gains tax (CGT) on securities trading was introduced. When the CGT was imposed, it was not the issue of paying a tax but the cumbersome computation and reporting method which was the issue.

Instead of increasing direct taxes, as envisaged, there was a reduction in indirect taxes. To illustrate, the average daily volume of the Karachi Stock Exchange (KSE) during FY11 was 94.83 million shares. When the FY12 budget did not improve the CGT regime, the KSE-100 index came down by 4.97% between July 2011 and January 2012 and the average daily volume fell to 61.8 million shares.

One can imagine the sentiment in the capital markets. From February 2012 onwards, the market started rallying on the back of excellent corporate results, which in 2011 were 29% better than the year before. Volumes have soared to an average of 278.4 million shares per day while the index has gone up by 23.09% (between February 1 and May 7).

Do we really feel that stocks are rallying simply because no questions will be asked about the source of investment but because there is inherent value there?

Can we also not refer to the fact that in November 2011, Pakistan maintained its B- rating with S&P along with a stable outlook, while a number of sovereigns were either downgraded or their outlooks changed from stable to negative?

One has to keep this guiding principle in mind while investing – money follows value.

Demutualisation

The demutualisation of stock exchanges has been long awaited. Right now the stock exchanges are owned by members who are also holding trading rights. This is a major conflict of interest which will be corrected once the demutualisation process begins.

Pakistan has three stock exchanges – Karachi, Lahore and Islamabad – which will be integrated to create one exchange. Similarly, the capital of members in their respective exchanges will be freed once the joint entity’s shares will be sold to investors through an IPO. With demutualisation one can expect that the conflict of interest of the members will be reduced and the general public will get an opportunity to become a shareholder in the bourses. For the corporations who have multiple listings, their costs and duplication of efforts in reporting to the exchanges will come down as well.

A UAE based investment banker who can be contacted at Ali.Wahab@tribune.com.pk

Published in The Express Tribune, May 28th, 2012.

Consumerism – the price we pay

We are in the race to overta­ke West in bad exampl­es. Consumerism has affected people’s peace of mind, health, capacity to save and build future income.

KARACHI: Migration has taken place from third world countries for better business prospects and better financial benefits, as most people want optimum earnings to survive and prosper.

Consumerism is at the heart of the matter. We crave for more and more in life, we do not care about the damage cost or the opportunity loss we might have to sustain. We have not learnt from the West but, actually, are in the race to overtake them in whatever bad they might have attained over the decades.

For example, the percentage of obesity in our country is rising as children under the age of seven are already having fast food almost twice a day, just like in the US which is the world’s most obese nation by percentage, in terms of unhealthy food consumption.

Though Pakistan has seen corporate profits grow in double digits this year, up to 28%, we have somehow ignored the effects they have on the average population of healthy children who used to eat three meals a day at home – the wallet cost of earning that much more money, in view of the inflation at home.

In the early 80s and late 90s, it was almost like a religious festivity to be able to visit the US – a country that was dynamic, inspiring and full of opportunities.

Lately, things have radically changed for the nation, which shows some interesting facts that highlight the real price one has to pay in trying constantly to achieve global hegemony and global financial supremacy, making it the most unpopular country today.

We should all lead by example but, more importantly, learn from bad examples. The USA has the highest trade deficit in the world, highest credit card fraud ratio, highest mortgage debt, highest student loan debt, highest number of car thefts, highest rate of illegal drug use, highest rate of fraudulent investment in election campaigns, highest amount of taxation fraud, highest income divide between the super rich and poor, highest non-development expenditures and highest legal cost of doing business. Unbelievable but true.

Though it has one of the most comprehensive healthcare systems, it also has the highest obesity rate in the world, highest number of suicides, highest anti-depressant usage by women and highest ratio of diagnosed mental disorders.

There is constant dependency on negativity in such countries at the cost of achieving financial power to spend and to buy. What has happened is the complete opposite as the greatest nation is no more the future’s greatest nation to go to and work for a living, earning income and having a prosperous life.

An unhealthy mind is the devil’s workshop – truly said. Less fortunate countries are more luckier in some ways, as they can learn from the cost others have had to pay to attain the supreme-country status. A country must not aim for global dominance but should concentrate on being adaptive and having a sound financial health.

Consumerism has affected people’s peace of mind, health, capacity to save and build future income, capacity to spend at will, capacity to pay lawful tax, capacity to get quality education and capacity to have a work-life balance.

We see individuals become more materialistic today, marriages become less meaningful, divorce rates much higher, moral corruption on the rise, youth gang wars, teenage pregnancies, corruption and kickbacks, lack of respect for human life, doctors not caring about patients, students not caring about good grades, children not caring about their parents and parents leaving their children for money, status and glamour.

It is the price of consumerism that we pay every day, without realising what we have lost. No one ever seems to look back and reflect anymore.

The writer is a banker and broadcaster for FM91.

Published in The Express Tribune, May 28th, 2012.

Why do visions not get delivered

‘Vision withou­t action is a daydre­am. Action withou­t vision is a nightm­are’. It is important to identify a few select strategies from which all resource planning and financial allocation must flow.

KARACHI: Any successful and determined individual, corporation or country must have an inspiring vision for their future coupled with clear goals which act as milestones to help track progress. 

However, there are many cases where a daunting vision was created, people worked very hard to deliver them, but failed. Pakistan is a classic case in point as we have many visions prepared by knowledgeable, qualified professionals such as the Planning Commission Vision 2030, Cotton Vision 2015, Finance Ministry and Federal Bureau of Revenue vision on economic growth of Pakistan, but none of them have delivered or currently are on track to deliver.

Here comes the million dollar question which every disillusioned individual asks: “How can one make sure one’s vision gets delivered?” Dreaming up a vision is the first step towards achieving any everlasting positive change which I call “Direction Setting”, but the overall journey is very long and requires many more steps. One essential factor in setting up a vision is the person or the department which is envisioning.  If the direction setting is being done by a lower cadre employee or department for an organisation or country, then it is extremely important that they get the real decision makers to agree to their vision. Being part of a corporation or a country, it is important that the board, the leadership team or the executive branch buys into the vision wholeheartedly. Else a lifetime can be spent pursuing it but nothing will be achieved.

The other most critical factor is the presence of the right culture and ethos in the entity which I call “Organisational Excellence”.  If an entity, whether an individual, corporation or country, has presence of strong inspirational leadership at every level of its hierarchy, presence of trust and values in the very fibre of its culture and strong systems and processes leading to transparency, merit and strong “can do” attitude, then that entity is programmed to succeed. Without “Organisational Excellence”, a vision is powerless and is not worth the paper it is written on.

Let me explain this by an example. For any painting to be called a “masterpiece” or “work of art”, two elements need to be present. The basic outline or sketch of the painting, this I call the “Direction Setting” process. The colour and shades in the painting is what I refer to as “Organisational Excellence”. Without either, the painting will not look or feel its best and will definitely not win against competition or get to be known as a ‘masterpiece’.  In the same way presence of both are critical while delivering any vision.

Once a vision is accepted by all, then it is important to identify a few select strategies from which all resource planning and financial allocation must flow. Having the right resources and funding to deliver a vision is critical. Unfortunately in many cases vision is present but the actions taken by the organisation are not in sync and hence the efforts and financial resources of the company or institution are diluted, leading to poor or no results.

Creating a vision is not a very complex and tedious process but creating and nurturing the right culture is extremely tough. The right culture cannot be created overnight and has to be nurtured, protected and developed over the years. One needs to be consistent and disciplined in one’s approach so that over time one can drive this into the character of each and every individual that works for that institution.

The writer works in the corporate sector and is active on various business forums and trade bodies.

Published in The Express Tribune, May 28th, 2012.

Three-pronged strategy needed to resolve power crisis

Resolu­tion of circul­ar debt, theft and line losses are key issues. The estimated production loss to the economy due to power shortages is about 2% of GDP and could very easily be more. PHOTO: FILE

KARACHI: 

It is an understatement that Pakistan needs to develop an effective plan to overcome the power crisis. Power shortages in the form of outages or breakdowns have adversely affected economic and commercial activities. The estimated production loss to the economy is about 2% of GDP and could very easily be more.

Any strategy to tackle this crisis has to have three basic points.

Cost of power

There is the need to drastically bring down the cost of producing power in the country. Generation is heavily dependent on furnace oil imports which are subject to international market prices and cost the country precious foreign exchange. On top of this theft and non-payment is a rampant problem which only serves to increase the net cost of power production.

Enhancing capacity

There is not near enough capacity, particularly base-load generation, to meet demand which is growing annually at seven to eight per cent. The system is highly inefficient and because of this, for every kilowatt hour (kWh) of power needed, 1.3kWh of power needs to be produced.

Lack of financing

Revenues are insufficient to meet expenditures, which has led to a cycle of indebtedness and acute shortages of liquidity within and beyond the power sector. The government may have the right intentions but despite efforts and energy plans made to address these problems, not much has been achieved.

There is an urgent need to resolve the long-standing circular debt but it has to be done in a sustainable manner. The current remedy of financing it through loans and then paying off heavy interest could backfire if in a few years we find that the circular debt is still there, with the added burden of loan repayments. And that could very well be the case until the government makes a much stronger effort to reduce power subsidies which stand at about Rs500 billion for the current year.

A few difficult steps have been taken. By difficult I mean politically unpopular decisions because that is often the main reason why the right financial decision does not get taken here. Power tariffs have been increased by about 75% over the past two years but this still has had minimal impact on the liquidity situation in the power sector.

This has severely hindered the pace of progress of generation projects which are in the pipeline, and have been so for many years now. This is perhaps the time where the government revamps its strategy and moves forward only with projects that meet three key criteria. Firs, the projects have to be genuinely of least economic cost. Second, they projects need to be capable of meeting the critical need of base-load and summer time peaking.

And last but not least, the projects need to help bring generation costs down. It would not hurt if these projects also reduced dependence on market-priced imported fuels.

In the next part of this series on the power crisis I will talk about the need to shift generation from expensive furnace oil to cheaper modes like hydro and gas generation.

Published in The Express Tribune, May 28th, 2012.

Money matters and marriage!

More than 73% of couple­s argue over issues relate­d to money. Discuss money keeping in mind that you and your spouse have different spending habits, varying saving values and dissimilar requirements.

KARACHI: Financial independence is the most liberating feeling in the world and getting out of the habit of handling your own cash is as tough as an addiction to get out of.

I realised this when last year I got married and headed to the ATM during the first post-marriage shopping spree and stopped short after seeing the balance appearing on the screen. These balances normally did not thwart me from continuing what I had to do because I knew the account would be replenished at the next salary cycle….But I was not working anymore!

In a culture like ours, most married women depend on their husband for all money-related provisions ranging from buying groceries to clothes, even weekly salon trips, though how they spend it depends on the level of financial free hand they have.

More than 73% of the couples argue over money matters. Wives hate having to ask for money, explain where they spent the money and why they need more.

Similarly, most husbands do not share the details of their account status, positive or negative, leading to simple statements like “Why do you need more?” and “What did you do with the last?” This becomes a ticking time bomb that triggers the volatility of emotions pertaining to money between married couples.

Women expect their husbands to provide for everything their heart desires. The man expects to raise their living standards as they move forward. They both expect to have a comfortable life spanning out ahead of them. This is the point where it is imperative for a couple to talk.

Discuss money matters keeping in mind that both you and your spouse have different spending habits, varying saving values and dissimilar requirements. It is undoubtedly difficult to voice your feelings about money but short- and long-term financial goals, investment strategies, spending and most of all expectations should be decided upon together, as team Mr & Mrs.

Strike a balance between spending & saving

Remember, “too much of something is bad enough. Too much of nothing is just as tough.” You don’t want to scrimp so much that your best years are left as those of scrooge, stacking gold coins but alone. But neither do you want to be so spontaneous that you won’t know how you would eat after retiring.

Respect each other’s values

Your wife may want to gift her best friend something memorable on her first baby or get the couch re-upholstered with a fresher fabric. Do not swat the idea away instantly and understand how much she loves decorating the home or her best friend.

Similarly, don’t make a face if your 30-something hubby one day comes home with a nitro remote-controlled car but go ahead and enjoy it with him.

