— File Photo.

ISLAMABAD: In a major decision taken days after departure of the federal cabinet, the government partially reversed on Tuesday power sector reforms by putting all the 16 corporate power companies under the control of the Wapda Chairman Syed Raghib Shah.

“The competent authority has been pleased to designate the chairman, Wapda, to act as overall coordinator for the power sector to enhance the administration and coordination. Chief executive officers of Discos (10 distribution companies) and Gencos (three generation companies), NTDC/CPPA and Pepco will report directly to him for coordination purpose,” a notification issued by the ministry of water and power said.

The chairman will be reporting to the secretary for water and power, it added. The Wapda chairman has been empowered to nominate a member each on the boards of directors of all distribution and generation companies, the National Transmission and Distribution Company (NTDC) and the Pakistan Electric Power Company after completion of formalities.

Mr Shah, who was appointed chairman a few months ago reportedly on the desire of President Asif Ali Zardari, will now have the powers of the federal power minister except that he will be reporting to the secretary, according to an official.

In an unusual development, the ministry also created the post of co-chairman on the board of directors of the NTDC and the Central Power Purchasing Agency (CPPA) for the Wapda chairman.

According to sources, the government will have to amend the Companies’ Ordinance to make room for the post of co-chairman because existing laws provide for a board of directors headed by a chairman.

The government also sacked eight members of the NTDC/CPPA board and reconstituted it, reducing its strength from 12 to eight.

Those removed from the board are Khalid Hussain Rai, Waqar Zakaria, Salman Burney, Aamir Qawi, Dr Muslehuddin, Dr Zafar Mueen Zafar, Noorul Arifeen Zuberi and Laeeq Ahmed.

They had been inducted from private sector through a selection process put in place by the cabinet committee on restructuring headed by former finance minister Abdul Hafeez Shaikh.

While reconstituting the NTDC board, the government also excluded the Managing Director of the Private Power and Infrastructure Board, N. A. Zuberi, even though the PPIB is responsible for attracting investment and signing contracts for development of all power projects.

The newly constituted board will have four directors of the previous board — Khalid Mohtadullah, Bashir Ahmad Dahar, Mohammad Qasim Khan (Wapda member power) and Asjad Imtiaz Elahi (federal flood commissioner).

The new members are Aziz Mujahid, Sharafat Ali Sial, additional secretary for water and power, and Ibrahim Rind.

The sources said Wapda had been seeking re-amalgamation into the authority of the power sector that had been unbundled under the reforms under way since 1990.

They said the newly appointed secretary in charge of the ministry, Rai Sikandar, had been able to persuade the prime minister and the president that the reform process had complicated the power system, instead of improving its performance because of fragmentation.

The sources said the prime minister had been informed that former secretary Nargis Sethi had played havoc with the system allegedly by inducting handpicked officers from the ministry to look after corporate companies on an ad hoc basis.

Mr Sikandar, who is yet to be promoted to grade 22, presented his vision of revival of the power sector under a well established national institution of Wapda.

He convinced the prime minister that an independent and yet ad hoc set-up in the NTDC/CPPA did not have the capacity to sign power purchase agreements with private investors and created hurdles in the setting up of solar, wind and hydroelectric power projects being promoted by provincial governments, involving over 1,500mw.

“Practically, the power sector’s early 1990s status has been restored,” an official said.

He said Wapda had been separated from the power sector in the early 1990s under a strategic plan for restructuring the power sector on the desire of international lenders to attract private investment. The reform process was approved in phases by successive federal cabinets but the sector’s problems, including shortages, continued to increase.

Dr Abdul Hafeez Shaikh. -File Photo

ISLAMABAD: Pakistani Finance Minister Abdul Hafeez Shaikh resigned on Tuesday, two officials said, amid speculation that he may lead a caretaker government that must be set up before national elections scheduled for this spring.

Pakistani law stipulates that the cabinet must step down and a caretaker government be in place for 90 days before an election. The date for the election has not yet been set.

“He’s the government’s top nominee for the prime minister in the caretaker government,” said one of the officials.

The opposition leader and ruling party must agree on a list of officials to head the caretaker government.

But the opposition may object to Shaikh’s appointment because he is seen as being too close to the military and served as privatisation and investment minister under former military dictator Pervez Musharraf.

Shaikh will be replaced by the state minister for finance, Saleem Mandviwalla, said one official in the finance ministry and another high-ranking government official.

Shaikh, who holds a PhD in economics, taught at Harvard University and worked at the World Bank for several years, advising 21 countries, including a stint as World Bank country head in Saudi Arabia.