Keep individual accounts but do open a joint one

Decide what the joint account is going to be for – household payments that the lady of the house manages, the money you put in for her to spend on herself or for both of you to save up for next year’s vacations?

A joint account will not only be a secure way of transferring and keeping money but will also at a glance provide records of money given or raised.

Open a savings or investment account instead of a current one and earn profits on the money sitting idle too.

Think of the house as a business

You manage it, call the shots and invest in it, so is it not like a business?

Plan together on how to cut costs by reducing wastages and aim to do more within a limited budget; like a weekend where both of you work on a DIY project together.

Motivate yourself and your spouse by putting the saved money separately in an investment account and once substantial, withdraw to celebrate a weekend trip out of country or by buying that 3D TV you have your heart set on.

The writer is a PR and investment expert at UBL Fund Managers.

Published in The Express Tribune, May 28th, 2012.

Slovakia raises bank tax in bid to slash deficit

BRATISLAVA: Slovakia’s new Prime Minister Robert Fico said Monday his government will raise an existing bank tax and introduce a new one in a bid to cut the public deficit.

“The government will introduce a special bank levy only for this year aimed at raising 50 million euros ($63 million),” Fico told journalists in Bratislava.

Additionally, an existing 0.4-percent bank tax, which now applies only to corporate deposits, will be expanded to apply to deposits held by private individuals, in a bid to raise 125 million euros by 2013, he added.

“I believe it’s right, moral and ethical for the banks to participate in raising the state revenues,” Fico said, adding that Slovak banks reported record profits in recent years.

He also warned banks against raising their fees as a way to cope with higher taxes.

The bank levy is part of the government’s austerity package which includes higher taxes for the rich and corporations and changes to the pension system.

These measures pave the way for Fico’s left-leaning government, in power since April, to raise revenues for Slovakia, which has vowed to cut its public deficit from an expected 4.6 percent of GDP this year to the EU ceiling of three percent in 2013.

Slovakia joined the European Union in 2004 and adopted the euro in 2009, during Fico’s first stint as prime minister from 2006 to 2010.

His Smer social democratic party currently commands 83 seats — a clear majority in parliament.

The country is tipped by the European Commission to be the fastest-growing economy in the debt-laden 17-member eurozone this year, with growth forecast to reach 1.8 percent.

Copyright AFP (Agence France-Presse), 2012

Goldman readies lower-risk return to Japan property

TOKYO: Goldman Sachs is returning to the Japanese property market after a four-year hiatus, looking to raise as much as 400 billion yen ($5 billion) over four years for a privately held real estate trust, a source said.

While the US investment bank snapped up distressed properties from struggling golf courses to hot spring resorts when it was last active in Japan, the latest push will focus on lower risk, less flashy Tokyo office buildings, sources said.

The move comes at a time when Japan’s property market has started showing signs of improvement, and is aimed at taking advantage of low-financing costs in yen and the prospect that office rents and vacancy rents are near bottom.

Goldman Sachs Asset Management plans to set up the real estate trust in July, seeking money from Japan’s pension funds and other institutional investors, a person with direct knowledge of the situation said.

The trust will initially raise around 100 billion yen, with plans to seek more money from foreign investors who are keen to take a position in Japan’s property markets, said the person, asking not to be identified because the plan is not public.

A Tokyo-based spokeswoman for Goldman Sachs declined to comment.

Foreign investors are reassessing Japan four years after the Lehman bankruptcy and global financial crisis drove many away.

Goldman Sachs was among investors such as Morgan Stanley and Aetos Capital that significantly scaled down investments in Japan after 2008.

CBRE, a global real estate research and advisory firm, expects vacancy rates for Tokyo’s high quality office buildings will improve as rents bottom out in the third quarter of this year, according to its report for the first quarter of this year.

Japan’s market size and its mature legal and political systems are attracting overseas investors who are looking to limit risks, said Andy Hurfurt, an executive director at CBRE.

“Also financing costs are low in Japan, largely due to the low interest rate policy, and this allows an attractive spread between the cost of debt and income return,” he said.

Goldman had been an active investor in the Japanese property market until the early 2000s, snapping up mainly failed golf courses and troubled hotels by using its own cash after Japan’s bubble economy burst some years earlier.

It was also among other foreign investors that used highly leveraged loans to boost returns on investments. One of Goldman’s flagship investments was a building for a Tiffany and Co store in Tokyo’s posh Ginza district.

Although Goldman’s approach has changed, one key manager remains the same.

The push into real estate will be led by Shigeki Kiritani, who now heads Goldman Sachs Asset Management. Kiritani was the head of Goldman’s investments in corporate and real estate when Goldman was active in Japan’s distressed properties.

Copyright Reuters, 2012

Oil and gas sectors power Aveva profit lift

LONDON: British engineering design software group Aveva on Monday posted a 14 percent rise in adjusted profit, helped by a strong demand at the end of the year from the oil and gas industries, increasing its confidence for the current year.

The group reported adjusted pretax profit of 62.3 million pounds ($97.4 million) – the market was expecting an average of 60 million pounds – on revenue up 13 percent to 195.9 million pounds for the year to end-March.

The company, whose software is used to design ships, oil refineries and nuclear power stations, said it expected a better performance in China after a restructuring.

Aveva increased its final dividend by 14 percent to 17 pence a share.

Copyright Reuters, 2012

ECB repayments point to more use of emergency funds

LONDON: European Central Bank accounts for the last week are set to show banks made further early repayments of cash obtained through longer-term liquidity operations, highlighting the trouble some institutions are having funding themselves.

More than 21 billion euros of longer-term refinancing operation (LTRO) cash was repaid last week, including around 9 billion euros of funds from December’s three-year funding bonanza.

That is on top of an almost 11 billion euro repayment earlier in May. But that fall in the outstanding amount corresponded with a rise in the ECB’s balance sheet item that accounts for the Emergency Liquidity Assistance (ELA) funding provided by national central banks.

The weekly balance sheet, published on Tuesday for the previous week, is expected to show a similar shift in funds.

Commerzbank rate strategist Benjamin Schroeder suggests this may be linked to credit rating agency Fitch’s downgrade of Greek covered bonds to “junk” that made such paper ineligible as collateral at the ECB.

Technically, banks are not permitted to repay LTRO funds early. There are exceptions for the December and February three-year funding operations, but even those officially cannot be repaid before one year has passed unless a bank runs out of eligible collateral or loses status as a ECB counterparty.

“You’re getting this Balkanisation, where you’re dividing up the risk and apportioning it through the national central banks,” said RBS rate strategist Simon Peck.

“At the end of the day banks are getting the liquidity that they need, be it from the ECB or the ELA but it just depicts the ongoing fragmentation that we have seen for some time now.”

National Central Banks are able to accept, at their own discretion, lower quality collateral than the ECB, allowing banks to acquire the funds necessary to keep operating.

But that is not without its risks should the borrowers be unable to repay the cash.

“The concern is that if the central bank has to mark this collateral to market (prices) it could be sitting on quite sizeable losses if the recipients of this funding can’t repay it,” said Rabobank rate strategist Richard McGuire.

“It gives the lie to the notion that the ELA lending is ringfenced and not a euro system liability as the euro system would probably have to backstop those losses.”

The 11 billion euros of LTRO repayments earlier in the month were believed to be linked to the ECB’s move to stop providing liquidity to Greek banks left temporarily undercapitalised after the Greek debt swap.

The exact amount of funding taking place through regional ELAs is not definitively clear, but the ECB’s balance sheet item reflecting it – other claims on euro area credit institutions – has risen by over 150 billion euros since the beginning of April alone, highlighting the increasing reliance on such funding.

“It becomes more of an issue if the rules regarding what is considered as acceptable collateral were to change,” RBS’ Peck said.

“But ELA facilities are emergency facilities, so you would expect by nature of their design that the collateral rules would remain sufficiently soft”.

Copyright Reuters, 2012

RBI says reverse repo bids fall to 50mn rupees

MUMBAI: The Reserve Bank of India said on Monday it accepted a sole bid for 50 million rupees ($0.905 million) at its one-day reverse repo auction, through which it absorbs excess cash from the banking system.


Earlier in the day, the RBI accepted all 39 bids for 854.25 billion rupees ($15.5 billion) at its one-day repo auction, through which it injects liquidity into the banking system.

Spanish yields rise as bank bailout concerns grow

MADRID: Spanish debt yields jumped and shares in fourth-largest lender Bankia SA plunged to record lows, highlighting a lack of confidence in government efforts to stabilise the finances of Spain and its ailing banks.

Government sources told Reuters Spain may recapitalise Bankia with sovereign paper in return for shares in the bank and could use this method to prop up other troubled lenders – moves which would send the country’s debts above the 79.8 percent of economic output which had been expected this year.

“This method has been used by Germany and by Ireland in the past, It is perfectly valid,” a government source told Reuters on Monday.

The source said the European Central Bank (ECB) had been informed of the plans and did not object to them so far, though a final decision had not yet been made on which option to take to prop up the lender.

Some investors speculate that weak banks, undermined by the end four years ago of a decade-long property boom, coupled with the indebtedness of the regions, could force Spain to seek an international bailout, which the euro zone can barely afford.

The premium investors require to hold Spanish government bonds over their German counterparts hit a euro-era high at 505 basis points, up 8 bps on the day, after Bankia requested a record bailout over the weekend.

The yield on benchmark 10-year government bonds rose to 6.46 percent, the highest since November.

Despite the 23.5 billion euros ($29.4 billion) rescue, Bankia shares tumbled more than 10 percent, pressuring some weaker peers as scrutiny rose over how the government plans to finance such rescues, especially if more lenders need help.

Its drastic hike in provisions to cover potential losses from repossessed property and souring consumer debt has raised the prospects that other banks may need to do the same, as a sector-wide independent audit gets underway.

Bankia parent BFA (Bancio Financiero y de Ahorros) is set to report on Monday the biggest loss in Spain’s banking history.

“The figures are much higher than any other release from any other bank,” a financial source with direct knowledge of the bank’s situation told Reuters.

Bankia, marked out by the Spanish government as its single- biggest banking problem, has so far insisted the extent of its own possible losses could not be extrapolated to the rest of the country’s banking system.

“The events at Bankia will reinforce the view that the upcoming external review should identify a significant recapitalisation need for the Spanish banking system,” analysts at Nomura said in a note on Monday, putting a recapitalisation of the whole sector at between 50 and 60 billion euros, with the main listed banks requiring an additional 16 billion euros.

Copyright Reuters, 2012

RBS set to ditch Hoare Govett as broker

LONDON: British lender Royal Bank of Scotland is set to appoint a new corporate broker to replace Hoare Govett, which it sold to American investment bank Jefferies in February, a source familiar with the situation told Reuters on Monday.

RBS, 83 percent owned by Britain, will begin a tender process to find a new broker, the source said, ending its ties with the historic British stockbroker acquired as part of its troubled takeover of Dutch bank ABN Amro.

“RBS has started the tender process to appoint a new broker,” the source said.

JP Morgan, Goldman Sachs and Morgan Stanley were in the frame to take over the mandate.

Jefferies has faced a struggle to retain Hoare Govett’s top British clients since buying the business for a nominal sum, reported to be 1 pound, in February.

Pharmaceuticals group GlaxoSmithKline, security services firm G4S and oil and gas company Tullow Oil are among former Hoare Govett clients which have changed brokers this year, although all three were already reviewing the situation before the acquisition by Jefferies.

RBS sold Hoare Govett as part of its retreat from investment banking having come under pressure from the Conservative-led coalition government to focus on retail banking rather than its riskier investment banking arm.

Hoare Govett had been one of the most historic and prestigious brands in British stockbroking for much of the 20th century, along with Cazenove, and analysts felt its brand value had been diluted when it was absorbed into ABN Amro.

A mainly British phenomenon, corporate brokers offer advice to clients for minimal fees, usually in the hope of winning more lucrative business, such as mergers and acquisitions or equity fundraising further down the line. They also act as a go-between for their clients and investors.

Copyright Reuters, 2012

China’s PICC adds 14 banks to $6bn dual IPO: IFR

HONG KONG: State-owned People’s Insurance Company of China Group (PICC), one of China’s largest insurers, added 14 banks to a group of institutions managing a planned Shanghai and Hong Kong dual listing worth up to $6 billion, IFR reported on Monday, citing three sources with knowledge of the plans.


Goldman Sachs, Morgan Stanley, UBS and 11 other banks were mandated to help underwrite the Hong Kong tranche of the IPO, valued at up to $3 billion, said IFR, a Thomson Reuters publication. China International Capital Corp. (CICC), Credit Suisse and HSBC had already won mandates as sponsors of the deal.  


PICC, the parent of China’s largest property insurer PICC Property & Casualty Co, plans to seek approval from the Hong Kong exchange for the deal on June 21, though the date could change, IFR added.


Copyright Reuters, 2012

Ruling on rental power plants: Turkish firm takes dispute to international court

Demand­s halt to NAB inquir­y, restor­ation of frozen banks accoun­ts. In a legal notice served to the Government of Pakistan, KKEU said it does not accept the Supreme Court’s ruling on RPPs. PHOTO: FILE

ISLAMABAD: 

Rejecting the Supreme Court’s ruling on rental power plants (RPPs), Turkey-based power firm Karkey Karadeniz Elektrik Uretim (KKEU) has instead moved the International Court of Arbitration – seeking compensation from the Government of Pakistan for losses that it says have arisen out of the latter’s alleged breach of contract. The company has sent a legal notice to the Government of Pakistan seeking remuneration for losses arising out of – what it says – is a violation of the Rental Service Contract (RSC).

The firm says that Pakistan has violated the obligations of an investment treaty between Pakistan and Turkey, and that the breach of contracts pertaining to rental power plants is also in violation of international law.

In a legal notice served to the Government of Pakistan on May 19, 2012, KKEU has demanded that the former halt inquiries initiated by the National Accountability Bureau (NAB).

Previously, NAB had sought payment of over $180 million from KKEU during an inquiry initiated after the Supreme Court’s verdict calling for the dissolution of all rental power projects. The company summarily refused to deposit the amount. NAB had also obtained and issued a freezing order against Karkey’s banks accounts in Pakistan.

The Port Qasim Authority had taken action against the firm on April 5, 2012, after the Supreme Court’s verdict calling for the dissolution of all rental power projects. The authority acted by issuing a notification which said that ‘caution’ had been placed on Karkey’s vessels under Section 23 of the Pakistan National Ordinance. The notification further directed that vessels were not to move from their moored position until completion of the NAB inquiry, or before clearance from NAB. Pakistan has refused to lift that caution to date.

The firm has also demanded that the government withdraw a freeze in place on KKEU’s bank accounts in Pakistan. The latter should also ensure the release – and allow unhindered removal – of all vessels and equipment currently located in Pakistani territory without delays, the notice said.

Karkey said that it had suffered – and continued to suffer – substantial losses arising out of the inquiry, for which the Government of Pakistan should reimburse the firm.

The Pakistan government has also been warned to desist from making any demands or taking any action for sums to be paid by Karkey. Pakistan has been urged, instead, to compensate Karkey for losses suffered by the company to date. Pakistan is to remain liable for any further loss suffered by Karkey, the notice said.

“For the avoidance of doubt, Karkey does not accept that the Supreme Court had jurisdiction in relation to this matter,” the firm’s legal council has said; adding that NAB wrongly commenced an inquiry against Karkey.

“In the event that disputes cannot be settled within six months of the date of this written notification, Karkey will commence arbitration proceedings in accordance with the Article V11 of the Treaty,” the firm has said. In the event of Pakistan’s failure to respond promptly to this notification, or to engage in meaningful consultations and negations, KKEU reserves the right to commence arbitration proceedings forthwith, the company clarified.

A senior official of the Ministry of Water and Power confirmed that the ministry had received a legal notice from the Turkish firm, and added that negotiations were being held with the Turkish government to resolve the issue.

Published in The Express Tribune, May 27th, 2012.

Lessons from the Rock for Europe’s banks

LONDON: In November 2010 rumours swirled through financial markets that Spanish bank BBVA was suffering a run on its deposits. The share price fell before excitable traders realised they had made a mistake.

In fact the bank was holding a “fun run” in Madrid and customers had lined up outside its branches to get their T-shirts. In a jittery market, talk spread quickly and few things worry bank investors and customers more than talk of a run.

Nervous times have returned to the euro zone, and customers are worrying again about whether their savings are safe.

Banks, regulators and policymakers in Greece, Spain and across Europe are back on high alert to avoid a repeat of the most catastrophic risk for a bank a loss of confidence among savers, or a run on the bank.

A run may start irrationally, but once it takes hold the panic can be entirely rational. No-one wants to be last in line if everyone else is pulling out their cash.

A run on Britain’s Northern Rock in September 2007 was one of the most sudden and shocking events of the financial crisis.

It was the first run on a British bank for more than 100 years and critics said it made the country look like a banana republic. Yet it is providing lessons on how to limit the damage in future.

Copyright Reuters, 2012

All but Punjab landlords refuse to pay Islamic agri tax

Paymen­t of obliga­tory tax could raise billio­ns in revenu­e. Payment of obligatory tax could raise billions in revenue.

ISLAMABAD: 

Since the Zakat and Usher Ordinance was introduced in 1980, landlords in Punjab in particular have refused to pay Usher, the Islamic tax on agricultural produce, The Express Tribune has learnt.

“The landowners maintain that they were willing to pay either agriculture tax or Usher, but are unwilling to pay both, although they do view Usher as a religious obligation,” Provincial Zakat department’s Deputy Secretary Shabbir Hussain told The Express Tribune.

The auditor general of Pakistan (AGP), in his 2009-10 report, took serious notice of the fact that since 1990, Usher was not being collected by provincial revenue departments throughout the country.

However, Tahir Maqsood, the joint secretary at the Ministry of Religious Affairs, said that Usher has been collected in all the provinces except for Punjab for several years now.

Hussain admitted that the collection of Usher was a crucial issue for the provincial government. He said that Punjab Chief Minister Shahbaz Sharif has recently constituted a committee to resolve the issue.

A senior official in the federal ministry of finance said that successive governments have been constantly asking provincial governments to collect Usher from all those farmers who are liable to pay since 1990, but provincial governments have taken no steps in this regard.

“In fact, those who have to execute the Usher ordinance are farmers and growers themselves,” the official told The Express Tribune, requesting anonymity. “The same people are creating obstacles in the implementation of Usher laws.”

Usher was introduced in the country from 1982-83 under the Zakat and Usher Ordinance 1980. The projected potential of Usher in 1980 was estimated at Rs2 to 3 billion. However, Usher collection receipts amounted to Rs39.46 million against the assessed amount of Rs122.70 million in the year 1991-2.

According to landlords, following the imposition of a regular agriculture income tax, Usher has become even more difficult to be rationalised as a tax on agricultural income. Despite the religious nature of its imposition, Usher is conceived to be a direct tax on a farmer’s income.

Following the implementation of the 18th Amendment, Zakat and Usher departments were transferred to provincial governments.

The administrator of Zakat in Lahore, Yousaf Butt, is of the view that new laws are required to collect Usher from farmers. He said an exercise on this issue was in progress in the Punjab government, adding that required legislation would be completed as early as possible.

Published in The Express Tribune, May 27th, 2012.

Turbulence ahead for airlines despite oil price drop

PARIS: Airlines are still in for financial turbulence despite a recent fall in oil prices, with many at risk of posting major losses as the cost of their top input remains historically high.

“If fuel prices remain at a reasonably low and stable level, of course it’ll be favorable to operations of the company,” Wang Jian, board secretary of China Eastern Airlines, told AFP.

But “despite the recent reduction in oil price, it remains at historically high levels and a significant challenge to the business,” said Cathay Pacific finance director Martin Murray.

It “relieves the pressure a bit,” acknowledged Air France-KLM finance director Philippe Calavia.

But he noted the Franco-Dutch group has based its financial plans on oil at an average of $98 a barrel this year.

Oil prices are “still above over budget,” he said.

The price of oil continued to fall this past week, with Brent North Sea crude for June at $106.91 a barrel in late London afternoon trade, way off the $128.40 it hit on March 1 and the record $147.50 it set in July 2008.

Airlines in Asia and Europe have been struggling with the high price of fuel, the first or second largest cost in their budgets, which has pushed many deep into the red.

Singapore Airlines saw its full-year profit plunge 69 percent year-on-year to $268 million due to high oil prices and global economic uncertainty.

Similarly Hong Kong-based Cathay Pacific saw its 2011 net profit slump 61 percent to $708 million and recently announced a raft of cost-cutting measures in response to high fuel prices.

Australia’s biggest airline Qantas, which has raised fares in recent months to partially offset higher fuel costs, said reduced oil prices were not yet helping its bottom line.

“Our fuel bill this year is going be significantly higher than last year, so the outlook is still very challenging as far as we are concerned,” a spokesman told AFP.

Jet fuel is Qantas’ biggest operational cost and in February the carrier said it had hedged 86 percent of its remaining fuel requirement for the financial year at a worst-case price of $121 per barrel.

Airlines, like many other companies, use financial instruments to protect themselves from possible rises in oil prices. But hedging can also trap them if oil prices fall below expectations.

“The main risk today is to rush to take advantage of current prices, which are still very high if falling, and finding yourself exposed to a loss on your hedges if prices continue to fall,” said Air France-KLM’s Calavia.

The airline which is looking at a fuel bill some 1.1 billion euros ($1.4 billion) heavier than the 6.4 billion it spent in 2011, has hedged around 60 percent of its second-largest operational cost after wages.

German airline Lufthansa has hedged 76 percent of its fuel needs, and forecasts it will spend 7.5 billion euros this year compared to 6.3 billion in 2011.

Oil prices are now moving back to a level where airlines can make a profit, according to the industry group IATA, which represents 240 companies that carry 84 percent of global traffic.

“Our central forecast in March suggested that if oil averaged $115, then as a whole the industry would still make a small profit of $3 billion,” said IATA spokesman Chris Goater.

“But if oil were to spike to an average of $135, then we would see an industry loss of $5.3 billion,” he added.

European airlines are also not getting their hopes up too high too quickly as the slide in the euro has been eroding much of the gains in the drop of dollar-priced oil.

And until oil prices stabilise at a lower level airlines such as Cathay Pacific, Lufthansa and Air France-KLM intend to push forward with drastic cost-cutting plans.

Copyright AFP (Agence France-Presse), 2012

Not quite steaming on: Operations disrupted, leaving passengers stranded

Shorta­ge of funds has limite­d Pakist­an Railwa­ys’ abilit­y to operat­e smooth­ly. Besides passenger trains, all express trains operated by Pakistan Railways are also currently off schedule. PHOTO: FILE

LAHORE: 

It seems that the woes of the cash-strapped Pakistan Railways (PR) are never-ending. Although the entity began 2012 on a positive note compared to last year’s ill-famed operational crisis, the quality of its services is once again on the decline. Express and passenger train operations have recently witnessed massive disruptions, leaving desperate passengers stranded at railway stations.

The year started positively for PR on the financial front: so far, it has managed to fulfil fuel requirements, rehabilitate a few locomotives, pay salaries and pensions on time, enjoyed moderate success in freight operations and has had a measure of success in public-private ventures. Even a bomb blast at its Lahore Cantonment Station nerve centre did little to dent demand, as passengers continue to prefer travelling via rail due to its easy affordability.

“We are in a much better position than last year, as we have successfully overcome a few of our deficiencies which hurt the corporation’s daily operations last year,” PR Public Relations Director Mohsin Yousaf told The Express Tribune.

“[But] we are still struggling: our fleet of locomotives stands at around 110 passenger and 10 freight trains. We were able to achieve 30% punctuality this year, compared to 7% last year – but the percentage again dropped below 20% due to locomotive failures and union strikes.”

Union strikes were a major reason for disruptions in express and passenger train operations, he said.

Besides passenger trains, all express trains operated by Pakistan Railways are also currently off schedule. Even the Shalimar Express – a public-private venture – has witnessed continuous delays of up to six hours. The only train still able to keep the schedule is the Pakistan Business Express.

While talking to The Express Tribune, commuters on express trains – besides the usual complaints about routine delays – also mentioned that power vans used to generate electricity for air conditioned coaches break down periodically during long haul journeys. Instead of replacing the vans, the management usually decides to continue the journey with dysfunctional ones, they complained. Families – irritated at being forced to travel in airtight coaches with bawling infants chafed by heat and suffocation – have taken to protest by blocking train tracks.