He leaves as the Pakistan currency has slid to a historic low of 98 rupees against the dollar and the economy is beset by inflation, daily power cuts and plummeting foreign investment.

Pakistan only has enough foreign reserves left to pay for two months worth of imports. In 2008, that situation prompted a balance of payments crisis only ended when the International Monetary Fund offered a bailout package of $11 billion.

But in 2011, that program was suspended after Shaikh was unable to push through key reforms, most notably widening Pakistan’s tax base.

Financial analysts say that others in the ruling party share the blame for that failure. Most of Pakistan’s top politicians and their elite backers don’t pay taxes and are not keen to see reforms.

The IMF has said it will not consider rescheduling repayments of the $6.2 billion Pakistan still owes without a comprehensive plan for reform agreed on by all political parties.

Pakistan’s Finance Minister Abdul Hafeez Shaikh – File photo

WASHINGTON, Nov 30: It’s clear to both the US and Pakistan that trade, investment and private sector growth are the future of their relationship, argue the Finance Minister Abdul Hafeez Shaikh and a senior US official.

In a joint piece for the Foreign Policy blog on Friday, Mr Shaikh and US Deputy Secretary of State Thomas Nides noted that the relationship had “weathered more than its fair share of crises over the years”.

But over the last few months, they had made real progress on issues critical to the interests of both of our countries,” they noted.

The meeting of the economic working group, which began at the State Department on Friday afternoon, focused especially on expanding economic relations.

“It is clear to us that trade, investment, and private sector growth are the future of the US-Pakistan relationship,” they wrote.

The two officials noted that the US remained the largest and most open economy to trade and investment in the world, and Pakistan was a large and emerging market with a growing class of entrepreneurs.

Two-way trade between Pakistan and the United States totalled nearly $5bn in 2011, spurred in part by the preferential access many Pakistani products enjoy under the US.

The US purchases nearly 20 per cent of Pakistan’s total exports — more than any other country in the world. Major US companies, such as Citicorp, Proctor & Gamble, Boeing, Pepsico, and Coca-Cola are already operating large and growing ventures in Pakistan.

The two officials also noted that US development assistance to Pakistan had broadened their economic ties, focusing on areas critical to economic growth — from energy to infrastructure, health to education.

US assistance was also helping alleviate severe electricity shortages in Pakistan, adding a total of 900MW to Pakistan’s grid by the end of next year. The US also has built more than 400 miles of roads since 2009 in Pakistan’s underdeveloped border regions, generating more business activity.

Pakistan benefits from one of the largest US government-sponsored people-to-people exchange programmes in the world, which includes scholarships, and university partnerships enabling thousands of Pakistani students to study in or visit the United States.

“This is making a difference in the lives of many Pakistanis, the two officials acknowledged.

Using this as a foundation for further improvement, the US and Pakistan have restarted a series of working groups to discuss a broad range of bilateral issues, including law enforcement, defence cooperation, economics and finance, and energy. These groups are designed to expand government-to-government discussions in the areas of our shared interests.

The US was also taking steps to empower Pakistani entrepreneurs, linking American investors and Pakistani entrepreneurs, providing Pakistani business leaders access to capital and mentoring resources.

“We believe that investing in Pakistan’s entrepreneurs is a smart business decision,” they wrote.

Both countries were also working to improve access to finance for growing companies, tapping the potential of the Pakistani market.

They were also expanding government-to-government dialogue to increasingly include the voices of businesses and civil society. That is why US Secretary of State Hillary Clinton launched the US-Pakistan Women’s Council in September with Pakistani Foreign Minister Hina Rabbani Khar. And the two governments also convened a business conference in London last month.

“The foundation for meaningful and sustainable bilateral cooperation rests in part on the shoulders of our private-sector leaders and entrepreneurs,” the two officials wrote.

“Challenges remain … but we will continue to develop the economic ties that will ultimately define our shared stability and prosperity,” they concluded.

Reuters Photo/ File

ISLAMABAD: The Economic Coordination Committee (ECC) of the cabinet decided on Tuesday to procure 10,000 tons of sugar from a mills in Sindh and to absorb the transportation cost of delivering 30,000 tons sugar to Tajikistan.

The meeting, presided over by Finance Minister Dr Abdul Hafeez Shaikh, did not take up a new incentive package for Japanese Yamaha company and deferred it after discussing a decision on allowing import of parts used in CNG kits manufactured in Pakistan for export purposes.

The ECC had decided about two weeks ago to sell 30,000 tons of sugar to Tajikistan at $20 per ton discount on international rate of $248 per ton on a government to government basis.