Yousaf admitted that it must be tough to travel in an airtight cabin with the onset of summer, but claimed that PR reimburses passengers who have to travel without air conditioning. However, he said the authority cannot do anything if a power van fails during a journey; what it can do is despatch engineers to diagnose the fault – which it has been consistent with.

The railways administration says it has been anxiously awaiting the grant of a loan worth Rs6.1 billion. PR planned to rehabilitate around 98 locomotives using the loan. Delay in the release of funds is one of the primary reasons why the organisation is once again witnessing deterioration in its daily operations.

“We are eagerly waiting for the loan to be approved, in order that we may rehabilitate more locomotives and normalise our operations,” Yousaf said. “It will be difficult for the railways to ease the pressure without this loan,” he added.

Meanwhile, locomotives repaired by the railways using its own resources are once again being relegated to the scrap yards. The number of locomotives in operation crossed 140 at one point this year, but is shrinking again mainly due to the substandard material used in their repairs.

Published in The Express Tribune, May 27th, 2012.

Money and doctors: Private healthcare spending in Pakistan rises to $7.3 billion

Growin­g popula­tion, income­s credit­ed with increa­sing demand for qualit­y care. The fastest growing segment was medical devices, which saw sales rise 18.1% to Rs35.5 billion. Pharmaceuticals grew a little slower, at 13.1%, to reach Rs173 billion in gross sales in Pakistan.

KARACHI: 

Pakistanis are increasingly spending more on health, with spending rising to a total of Rs665 billion in 2011, up 14.5% over the previous year, according a to research report released by Business Monitor International (BMI), a UK-based research and consulting firm.

Within the overall sector, the largest in terms of total spending was that of hospitals and other healthcare facilities, which saw their total revenues rise to Rs456 billion in 2011, up 14.1% from the year before. The fastest growing segment was medical devices, which saw sales rise 18.1% to Rs35.5 billion. Pharmaceuticals grew a little slower, at 13.1%, to reach Rs173 billion in gross sales in Pakistan.

There are also several developments taking place within the sector that are likely to allow for even further expansion, according to BMI analysts.

In August 2011, the Drug Registration Board (DRB) approved the registration of 30 medical devices and 210 medicines after a meeting was held at the request of the Prime Minister Yousaf Raza Gilani, who called for the uninterrupted provision of medicines to patients. Products approved for registration included vaccines, biologicals, cancer therapeutics, drugs for the treatment of blood disorders such as thalassaemia, and devices used in cardiac procedures.

BMI points out that there are many reasons why investors, particularly those outside the country may want to consider investing in this sector. “Pakistan has one of the most liberal foreign investment regimes in South Asia, with a commitment to low tariffs and 100% foreign equity permitted,” said BMI analysts in the report.

The analysts also note that Pakistan’s rapidly growing population – currently closing in on 190 million – should also be considered an asset. “A growing population is feeding increased demand for pharmaceuticals.”

There are, nevertheless, several challenges faced by the healthcare sector in Pakistan, which BMI cautions investors to be aware of. For the pharmaceutical sector, in particular, the analysts warn: “Counterfeit medicines, a lack of transparency in the government’s pricing mechanisms and an approval process that is biased towards domestic manufacturers are all factors depressing the market’s attractiveness.”

The opening up of free trade with India is seen as a bit of a mixed bag. On one hand, it would allow Pakistani firms to export their products to India more easily, allowing them access to a large and rapidly growing market which would help many of these firms scale up their capabilities and reduce overall costs for Pakistani consumers. On the other hand, many pharmaceutical manufacturers claim that they will not be able to compete with Indian companies and will likely be forced out of business by cheap Indian imports.

Pakistan’s overall business environment gets a poor rating from BMI, which ranks the economy 16th out of the 18 economies that it tracks in the Asia-Pacific region. The only two economies behind Pakistan are Sri Lanka and Cambodia. “The business environment still suffers from poor infrastructure and, most problematically, an uncertain security situation that has declined considerably since March 2007,” said BMI analysts.

In addition, there are several structural challenges to the Pakistani healthcare industry itself that have little to do with the external environment of Pakistan that they operate in. “Procurement processes are bureaucratic and often lack transparency, raising the risks of corruption,” said BMI in its report.

Published in The Express Tribune, May 27th, 2012.

UAE eyes June opening for pipeline bypassing Hormuz

FUJAIRAH: A pipeline being built by the United Arab Emirates to pump most of its oil exports from east coast terminals bypassing the Iran-threatened Strait of Hormuz, will be operational in June, the ruler of Fujairah told AFP in an interview.

“The pipeline will be operational in June,” said Sheikh Hamad bin Mohammed Al-Sharqi, whose east-coast emirate is one of seven that make up the UAE.

Construction of the 360-kilometre (225-mile) pipeline began in 2008. The pipeline will have an initial capacity of 1.5 million barrels per day rising to 1.8 million bpd, which represents the bulk of the UAE’s current production of around 2.5 million bpd, Sheikh Hamad said.

The Habshan-Fujairah pipeline will carry oil from fields in Abu Dhabi on the Gulf to Fujairah on the Gulf of Oman.

Fears of a closure of the Strait of Hormuz intensified in recent months after Iran threatened to close the strategic outlet to the Gulf if Western governments kept up their efforts to choke off its oil exports in a bid to rein in its controversial nuclear programme.

In addition to the exports of the UAE and Iran itself, all the oil exports of Bahrain, Kuwait and Qatar are shipped through the waterway. Iraq also pumps the bulk of its exports through ports on the Gulf.

Saudi Arabia, the world’s largest oil exporter, pumps most of its crude from its terminals on the Gulf but it can divert large supplies to terminals on the Red Sea.

Sheikh Hamad, however, played down the possibility of a closure of Hormuz.

“I do not believe there will a war,” he said, arguing that the tension with neighbouring Iran is just a “summer cloud that will clear.”

Iran held talks on Wednesday and Thursday in Baghdad with six world powers that nearly collapsed when the powers demanded that Tehran give up enriching uranium to the 20 percent level seen as a key step towards weapons-grade.

In exchange, Iran would get some inducements such as aircraft parts for its dilapidated commercial fleet and technical assistance in nuclear energy.

Iran, which is suffering under Western sanctions, said the inducements were far too little and countered with a demand that the P5+1 declare that it has a right to enrich uranium. The two sides agreed to meet again in Moscow on June 18-19.

Copyright AFP (Agence France-Presse), 2012

Unpaid dues: Darkness descends on CDA headquarters

IESCO cut the agency’s power after Rs13 millio­n tab went unpaid; budget crunch may cause summer water shorta­ge. IESCO cut the agency’s power after Rs13 million tab went unpaid; budget crunch may cause summer water shortage. DESIGN: MOHSIN ALAM

ISLAMABAD: 

The lights went out at the Capital Development Authority (CDA) headquarter on Saturday. As the authority prepares to spend Rs6.5 billion to switch to LED streetlights in Islamabad, non-payment of power dues left the civic agency’s main offices in darkness.

The Islamabad Electricity Supply Company (IESCO) suspended electricity supply to the CDA’s office because of an overdue Rs13 million tab, officials said. The dues include Rs800,000 for Melody Food Park and Rs500,000 for the fire brigade’s office.

An IESCO official requesting not to be named confirmed that the CDA is the company’s biggest defaulter. “Despite several notices served to the authority, the total amount is still to be cleared, leaving us with no option but to cut their power,” he added.

CDA Spokesperson Ramzan Sajid confirmed electricity was suspended because the authority had not paid their dues. He said IESCO had also suspended power for Jinnah Convention Centre but restored it after the dues were cleared. He blamed the financial crunch faced by the civic agency for its inability to pay the bills.

Power restored to Sangjani Treatment Plant

Separately, IESCO restored power supply to the Sangjani Treatment Plant (STP), after the CDA paid Rs13 million of the Rs63 million it owes to IESCO in electricity bills for the plant.

STP supplies 6 million gallons of water per day from Khanpur Dam.

IESCO had suspended STP’s power four days back due to the accumulated bill. The suspension of power led to the stoppage of water supply to areas including sectors G-10, G-11, F-10, and F-11 in Islamabad and the cantonment areas of Rawalpindi. IESCO officials said Rawalpindi’s Water and Sanitation Agency (WASA) paid their dues in time.

A CDA official requesting anonymity told The Express Tribune that the city could face an acute artificial water shortage this summer because the CDA will probably fail to pay its remaining dues to IESCO.

Around 24 million gallons a day are supplied to the capital from Simly Dam, with another 10 million gallons from Khanpur Dam are shared by Islamabad and Rawalpindi. Even though the water level in the lake has fallen, CDA Water Management Wing Director General Sanaullah Aman is hopeful that monsoon rains would help fill the dams.

Published in The Express Tribune, May 27th, 2012.

Bailout Saga: Greeks should pay their taxes: IMF

Greece strugg­les to apply tough auster­ity overha­ul in return for loans, but has made drasti­c cuts to public servic­es. Lagarde tells Greeks to pay their taxes. PHOTO: AFP/FILE

LONDON: 

International Monetary Fund (IMF) Chief Christine Lagarde urged Greeks to pay their taxes, saying she is more concerned about sub-Saharan Africans in poverty than Greeks hit by the economic crisis.

Lagarde said Greeks should “help themselves collectively” by “all paying their tax”, adding that she thought “equally” about those deprived of public services by the crisis and those involved in tax avoidance.

Caught in a fifth straight year of recession, Greece is struggling to apply a tough austerity overhaul in return for loans, but has already made drastic cuts to public services. Greece in 2010 committed itself to a reform programme in return for hundreds of billions of euros in bailout funds from the European Union and the IMF to prevent a default.

Published in The Express Tribune, May 27th, 2012.

Bahrain’s GIB sets up 3.5 billion ringgit sukuk programme

DUBAI: Bahrain’s Gulf International Bank has set up a 3.5 billion Malaysian ringgit ($1.11 billion) programme for potential sale of Islamic bonds, the company said on Sunday, as the lender seeks to diversify its funding sources.

Standard Chartered and Malaysia’s CIMB Investment Bank are lead arrangers on the medium-term notes programme, while GIB Capital is the international coordinator.

“The sukuk programme represents a strategic move to tap into the ringgit market in an effort to diversify funding avenues and currencies for the Bank,” Jammaz bin Abdullah Al-Suhaimi, GIB’s chairman said in a statement.

Gulf issuers are increasingly targeting options in Malaysia to diversify funding sources away from dollar financing. National Bank of Abu Dhabi and Abu Dhabi National Energy Co have also issued in ringgit in response to high demand from Malaysian investors looking to gain international exposure in local currency.

The programme has been rated AA1 by Malaysian rating agency RAM Ratings, considered a prerequisite to issuing ringgit-denominated bonds.

GIB, which is indirectly 97-percent owned by the Saudi Arabian government, met Malaysian investors in Kuala Lumpur earlier this month to acquaint them with the company.

Chief Executive Officer Yahya Alyahya said a sukuk issue under the programme can be expected in the near future when “market conditions are convenient.”

Any eventual sukuk issue will be under a wakala structure, where certificates are issued through a special purpose vehicle which purchases specific assets which are then given to an agent, usually the originator, to manage.

Copyright Reuters, 2012
.

Lloyd’s of London prepares for Greek exit

LONDON: The Lloyd’s of London insurance market has reduced its exposure “as much as possible” to the crisis-hit euro zone in preparation for a collapse of the bloc’s single currency, its chief executive told the Sunday Telegraph newspaper.

Richard Ward said Lloyd’s had put in place a contingency plan to switch euro underwriting to multi-currency settlement if Greece abandoned the euro, and that it could have to take writedowns on its 58.9 billion pounds ($92.1 billion) investment portfolio if the euro zone broke up.

“With all the concerns around the euro zone at the moment, we’ve got to be careful doing business in Europe and there are a lot of question marks over writing business in the future in euros,” Ward told the UK newspaper.

“I don’t think that if Greece exited the euro it would lead to the collapse of the euro zone but what we need to do is prepare for that eventuality,” he said.

Europe accounts for 18 percent of Lloyd’s 23.5 billion pounds of gross written premiums, mainly in France, Germany, Spain and Italy, the newspaper said.

On Wednesday, Reuters reported that each euro zone country was preparing a contingency plan for the eventuality of Greece leaving the single currency.

Lloyd’s, which traces its origins back 324 years to a London coffee house where merchants met to insure ships, suffered its second worst ever loss last year after absorbing record claims from catastrophes including Japan’s Tohoku earthquake.

Copyright Reuters, 2012
 

Weekly review: Bourse witnesses massive mood swing

After gainin­g for first two days; negati­ve trigge­rs take it back near the same level.  After gaining for first two days; negative triggers take it back near the same level.

KARACHI: 

The stock market took off to a great start by gaining more than 268 points in the first two days but unsettled Pak-US ties and budget frights took the bourse downwards in the next three days.


“Resumption of supplies to Afghanistan remained seal and no development has been inked so far. As a result investor sentiments were depressed and the index closed below the psychological barrier of 14,000 points,” says a KASB Securities research note.


The Karachi Stock Exchange’s benchmark 100-share index rose 0.49% to close at 13,925 points during the week.


Key economic targets were disclosed during the week for the upcoming financial year that kept investors on the sidelines. GDP growth target has been set at 4.3% while inflation target is at 9.5% for fiscal 2013.


Amongst sectors, fertiliser was the hardest hit over reports of potential increase in a development cess, a type of tax, on feedstock gas by 52% to Rs300 per mmbtu as producers’ ability to pass-through the impact of PRs131 per bag remains uncertain. “The move will dampen industry earnings with Fauji Fertilizer Company earnings estimated to fall 7.5% in fiscal 2012 in a worst-case scenario,”says the note.


Cement price hike in the north of the country to Rs425-430 per bag eased pressure on the sector. Lucky Cement and DG Khan Cement were among the key laggards last week.


Average traded volumes merely increased by 8.4% to 156mn shares, while average traded value rose by 3.6% to $68mn.


Net foreign investment came in at a solid $12.3 million compared with last week’s $6 million outflow.


On the macro front, the rupee lost 1.2% against the dollar to a new record low in the inter-bank market during the week to close at 91.8 to the dollar.


Moreover, a string of concerning news flow including current account deficit of $313 million in April and delay in patching up of Pak-US ties sealed the pressure on currency. To add to the pressure, a US Appropriations Panel approved a proposal to cut aid to Pakistan by 56% to $1.0 billion for financial year 2013.


With the announcement of federal budget on June 1, the market is expected to remain cautious in the upcoming week particularly awaiting any potential sector-specific developments.


Published in The Express Tribune, May 27th, 2012.

Airtel says to roll out 3G in Rwanda in next quarter

NAIROBI: India’s Bharti Airtel said on Sunday it would roll out 3G services in Rwanda in the next quarter and reiterated plans to invest $100 million in the central African country.

Airtel launched its mobile services in Rwanda in March, and presently runs a 2G network. It said then that IBM and Ericsson would help build and manage its network.

“Although Kigali is currently operating on a 2G network, the company also plans to launch 3G services in the market within the upcoming quarter,” the company said in a statement.

“Airtel plans to invest $100 million in its operations over the next three years and will work towards generating both direct and indirect employment opportunities.”

Other telecoms firms operating in Rwanda include MTN Rwanda, a unit of the South African company MTN and Tigo Rwanda owned by Millicom International Cellular.

As of September, the country had 4.1 million mobile phone subscribers out of its 10.4 million population.

Copyright Reuters, 2012

Boosting exports: Textile association demands duty free access to West

Market access crucia­l for surviv­al of textil­e indust­ry: PTEA Chairm­an. Market access crucial for survival of textile industry: PTEA Chairman.. PHOTO: AFP

FAISALABAD: 

Pakistan Textile Exporters Association (PTEA) released a statement on Saturday that greater duty free access to Pakistani exports to the US and European markets is imperative to cope with the current economic recession and the government of Pakistan should take immediate administrative and diplomatic initiatives to achieve this objective.”

Talking to the media, PTEA Chairman Rana Arif Tauseef said that exporters are facing difficulties in getting international orders due to energy shortages and a reduction in demand. Between July 2011 and April 2012, textile exports fell 9.6% compared to a year ago, according to official statistics.

He emphasised that it was vital for the survival of the textile industry to obtain duty free market access to the US and the European federation. Being on America’s front-line in the war on terror, duty free market access was given to Pakistani textiles for three years and during that period export volumes boomed.

“Pakistan is passing through critical economic conditions, which is further giving rise to industrial uncertainty, poverty and frustration. As a consequence of energy crisis, the textile production capacity of various sub-sectors has shrunk by 50%.”

“Load-shedding is causing significant production losses and adversely affecting the capability of the industry. In Punjab, energy supply disruption was resulting in an estimated loss of Rs1 billion per day, he said. The cost of production has also risen due to constant inflation in electricity and gas tariff. Such levies have decreased competitiveness of textile industry internationally”, he added. “In the larger interest of the economy and exports, the government should speed up its efforts to get duty free access to European Union and the US,” he stated.

Published in The Express Tribune, May 27th, 2012.

BoE Dale says expects euro zone uncertainty set to continue

LONDON: Uncertainty in the euro zone will continue for the next few years, acting as a drag on the UK economy, Bank of England policy maker Spencer Dale was quoted as saying in a newspaper on Sunday.

Britain is not a member of the single currency bloc, but it depends on the economic area for 40 percent of exports.

The UK economy slipped back into recession in the first quarter of this year and data continues to show Britons have been shopping much less and factories are getting fewer orders.

“I’d expect the uncertainty (in the euro zone) to continue for the next few years, even if some of the worst outcomes are avoided,” he was quoted in the Sunday Times as saying.

“It will continue to act as a drag on our economy.”

An increasing perception is that Greece or other debt-laden countries might have to leave the 17-country single currency bloc.

In minutes of its May meeting, the Bank of England voted to end a 325 billion pound round of asset buying, or quantitative easing, to help the struggling British economy.

“Some people say we can just pump more into the economy with QE, but if weak growth reflects problems on the supply side of the economy that may not be appropriate,” Dale told the paper.

The inflation outlook had swayed the majority of the Bank of England policy makers to vote against expanding the existing asset purchase programme.   

“I said last year that the fall in inflation from 5 percent to 3 percent was ‘ baked in the cake’ but that the real test would be getting from 3 percent to the 2 percent target,” Dale said.

“The story so far is good but there is a long way to go.”

Copyright Reuters, 2012

Reopening Nato supply: Govt justifies $5,000 fee for shipping containers

Includ­es charge­s for infras­tructu­re rehabi­litati­on, inspec­tion of suppli­es, enviro­nmenta­l impact, port servic­es. Includes charges for infrastructure rehabilitation, inspection of supplies, environmental impact, port services. PHOTO: REUTERS/FILE

ISLAMABAD: 

As Pakistan and the United States make some headway in bilateral talks, Islamabad’s demand for $5,000 per container for transporting goods to Afghanistan through its territory remains the biggest stumbling block.

US Defence Secretary Leon Panetta has ruled out paying Pakistan this amount, but officials familiar with the talks say Islamabad’s demand is “neither irrational nor out of the blue.”

The supplies made to Isaf and Nato forces stationed in Afghanistan have ruined Pakistan’s road infrastructure over the last nine years of cooperation, they added.

The infrastructure was used for eight years without paying any charges. In the ninth year, the US started paying a nominal handling fee of $220 per container to National Logistic Cell – the army’s logistics arm, officials said. Terming Pakistan’s demand as “extortion,” Senator John McCain, a former Republican presidential aspirant, had claimed that the US was paying $250 per container to Pakistan.

Why $5,000?

Roads in Pakistan are designed to have a life of ten years but have depreciated significantly since the damage caused by a single container is equivalent to 1,500 to 2,000 cars.

Officials said the National Highway Authority needs $1.6 billion to rebuild the damaged infrastructure and, for this purpose alone, it has proposed a charge of $1,000 per container.

The additional $4,000 includes charges for scanning, inspection and examination of the supplies, charges on account of road safety, environmental impact and port services, they added.

For the last eight-and-a-half years, Pakistan allowed Nato and Isaf containers to leave the ports without scanning them. The Federal Board of Revenue, however, claims it had started scanning the containers but refused to speak on record.  Officials said Pakistan will not provide security to the containers.

Comparing with NDN

Even after paying $5,000 per container to Pakistan, the cost of shipping supplies through Pakistani territory will be less than that incurred using the Northern Distribution Network (NDN) – and will take less time.

Each container coming through the NDN to Afghanistan costs $14,000. About 40 to 45% of the NDN comprises sea routes, while the rest is covered through rail and road networks.

The Pakistani route, on the contrary, costs $7,000, since 80 to 85% of the distance is via sea while the rest is through road, officials said.

However, officials say, the US insists the $5,000 per container fee to Pakistan will surge the cost of the route and make it comparable to the NDN. The US has threatened Pakistan that sticking to the demand may put its ties with Nato countries at risk, officials added.

CSF payments

During the recently-concluded technical-level talks, both sides have resolved certain outstanding issues vis-à-vis reimbursements under the Coalition Support Fund (CSF). Both sides, however, were reluctant to share details due to the ‘hostile’ US Congress. Officials said the US was ready to pay CSF payments for the period between May and November 2011.

Published in The Express Tribune, May 27th, 2012.

Net profit seen down 33pc to 62.1mn euros

ATHENS: PPC, Greece’s dominant electricity producer, is expected to post a sharp profit drop for the first quarter, weighed down by bad-debt provisions and higher fuel and energy purchase costs, a Reuters poll showed on Sunday.

The state-controlled company’s profit was seen at 62.1 million euros ($77.7 million), compared with a 93.3 million profit in the same period the previous year, according to the average forecast of six banks and brokerages.

The estimates, however, ranged from 4.6 million to 175 million euros. Analysts expect PPC’s higher costs to have outweighed an increase in its regulated electricity prices.

PPC shares have shed 62 percent this year, underperforming a 29 percent decline in the benchmark Athens stock index.

The shares trade at 2.3 times expected 2012 earnings, compared with 7.5 times for French state-controlled utility Electricite de France.

Copyright Reuters, 2012

SNB considers capital controls if euro falls apart

ZURICH: Switzerland is drawing up plans for emergency measures including capital controls in case the euro collapses although it does not expect to need them and will continue to defend a cap on the franc in the meantime, the head of the central bank said.

“We must be prepared just in case the currency union collapses, although I don’t expect that,” Swiss National Bank President Thomas Jordan, who predicted the euro zone crisis in his 1994 doctoral thesis, told the SonntagsZeitung newspaper.

Jordan said a group set up by the Swiss government to consider possible scenarios in the case of a euro break-up was focusing on instruments to fight the strength of the safe haven franc which has soared during the euro zone crisis.

“One measure would be capital controls, in other words measures which directly influence the flow of capital into Switzerland,” he said, but declined to give further details.

Jordan last month dismissed negative rates on foreign deposits as a tool for curbing safe haven flows. The Swiss imposed such deposit taxes as they battled a red-hot currency in the 1970s, but they did little to weaken the franc.

In an attempt to prevent a recession and deflation from the soaring currency, the SNB set a cap of 1.20 per euro on Sept. 6 but the franc is still 30 percent stronger than before the financial crisis, hurting exporters and the tourism industry.

“Even under the most difficult conditions we will also in future enforce the minimum rate with all determination and align our monetary policy with maintaining this minimum rate. I stress, even under very adverse conditions,” Jordan said.

Jordan said the central bank had observed a significant upward pressure on the franc as the euro zone crisis had worsened in recent weeks, but he declined to say how much the SNB had spent on currency interventions.

Asked about calls from Swiss industry for the SNB to move the cap to try to weaken the franc further, he said: “For many companies the situation is very difficult. But we can’t just arbitrarily manipulate our currency.

“In an even worse crisis situation, that would be fatal and counterproductive … The current minimum rate is realistic and has helped the Swiss economy.”

Jordan stuck to the central bank’s forecast for the Swiss economy to grow by about 1 percent this year and said he currently saw neither deflationary or inflationary risks.

Nick Hayek, the chief executive of watchmaker Swatch Group , said on Saturday the franc should be closer to 1.30-1.35 per euro but said the SNB bank had missed an opportunity to shift its cap during a leadership vacuum.