Over the intervening period, international sugar prices dropped to $228 per ton that was earlier agreed between the countries.

In view of decline in the international market, Tajikistan requested the government to bear the cost of transporting sugar from different mills to Nowshera for its onward transportation through road link to the central Asian state.

The ministry of commerce requested the ECC that in view of friendly relations with Tajikistan, the government should bear the cost of transportation between mills and Nowshera.

The ECC agreed to the proposal in the context of bilateral relations and approved export of sugar to Tajikistan on the same rate as decided earlier with transportation cost to be borne by the government of Pakistan.

The ECC also approved procurement of 10,000 tons of additional sugar over and above the approved quantity of 200,000 tons by the Trading Corporation of Pakistan (TCP) to compensate eight sugar mills affected due to decrease of their normal quota to meet a decision of the Sindh High Court.

The Sindh High Court had instructed the TCP to allocate 10,000 metric ton quota for procurement from M/s Adam Sugar Mills after hearing a case filed by the mill to ensure compliance of the court orders, The TCP issued acceptance letter to M/s Adam Sugar Mills Ltd for procurement of 10,000 MT sugar out of the quota deducted from the remaining 8 sugar mills on pro-rata basis. The decision will compensate the affected sugar mills.

The meeting discussed a proposal for a procedural change in deregulation of ex-factory price of high-speed diesel to provide a level-playing field to smaller oil-marketing companies who purchased HSD from domestic refineries.

The Secretary of Petroleum informed the committee that currently 93 per cent of HSD was being imported by Pakistan State Oil while 7 per cent was being produced in local oil refineries. PSO import price and local refinery HSD price as per existing pricing formula did not match and fluctuated in different directions.

The secretary pleaded that this difference in pricing created a disparity for small OMCs, which were entirely dependant on local refinery supply, because they could not import HSD due to their capacity and infrastructure constraints.

In most of cases, the local ex-factory prices remained on the higher side, putting smaller OMCs at a disadvantage and consequently forcing them to market HSD at the cost of their margin.

The ECC approved the domestic ex-refinery price of HSD on the premise that this would contribute about Rs1 billion additional revenue to the government.

The committee considered a summary from the Ministry of Commerce seeking to lift ban on import of CNG cylinders and conversion kits for which Letters of Credit or bank agreements as per State Bank regulations had already been concluded before Dec 31, 2011 and sought to allow import of parts and components of CNG kits for export oriented industries for which investments had already been made.

Dr Hafeez Shaikh directed the Commerce Ministry and the State Bank of Pakistan to provide further data on the revenue being earned by export of local manufactured CNG kits to ensure that parts and components of CNG kits were not used for local marketing despite a ban on fresh conversion of vehicles on CNG in view of gas shortage.

The ECC also directed the central bank to provide verified data to suggest how many import orders had been secured through Letters of Credit before Dec 31, 2011, so that only genuine importers affected by the ban on import of CNG cylinders and kits could be facilitated.

Finance Minister Abdul Hafeez Shaikh. — Photo by AFP

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 per cent 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 insurgents since 2007.

External forecasts for the current fiscal year see the budget deficit rising to about seven per cent 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 per cent of GDP in fiscal 2010-2011, says the Asian Development Bank, and less than two per cent of the population pays tax on their income.

On top of this, the government shells out huge sums on electricity subsidies — about 1.5 per cent 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 per cent, 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.

Federal Minister of Finance, Dr Abdul Hafeez Shaikh said the GDP of the country in the current fiscal year was 3.7 per cent. – AFP Photo

KARACHI: The Federal Minister of Finance, Dr. Abdul Hafeez Shaikh said that producing more jobs and economic growth are the main targets of the upcoming budget.

Federal Minister of Finance, Dr Abdul Hafeez Shaikh said that Rs 800 billion have been allocated to the provinces within the past two years.

Speaking at a pre-budget seminar in Karachi, Saikh revealed that the government is willing to impose tax with uniform ratio. He further said the GDP of the country in the current fiscal year was 3.7 per cent.

Shaikh added that the government has progressed in the private sector.

Finance Minister Abdul Hafeez Shaikh -File Photo

ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet decided on Friday to review oil prices twice a month and to lift 7.725 million tons of fresh wheat from farmers at a cost of Rs210 billion through banking credit to provinces.

Finance Minister Dr Hafeez Shaikh presided over the meeting, which also extended seven and a half year of tax holiday to a private group to set up another second-hand oil refinery in Karachi and allowed special funds like pension, gratuity, superannuation, contributory provident fund and trusts to make investments in the National Savings Scheme.