Philipp Hildebrand resigned as SNB chief in January after a currency trading scandal involving his wife and was only replaced on a permanent basis by his deputy Jordan in April.

The franc, which initially traded as weak as 1.25 after the cap was imposed on speculation the SNB might shift the level, has hovered close to the 1.20 mark in recent months as the euro zone crisis has flared again, briefly breaching it in April.

Copyright Reuters, 2012

Mangla Dam to be filled to maximum capacity

Standa­rd operat­ing proced­ure has alread­y been approv­ed by the govern­ment.  Mangla Dam’s capacity is being enhanced, up to its maximum level of 1,242 feet. PHOTO: FILE

MIRPUR: 

The Water and Power Development Authority (Wapda) has announced that it plans to fill the Mangla Dam, whose capacity is being enhanced, up to its maximum level of 1,242 feet this year subject to availability of water. The standard operating procedure in this regard has already been approved by the Government of Pakistan.


The plan was revealed by Wapda Chairman Shakil Durrani during a briefing regarding the Mangla Dam Raising Project to Azad Jammu and Kashmir (AJK) President Sardar Muhammad Yaqoob Khan and Prime Minister Chaudhry Abdul Majid. AJK Chief Secretary Shehzad Arbab, Wapda Secretary Muhammad Imtiaz Tajwar, Wapda General Manager (Projects) North Rashid Ali Khan Bangash and Mangla Dam Raising Project Director Ghulam Sarwar Memon were also present during the briefing here on Saturday.


In late March, water levels in the Tarbela and Mangla reservoirs had fallen to their dead level of 1,378 feet and 1,040 feet respectively because of reduced water inflow due to a prolonged cold spell that had prevented glaciers from melting. Projecting a critical water situation, the Indus River System Authority’s technical committee foresaw a 21% water shortage in the early Kharif season, advising farmers to delay crop planting to April 15.


Speaking on the occasion, the Wapda chairman said that the Mangla Dam Raising Project would cost about Rs97 billion and will significantly contribute towards the socio-economic development of the country. It will store an additional 2.9 million acre feet of water, besides generating 644 million additional units of electricity annually from the Mangla Power Station. Spillover benefits of the project have been estimated Rs18 billion per annum, he added.


The chairman said that people affected by the project had been recompensed through an unprecedented compensation and resettlement package. Out of the total project cost of Rs97 billion, a hefty amount of over Rs65 billion had been allocated for compensation and resettlement works. Resettlement works include the construction of New Mirpur City and four satellite towns – all equipped with modern civic amenities; the Mirpur by-pass; a bridge over New Bong Canal and the Dhan Gali Bridge across River Jhelum, among others.


Later, AJK Prime Minister Chaudhry Abdul Majid, accompanied by Wapda Member (Water) Syed Raghib Abbas Shah, inaugurated Islam Garh town – one of the four model towns developed for affectees of the project.


Published in The Express Tribune, May 27th, 2012.

All Out: Punjab to procure entire wheat output

The Punjab govern­ment initia­ted the wheat procur­ement drive to protec­t profit­s of wheat grower­s. The Punjab government initiated the wheat procurement drive to protect profits of wheat growers.

FAISALABAD: 

Punjab will continue the wheat procurement campaign till the last batch of wheat is procured from growers, said a spokesperson of the food department.

The Punjab government initiated the wheat procurement drive to protect profits of wheat growers. In this connection, a comprehensive strategy was also devised to eliminate the role of middlemen.

Special teams of the food department as well as district government are conducting regular raids to check exploitation of wheat growers by middlemen.

He said that few incidents were reported from various parts of Faisalabad and timely action resulted in booking of middlemen who were purchasing the produce.

The wheat procurement process is continuing in a fair and transparent manner at 11 procurement centres in Faisalabad where all necessary facilities are being provided to growers including gunny bags, he added.

Published in The Express Tribune, May 27th, 2012.

Renaissance unit Topaz signs first phase of $330m debt plan

DUBAI: Topaz Energy and Marine, a unit of Oman’s Renaissance Services, has signed the first phase of a $330 million refinancing loan agreement with banks, its parent said in a statement to the bourse on Sunday.

United Arab Emirates based Topaz, appointed banks in November to lead a refinancing initiative, after it was hit by a $2.9 million fraud scandal, and forced to pull a London listing amid valuation concerns and regional unrest.

The first phase of the refinancing plan totals $203 million and was arranged and financed by Standard Chartered, DVB Bank and First Gulf Bank, the statement said.

The deal will refinance Topaz’s existing borrowings and releases $60 million in trapped equity, it added.

No further details on the terms and pricing of the loan were provided in the statement.

Topaz operates mainly in the Middle East, North Africa and Caspian Sea region, running a fleet of 100 offshore support vessels.

Vishal Goenka, group chief financial officer of Renaissance said the company is “encouraged” by the interest of regional and international banks for the second phase of the refinancing package.

The company originally said it was seeking $380 million for refinancing, and expected the deal to close by the end of last year.

Shares in Renaissance are down 5.5 percent this year, after slumping over 50 percent in 2011.

Copyright AFP (Agence France-Presse), 2012

Ford upgrade triggers ABS-to-corporate debt conversion

NEW YORK: Ford is making history by launching the process to switch the capital market’s first ABS-to-high-grade convertible bond to corporate debt from securitized form. The conversion of the deal, issued in 2011, was triggered this week by Moody’s upgrade of Ford’s corporate rating to investment-grade.

The move followed a similar recent upgrade by Fitch. The mandatory exchange for holders of Ford’s US$2.5bn in “FUEL” auto ABS notes into straight debt is under way, now that two out of three rating agencies have raised the company back into high-grade territory.

FUEL stands for Ford Upgrade Exchange Linked notes. The company issued US$1.5bn of the innovative hybrid product in April 2011, and followed it up with a second US$1bn offering in June 2011.

The mandatory exchange will occur within ten business days of the Moody’s upgrade, which means all the debt will be converted by June 6. The exchange is transacted through the Depository Trust & Clearing Corporation, and the Ford unsecured debt will have the same interest rate and maturity date as the original ABS. It will be issued under Rule 144a, with registration rights.

The exchange is automatic, with no action or election needed on the part of the investor. The new unsecured debt will have the same terms and same indenture as other outstanding Ford corporate debt; one CUSIP will be exchanged for the other.

The vast majority of purchasers of the original FUEL ABS debt were investment-grade corporate buyers. The new product allowed these investors to access the Ford Credit name, despite their portfolio restrictions on non-investment-grade companies.

Moreover, the FUEL notes helped the issuer to cost-effectively transition to a high-grade capital structure while expanding its investor base.

“No matter how much they believed in the Ford story, some life insurance company investors don’t have crossover funds; they have mandates to buy only investment grade,” Scott Krohn, the director of long-term funding and securitization at Ford, told IFR last December.

“But this deal appealed to investors with investment grade-only mandates. It’s truly bankruptcy remote, and it offers a delinked rating built off our securitization technology for retail loans.”

INNOVATIVE SOLUTION

The hybrid bonds helped Ford to resolve an ongoing dilemma. As the company emerged from a car industry slump and its business turned the corner after a difficult few years, the firm came to realize it had a problem.

Its captive finance company had become heavily reliant on securitization during the crisis, and that was hampering the carmaker’s attempts to reclaim its investment-grade corporate ratings. Rating agencies were worried that higher asset encumbrance would constrain funding flexibility.

Lead underwriter Bank of America Merrill Lynch devised a solution by structuring a security that had the collateral protection of an ABS package on day one but which converted to an unsecured bond when Ford achieved high-grade ratings.

On the front end, the bonds were issued as ABS notes backed by a revolving pool of Ford’s prime retail auto loans – the gold standard in the ABS industry. The notes have a five-year revolving period during which additional retail auto loans are sold to the ABS issuer to maintain the collateral pool balance.

Because the FUEL notes had investment-grade ratings, they delivered substantial funding cost savings when compared with traditional unsecured debt issuance.

Moreover, FUEL achieved the goal of lowering asset encumbrance, because when the ABS is terminated, the previously encumbered auto loan assets supporting the ABS are released.

“Ford was able to show the equity markets, the fixed-income markets, the rating agencies that it was very serious about becoming investment-grade sooner rather than later,” said Matt Basler, a co-head of FIG capital markets and financing at Bank of America, last year.

S&P said this week that the FUEL conversion could result in less auto ABS issuance from the company in future. However, some securitization specialists said that ABS still represented a big cost of funds benefit for the company, and that Ford would be unlikely to abandon ABS altogether.

Copyright Reuters, 2012

ECB loans, rate cut view pull down Euribor rates

FRANKFURT: Closely-watched euro zone bank-to-bank lending rates fell to new two-year lows on Friday, dragged down by the ECB’s recent deluge of ultra-cheap bank loans and a growing expectation it will have to cut euro zone interest rates again in the coming months.     

The ECB, which kept euro zone interest rates at 1.0 percent again this month, has poured more than 1 trillion euros of cheap long-term funds into the banking system since the end of last year, halving interbank lending rates.

Weaker-than-expected economic data on Thursday also saw a flurry of economists change their ECB interest rate expectations with many now forecasting at least one 0.25 percent cut in the coming months, possibly as early as next month.

Extending its near-vertical six-month drop, three-month Euribor rates, traditionally the main gauge of unsecured interbank euro lending, fell to 0.675 percent from 0.677 percent.

The equivalent euro Libor rate, set by a panel of London banks, also extended recent falls to hit 0.60164 percent – the lowest since April 2010.

Shorter-term one-week rates hovered near all time lows unchanged at 0.318 percent, while overnight rates remained at 0.335 percent.

Dollar-priced bank-to-bank Euribor lending rates followed suit. Three-month rates fell to 0.923 percent from 0.926 percent while overnight rates dipped to 0.311 percent from 0.313 percent.

The sharp fall in interbank rates over the last few months has brought benchmark euro-priced three-month rates to within touching distance of the euro-era low of 0.634 percent hit in early 2010.

The 0.25 percent the ECB offers banks for overnight deposits continues to act as a floor for money market rates as banks know they can get that level of interest no matter what.

High excess liquidity in the banking system has led to heavy use of the ECB’s overnight deposit facility, where banks parked 761 billion euros overnight. In normal times the amounts are minimal.

Tensions have been further highlighted this week. On Friday borrowing of costly ECB overnight loans remained close to 4 billion euros, one of the highest levels since mid-March.

Copyright Reuters, 2012

Oman’s bank Nizwa attracts $1.77 bln in IPO

MUSCAT: Omani lender Bank Nizwa, the sultanate’s first Islamic bank, attracted 681 million rials ($1.77 billion) of bids in its initial public offer of shares, 11 times the sum which it was raising, the lead manager for the IPO said on Saturday.

The bank will be listed on the Muscat Securities Market on June 12, Oman Arab Bank said. Bank Nizwa raised 60 million rials by selling 40 percent of its capital.

Oman reversed its prohibition on Islamic finance last year and now intends to develop the industry, seeing economic and political benefits. Bank Nizwa is not yet operational and has only a representative office; three branch openings are planned after the IPO.

Another Islamic bank under formation, Al Izz International Bank, is expected to conduct an IPO of 40 percent of its 100 million rial capital by June, the central bank said earlier this year.

Copyright Reuters, 2012

Prices rise as Europe fears promote safety bid

NEW YORK: US Treasuries prices gained on Friday as concerns over a possible Greek exit from the euro zone fueled a bid for the safe-haven debt, with investors preparing for what is likely to be volatile trading over the coming month.

Nervousness about Greece’s upcoming election and spreading stress on banks to other euro zone countries, such as Spain, helped push benchmark 10-year Treasury yields near their lowest levels in at least 60 years.

These concerns were heightened on Friday after Spain’s wealthiest autonomous region, Catalonia, requested help from the central government to refinance its debt.

“This has been an interesting week during which we have seen a number of events shape both the stock and bond markets, but in the end, very little movement or knowledge about the future was gained,” said Kevin Giddis, head of fixed income capital markets at Morgan Keegan in Memphis, Tennessee.

“Spain continues to struggle with the ability to tap the capital markets in an effective and useful way while it deals with its own version of the debt crisis. This has caused investors around the globe to become more nervous and as a result, more risk averse.

“I would rate this as a definite positive meter reading for bonds and a negative for stocks, and probably the crux of the current trading pattern,” he said.

Benchmark 10-year Treasury notes on Friday traded 11/32 higher in price to yield 1.75 percent, down from 1.78 percent late Thursday but up slightly from 1.72 percent a week ago.

Yields were relatively range bound through the week, with benchmark notes showing the first weekly rise in yield in 10 weeks. However, yields remain not far off the 1.67 percent level reached in September, which was the lowest in at least 60 years.

The US bond market closed early at 2 p.m. (1800 GMT) on Friday ahead of the three-day Memorial Day weekend.

Traders are expecting a volatile month in June. Greece holds elections on June 17 and the US Federal Reserve is expected to indicate whether it is likely to implement further stimulus as its current program, nicknamed “Operation Twist,” is set to expire at the end of the June.

“The whole next month is important,” said Fidelio Tata, head of US interest rate strategy at Societe Generale in New York.

Expectations of additional volatility are keeping volumes low as many investors stay on the sidelines, wary of getting caught offside in a large move up or down.

“Until market participants have a better feel and better sense of what the next move’s going to be, participation remains low,” Tata said.

Next week traders will also focus on some key US economic data, including an employment report on Friday, for signs that the economy is weakening, which would make the Federal Reserve more likely to announce new bond purchases.

“A weak number could get people really concerned,” said Suvrat Prakash, an interest rate strategist at BNP Paribas in New York, adding “if you have the downside risks from Europe and if you have a second weak payroll number in a row, then you’ve got the perfect conditions for QE3 or an extension of the Twist program,” Prakash said.

Operation Twist involves buying longer-dated debt and funding the purchases with sales of short-dated notes in a bid to reduce long-term borrowing costs and stimulate the economy.

Investors are also wondering whether the Fed might embark on a third round of outright debt purchases, known as quantitative easing, or QE3.

The payroll data is expected to show that employers added 150,000 workers in May. Data on Thursday is expected to show that US gross domestic product grew 2 percent in the first quarter.

Copyright Reuters, 2012

Spain’s Bankia seeks record bailout of 19 billion euros

MADRID: Spain’s fourth-biggest bank, Bankia, said Friday it will ask the government for 19 billion euros ($24 billion) in the largest bank bailout in the country’s history.

The bank, which holds some 10 percent of the nation’s bank deposits, said the request will be part of a recapitilsation plan which it approved at a board meeting on Friday and is backed by the government and the Bank of Spain.

“This plan has identified capital needs of 19 billion euros which will be entirely covered by the state,” it said in a regulatory filing.

The government already spent 4.5 billion euros on Bankia earlier this month when it partially nationalised the lender.

The state took a controlling 45-percent stake in Bankia by converting a loan for that amount to its parent group Banco Financiero de Ahorros (BFA) into equity.

The bailout requested by Bankia on Friday will bring to 23.5 billion euros the total amount spent by the Spanish government to rescue the bank, which was formed in 2010 from a merger of seven troubled regional savings banks.

Spanish banks are at the heart of market fears that Spain, the eurozone’s fourth-largest economy, could be forced to seek an international financial bailout.

Earlier this week Economy Minister Luis de Guindos estimated Bankia would need around seven billion euros to shore up its finances although he said his government would provide whatever funds were needed.

Bankia shares were suspended from trading Friday ahead of the bank’s board meeting after newspaper reports said it planned to ask the state for aid of 15-20 billion euros.

Under the recapilitisation plan it approved Friday, Bankia’s parent group BFA will ask Spain’s bank restructuring fund FROB to subscribe to a capital increase of 19 billion euros.

Bankia will then launch a 12 billion euro capital increase which will be underwritten by BFA.

“Bankia clients can have absolute confidence that their savings are now safer than ever,” said Bankia president Jose Ignacio Goirigolzarri.

The bank also announced that it had revised its results for 2011. Instead of posting a net profit of 309 million euros, it recorded a net loss of 2.979 billion euros due to write-downs made in its loan portfolio.

Bankia had problematic property assets amounting to 31.8 billion euros at the end of last year, according to Bank of Spain figures.

Standard & Poor’s on Friday cut its credit ratings for five Spanish banks, including Bankia and its parent group BFA.

It downgraded Bankia to BB+, one notch into junk status, from BBB- and reduced its rating for BFA, which was already in junk status, to B+, four notches into junk territory, from BB-.

Standard & Poor’s also cut its rating for Bankinter, Banco Popular and Banca Civica.

Daniel Pingarron, an analyst at Spanish brokerage IG Markets, said the injection of public funds into Bankia to save it “will not change things very much.”

“What will happen is the FROB funds will run out, the fund will have to be replenished with public debt, and that does not sent a message of confidence” to markets, he added.

The government could add two other savings banks under its control, Novacaixagalicia and CatalunyaCaixa, to Bankia, which would create “the biggest public bank in Spanish history”, and then sell the lender, Pingarron said.

The government refused to comment on this possibility.

Prime Minister Mariano Rajoy’s conservative government this month instructed Spain’s banks to set aside an extra 30 billion euros in 2012 in case property-related loans go bad, on top of 53.8 billion euros required under reforms enacted in February.

Bankia’s shares plummeted 7.43 percent on Thursday to close at 1.57 euros, taking total losses to more than 58 percent since their listing in July 2011.

Copyright AFP (Agence France-Presse), 2012

Spain’s Bankia eyes stake sales after record bailout

MADRID: Spain’s fourth biggest lender, Bankia, on Saturday prepared to sell stakes it holds in companies to meet European competition rules after a state rescue that has so far cost 23.5 billion euros ($29.40 billion).

Bankia’s parent company BFA asked for a higher-than-expected 19 billion euros in government help on Friday, in addition to 4.5 billion the state has already pumped in, to cover possible losses on repossessed property, loans and investments.

In Spain’s biggest-ever bank rescue the state could end up with close to 90 percent of Bankia after it capitalizes the parent, BFA, then buys preferential shares in Bankia in October. Under Spanish law it should sell off Bankia in three years.

Bad loans at Spanish banks, which are rising in an economic downturn with 24.4 percent unemployment, are at the heart of worries that Spain could have to seek international aid and take the euro zone debt crisis into a dangerous new stage.

Among the newly recognized potential losses at Bankia and BFA are a 1.6 billion euros write down on corporate stakes including a 12 percent chunk of International Airlines Group and 5.3 percent of energy firm Iberdrola.

Bankia, which restated its 2011 accounts to reflect a 3 billion euros loss rather than the previously reported 300 million euros profit, said European Union regulators will sign off on the rescue plan in June.

“In the future logically it’s in our plans, and also because of European requirements, we’ll have to sell off stakes,” Chairman Jose Ignacio Goirigolzarri told financial analysts.

EU competition regulators typically prefer bailed-out lenders to shed non-core operations, divest banking units where they have too dominant a position and halt dividend payouts and acquisitions until they have repaid the authorities.

Asked about fears of a run on deposits at Bankia, Goirigolzarri recognized that there was a “certain tension” in early May for a few days after the state takeover was announced. Bankia holds 10 percent of deposits in Spain’s banking system.

But he said things had normalized and he expected deposits in June to be higher than they were at the end of last year.

AUDIT OF ENTIRE SYSTEM

The Bankia rescue is underway amid a broader audit of the Spanish banking sector, which has already raised worries more lenders will need help to cover deeper potential losses on property loans and souring consumer debt.

The banks were saddled with what the government estimates are 184 billion euros of unsellable repossessed property and sour loans after a decade-long building bubble burst in 2007-2008.

Spain’s government will have to go to debt markets to raise the funds for Bankia at a time when its borrowing costs have jumped and it must pay a premium of almost 5 percentage points over German government debt.

A government source said that the Bankia rescue would affect both the public debt level and deficit.

“There’s an expected loss in the asset portfolio that can be accounted for as debt, and there’s an actual loss that would go to deficit but that is manageable,” said the government source.

“At this time we’re talking about hypotheticals and the impact won’t be known until the valuations are done,” he said.

Bankia has now recognized much higher losses than the government has forced Spain’s banks to provision for, raising the question whether other banks will also have to identify even wider funding gaps.

The bank provisioned for 900 million euros in refinanced debt that could sour and now assumes that 8 percent to 10 percent of its mortgages will go bad. Spanish bankers typically argue that the bad mortgage rate can never go that high in Spain because it the law makes it difficult for people to walk away from their debt.

But Goirigolzarri said Bankia’s situation was different.

Spain’s government, which is racing to reassure investors about the health of its banking system, had previously put the amount of state help needed to help lenders at 15 billion euros – a figure now largely surpassed by what Bankia alone will need.

Over three years Spain has restructured the banking sector four times without convincing investors that the clean-up was thorough enough, and is now hoping to draw a line under the banking problems without having to ask for EU help.

Regarding whether Bankia, which reduced capacity by about 20 percent last year, would need to shut more branches and lay-off more workers, Goirigolzarri said he was optimistic. “I’m confident about developing a solvent brand,” he said.

Goirigolzarri said that he did not envisage that about 4 billion euros in preference shares held by investors would be converted into capital.

Bankia, born out of the merger of seven savings banks in 2010, was listed last July. After an aggressive campaign through its bank branches, many Spanish individuals bought shares, which have lost 57 percent of their value.

Copyright Reuters, 2012

Canada’s RIM to cut at least 2000 jobs

TORONTO: Research In Motion Ltd is preparing for a major restructuring beginning in the next couple of weeks that will see it eliminate at least 2,000 jobs worldwide, the Globe and Mail reported on Saturday, citing unnamed sources.

The Canadian newspaper, citing several people close to the company, reported that the next round is layoffs is said to be planned for around June 1 – a day before the BlackBerry smartphone maker’s first quarter ends – but some expect the announcement even earlier.

One person familiar with the company’s plans said the layoffs may cut even deeper than 2,000 jobs, the article said, adding that the layoffs are expected to sweep across departments including the legal, human resources, finance, sales and marketing units.

Company officials did not immediately respond to a message from Reuters seeking comment on the report.

Once the dominant player in the wireless e-mail sector, RIM has lost market share amid fierce competition from Apple Inc and phones running on Google Inc’s Android software.

Copyright Reuters, 2012

Bankia says it could sell Spanish company stakes

MADRID: Spain’s Bankia said on Saturday that it could sell its stakes in Spanish companies in future, a day after it asked the state for a 19 billion euro ($23.77 billion) bailout, the biggest ever bank rescue in the country.


Bankia and its parent group BFA have holdings in big Spanish companies, including in International Airlines Group and Iberdrola.


“The BFA group and Bankia have a strong group of holdings (…) and the reason (for provivisioning against it) is that in future (…) we will logically look to start a sale process,” said Jose Ignacio Goirigoizarri.


Copyright Reuters, 2012

Japan chip maker Renesas may cut 14,000 jobs: reports

TOKYO: Japanese semiconductor maker Renesas Electronics Corp. is considering cutting up to 14,000 jobs or 30 percent of its workforce as part of a major restructuring plan, news reports said Saturday.

The company is also considering selling a major factory to a Taiwanese firm, while closing or scaling down other plants, said the Nikkei and the Asahi Shimbun newspapers as well as Kyodo News.

Renesas, which lost 62.6 billion yen ($785 million) in the year to March, also plans to raise 100 billion yen, mainly from its top shareholders NEC, Hitachi and Mitsubishi Electric, the Nikkei said.

The company wants to sell its major factory in Yamagata to Taiwan Semiconductor Manufacturing Company (TSMC), the Nikkei said.

The plant, with 1,400 workers, produces semiconductors used in televisions and other digital gadgets. But low domestic demand has forced the company to reduce operations at the factory, the Nikkei said.

In a short statement, Renesas distanced itself from the reports, saying no formal decision had yet been made.

The scope of the newly reported plan is significantly higher than what was reported Tuesday by the Yomiuri Shimbun, which reported 6,000 job cuts and 50 billion yen in fresh capital.

Japanese electronics makers — from parts makers to producers of the finished products — have long struggled with the chronically stagnant Japanese economy and a high yen weighing on their earnings.

Copyright AFP (Agence France-Presse), 2012

ThyssenKrupp CEO sees Steel Americas loss next year

FRANKFURT: ThyssenKrupp’s Steel Americas business, which the company may put up for sale, will continue posting operating losses until at least next year, Chief Executive Heinrich Hiesinger told a German newspaper.

“It would be unrealistic to expect operating figures in the black in America next year following a likely triple-digit million euro loss for the current year,” weekly Euro am Sonntag quoted Hiesinger as saying.

Germany’s biggest steelmaker said this month it will examine all strategic options, including a partnership or a sale, for its steel mills in Brazil and the United States.

ThyssenKrupp has invested a total of 12 billion euros ($15 billion) in the two mills and said their book value stood at 7 billion euros.

Hiesinger told Euro am Sonntag there were no signs that the company would have to take a major writedown on Steel Americas this year.

“But in the end that depends on the strategic solution,” he said.

The possible sale marks the latest step in ThyssenKrupp’s efforts to slash debt and trim down a business that once stretched from mega-yachts and submarines to elevators.

It is also selling its stainless steel unit to Finland’s Outokumpu as it tries to slim down its business and pay off debt.

Hiesinger said he expected that ThyssenKrupp would be able to cut its debt and reach positive free cash flow in the second half of its fiscal year through the end of September.

Copyright Reuters, 2012

Nestle appoints new managing director

Batato replac­es Donald who will be MD of Africa­n region. Nestle’s product portfolio includes dairy products such as Milk Pak, Nido, Everyday and yogurts; beverages like Fruita Vitals, Milo and Nescafe; and food products like Maggi noodles, Cerelac, breakfast cereals and confectionaries.

KARACHI: Nestle Pakistan on Friday announced a change in its top management and Magdi Batato became the new managing director with effect from May 25, according to a statement issued by the company.

Batato replaced Ian James Donald, who would be serving as managing director of Nestle Equatorial African Region (EAR).

Batato was the group technical and production director for Nestle UK and Ireland. He joined the Nestle group in 1991 in Switzerland and has pursued a successful factory and technical management career in Switzerland, Germany, Lebanon, South Africa, Malaysia, the UK and Ireland.

Donald had been managing director of Nestle Pakistan since September 1, 2009. He was deputed from Nestle Malaysia Berhad, where he served as director of ice cream, chilled products and associated businesses.

Under his leadership, Nestle Pakistan succeeded in delivering strong financial results despite floods for two consecutive years, which hit the livestock sector and affected production channels of the company.

Nestle’s product portfolio includes dairy products such as Milk Pak, Nido, Everyday and yogurts; beverages like Fruita Vitals, Milo and Nescafe; and food products like Maggi noodles, Cerelac, breakfast cereals and confectionaries.

Published in The Express Tribune, May 26th, 2012.

Recovery drive: Mobilink bank accounts locked down

Federa­l Board of Revenu­e blocks accoun­t until recove­ry of ‘under-declar­ed’ Rs8.6 billio­n taxes. GOVT’S CUT: Rs34b is the amount Mobilink paid in form of taxes in 2011.

ISLAMABAD: 

Tax authorities on Thursday seized all bank accounts of Mobilink until it recovers Rs8.6 billion, an amount the country’s largest cellular service provider collected from customers in form of taxes but did not deposit in the national exchequer.

“All bank accounts of the company have been attached and imports blocked accordingly and further action will be taken by the next working day,” FBR announced in a statement.

An official of the FBR told The Express Tribune that FBR in the next step will seize the company’s head office and regional offices. The move is one of measures the tax authority is pursuing to achieve this year’s revenue target of Rs1.952 trillion. Federal Board of Revenue took the drastic step after the Income Tax Tribunal upheld a decision of Large Tax Payer Unit, sustaining the decision to recover Rs8.6 billion from Mobilink.

It was the second controversial decision taken in less than 24 hours, as FBR earlier waived off penalties and surcharges imposed on withholding agents for illegally withholding tax deducted from taxpayers but did not deposit in the kitty.

From July 2011 to April 2012, the FBR collected Rs1.42 trillion in taxes and has to bag another Rs528 billion in the remaining two months to reach its target. Unofficially, the target has been revised to Rs1.928 trillion, according to an FBR official.

According to the FBR, Mobilink owed Rs8.6 billion to the exchequer on account of misdeclaration of Sales Tax and Federal Excise Duty. It said that the Income Tax Appellate Tribunal recently upheld the decision of the LTU, Islamabad and confirmed the payable tax amount of Rs8.6 billion.

After the Tribunal’s decision, the tax authorities formed various teams to recover the amount from the company through attachment of bank accounts, blocking of imports and recovery through suppliers of the company, which include other telecom companies as well as the Pakistan Telecommunication Authority.

“There is some misunderstanding at some stage and we are seeking clarifications from the FBR,” said Mobilink spokesperson Husain Ali Talib. The company would soon issue a statement after seeking clarifications from the FBR, he added.

In the official statement issued later in the day, Mobilink said that the FBR’s ruling on Sales Tax and FED is still sub-judice. Mobilink is one of the largest corporate tax payers in Pakistan, and has always remained at the forefront of making its due contribution to the nation’s exchequer, adds the statement. In 2011 alone, Mobilink paid taxes amounting to Rs34 billion.

Controversial relief

The FBR issued two separate statutory regulatory orders on Thursday aimed at reducing tax liabilities of various sectors. After struggling for at least a year, the FBR through SRO 549, reduced minimum tax rate by 50% for those motorcycle dealers who clear their outstanding liabilities by June 30, 2010. Similarly, to motivate default dealers, the FBR has lured them by waving off 75% of the payable tax for the current fiscal year provided they deposit the amount before the end of the current financial year and help reach its tax collection target.

The FBR also announced amnesty for steel melters and re-rolling mills through SRO 550 on Thursday.

For those who did not meet their tax liabilities last year, the FBR has reduced minimum turnover tax to 0.5% or Rs280 per ton, whichever is higher, provided the melters deposit the amount by June 30. For 2008 to 2010, the withholding tax rate on purchase of steel scrap has also been reduced to 1% or Rs300 per ton.

For 2011 and 2012, the rate of withholding tax on purchase of steel scrap will now be 1% of value of purchase or Rs400 per ton provided the amount is deposited before end of the fiscal year.

For steel re-rolling mills, the rate of minimum tax on turnover is reduced to 0.5% of turnover or Rs315 per ton, provided the millers deposit the outstanding liability of last one year by end of this month.

Similarly, for fiscal years 2008, 2009 and 2010 the rate of withholding tax on purchase of ingots and billets will be 1% of the value of purchase or Rs450 per tons provided they deposit the amount before close of fiscal year.

Published in The Express Tribune, May 25th, 2012.

Oil purchase: Power companies reluctant to make advance payments

New LC-backed system can elimin­ate circul­ar debt from energy chain.  STUCK: Rs205b are the receivables of PSO. CREATIVE COMMONS

ISLAMABAD: 

A persistent tussle between power companies and a major oil supplier on advance payments may aggravate the energy crisis as power producers have so far been reluctant to buy petroleum products by opening letters of credit which will ensure prompt payments for oil supplies, sources say.


The new mechanism, if adopted by all energy companies, will ensure smooth oil supply on cash rather than credit and will not create circular debt which has plagued the entire energy chain for the past many years.


On its part, Pakistan State Oil (PSO), the largest oil marketing company of the country, has started opening LCs for purchase of petroleum products from refineries after Pak-Arab Refinery Company (Parco) refused to supply on credit.


PSO is adopting the mechanism as its receivables, mainly from power companies, have touched Rs205.98 billion while it has to pay Rs178.802 billion to local as well as international fuel suppliers.


“The LC-backed system will force power companies to make advance payments to oil suppliers,” an official of the Ministry of Petroleum and Natural Resources said. “There will be no oil for the power sector if it does not make payments in advance.”


A senior official of the Ministry of Water and Power said power companies seemed not to be in a mood to adopt the new system. “The system, introduced by PSO, can be successful only if the power sector accepts it and opens LC for oil purchase,” he said.


However, at the same time, the official stressed that power companies had no money to implement the LC-backed payment system.


A PSO spokesperson said the company, as part of the vision of the new managing director, had embarked on a campaign to strengthen the supply line of petroleum products with maximum purchase from local refineries.


“In pursuit of this objective, the company has entered into sale-purchase agreements with Byco Petroleum and Bakri Trading Company as well as renegotiated its contract with Parco,” she said.


She was of the view that the initiative would benefit the national economy by reducing dependence on imported oil products, cut spending of foreign exchange, encourage foreign investment in the energy sector and maximise output of local refineries.


Published in The Express Tribune, May 23rd, 2012.

Upcoming budget will not burden taxpayers: Shaikh

Financ­e minist­er says new tax regime will be people friend­ly. Federal Minister for Finance Dr Abdul Hafeez Shaikh said that there is a 24% increase in collections during the first 10 months of the current fiscal year against the corresponding period last year, an unprecedented increase. PHOTO: AFP/FILE

ISLAMABAD: Federal Minister for Finance Dr Abdul Hafeez Shaikh declared on Friday that the government would not put additional tax burden on taxpayers during the upcoming budget for the fiscal year 2012-13. “There will be no `unpleasant surprise’ that becomes worrisome for people,” the minister said while concluding a seminar on “Broadening of Pakistan Tax base: A harmonised strategy for revenue mobilisation.”  He added that the low-income bracket will not be taxed. Besides, he said that the government will make sure the tax regime is people friendly, as giving relief to the people is its ultimate goal. Shaikh stated that the seminar was held with an aim to share ideas for bringing harmony among provinces and federation and take measures for information sharing.

On the occasion, the minister praised the efforts of the Federal Board of Revenue (FBR) for its extraordinary efforts in the field of revenue collection. He said that there is a 24% increase in collections during the first 10 months of the current fiscal year against the corresponding period last year, an unprecedented increase. He said that despite this notable achievement, there is still room for improvement in direct tax mobilisation, sales tax on services, simplifying tax system and in projecting a better image of the FBR. He clarified that the government is not politically influencing the FBR and the organisation is autonomous.

Discussing the issues of provinces, Shaikh said that more resources were transferred to provinces following the 7th National Finance Commission award while the 18th amendment gave greater power to them.

He urged the federal, provincial and local governments to collect taxes according to their defined jurisdictions. The minister also announced formation of four working groups to help harmonise different issues between federation and provinces and devise a better strategy for the overall improvement of tax system.

The groups include the income tax group headed by Dr Anjum Naseem, sales tax on services group headed by Qaisar Bengali, automation group headed by Bashir Ali Muhammad and policy group headed by Dr Ayesha Pasha.

Speaking at the seminar, renowned economist Qaisar Bengali highlighted the importance for imposing capital gains tax on stock exchange as a permanent measure besides advocating general sales tax on land and imports.

He stressed the need for stopping de-industrialisation that has been taking place in the country besides introducing wealth tax.

Published in The Express Tribune, May 26th, 2012.

Agri varsity to set up solid waste power plant

5MW pollut­ion-free plant will serve as model for other instit­utions. CHEAPEST: 6 cents per unit is the cost of geothermal electricity PHOTO: FILE

FAISALABAD: The University of Agriculture Faisalabad (UAF), in collaboration with a private firm, is developing a master plan for setting up a five-megawatt solid waste power generating plant, which will make the university free from pollution and the first green institute in the country.

UAF Vice Chancellor Dr Iqrar Ahmad discussed this in a meeting with a delegation of Vita Pakistan, led by its President Mahboob Ali Manji, along with a technical team.

Ahmad said making UAF a ‘green campus’ would serve as a model for other institutions and was aimed at ending pollution from the country.

“Pollution is a cause for grave concern and it is the need of the hour to accelerate efforts to remove the curse from the country,” he said.

“Educational institutions should spread knowledge about different ways of power generation in order to help the government overcome the energy crisis,” Ahmad suggested.

President of Vita Pakistan, a food, beverages and dairy company, Mahboob Ali Manji pointed out that production of geothermal electricity was on the rise across the globe and with the help of this technology, Pakistan could generate cheapest power, costing only six cents per unit while thermal power cost 18 cents per unit.

He said southern coastal area of the country was spread over 1,300 kms, which has the potential to run 15 wind power units in a kilometre to generate 75 megawatts of electricity.

He said the required speed of wind to run power units was 8 km per hour whereas the wind speed in the coastal area was 50 km per hour – a gift of nature that must be utilised.

Published in The Express Tribune, May 26th, 2012.