Wheat Procurement

Some members of the ECC questioned the rationale behind seeking the federal government’s sovereign guarantee to help the provinces raise Rs210 billion for wheat procurement because it was a provincial subject.

They were reminded by the provincial representatives that the federal government should not in principle be discussing the wheat procurement, but since the prime minister had unilaterally increased the support price for wheat from Rs950 to Rs1050 per 40kg, it was the centre’s responsibility to foot its bill.

And given the fact that over Rs179 billion worth of wheat-related loans were outstanding, it was difficult for the provinces to raise fresh credits for the current crop and hence the federal government would need to give guarantee for loan repayment.

The ECC agreed to provide guarantee for raising Rs210 billion to help the provincial governments and Pakistan Agricultural Storage and Services Corporation (Passco) to procure 7.725 million tons. The interest rate for Rs210 billion fresh lending would be decided later after negotiations with the banking industry.

The meeting approved a procurement target of four million tons for Punjab at Rs105 billion. Sindh will procure 1.3 million tons at a cot of Rs34 billion, Khyber Pakhtunkhwa 325,000 tons at a cost of Rs8.5 billion and Balochistan 100,000 tons at a cost of Rs2.6 billion. Passco will procure two million tons of wheat for strategic reserves at a cost of Rs59 billion.

The meeting was informed that about 4.5 million tons of wheat had been stored in government godowns, mostly in Punjab.

It noted that the next season would start with a carryover stock of about 3.5 million tons while a fresh wheat output of about 25 million tons was expected during the current season against a domestic consumption requirement of about 23 million tons.

Oil pricing

Mr Shaikh said that Ogra and the finance ministry had opposed fixation of oil prices on fortnightly basis instead of monthly basis on grounds that this would lead to hoarding and artificial shortage of petroleum products and public outcry twice a month.

He, however, defended the decision saying there was another view that suggested the impact of price changes should be divided into 24 installments in a year, instead of 12.

He said there were countries where adjustments in petroleum prices took place on a daily basis. An official said the change in pricing mechanism was made on the request of oil refineries to reduce uncertainty in inventory losses and price differential backlog.

Tax exemption for refinery

In reply to a question, the minister also did not see a big deal in grant of extension in tax holiday to Byco Refinery to set up another second-hand refinery of 135,000 barrels per day of refining capacity which had failed to meet its commissioning deadline by the end of 2012.

The petroleum ministry convinced the ECC that the techno-economic study be conducted by Byco itself within three months.

National savings

The meeting was informed that the ECC had stopped institutional investment in the national savings except special funds but a subsequent notification erroneously barred special funds like pension, gratuity, superannuation, provident fund and trust funds from investments in national saving schemes, resulting in withdrawal of Rs150 billion of these funds from NSS.

This was making the government excessively dependant on bank borrowing, which was not only expensive but also inflationary. Therefore, the ECC allowed these special funds to make investments in national savings.

The ECC allowed the United Bank to establish a subsidiary in Tanzania (UBL-Tanzania) with a total investment of $14 million.

The committee approved exemption of taxes and duties on import of gas pipeline, LNG and its machinery and equipment for production of low BTU gas.

The ECC deferred the collection of applicable taxes, duties and any other levies till the commencement of commercial operations of the natural gas and LNG import projects.

Brokers at Karachi stock exchange. - File Photo.

KARACHI: Pakistani stocks rose nearly three per cent on Friday on the back of an expected visit by the country’s finance minister to discuss outstanding issues such as a capital gains tax, dealers said.

Finance Minister Abdul Hafeez Shaikh is due to visit the Karachi Stock Exchange on Saturday.

The Karachi Stock Exchange’s benchmark 100-share index was trading 2.84 per cent, or 327.34 points, higher at 11,842.93 on turnover of 127.75 million shares at 3:12 pm.

“We are hopeful that the finance minister will present a long-awaited package which will be beneficial for the market,” said Shuja Rizvi, a dealer at brokers Al-Hoqani Securities Ltd.

Pakistan's Finance Minister, Abdul Hafeez Shaikh. - AFP Photo.

ISLAMABAD: As Pakistan-Afghan Joint Economic Commission began its session in Islamabad on Monday, Finance Minister Abdul Hafeez Shaikh underlined the need for a comprehensive review of current tariff and non-tariff regime to enhance the pace of bilateral trade between the two countries.

Inaugurating the joint economic session together with his Afghan counterpart Hazrat Omar Zakhilwal, the finance minister said that the two countries should carry out identification of ways to diversify tradable goods and services; transacting informal trade through lawful channels, and increased interaction between Pakistan-Afghan private sectors.

For the realisation of suggested measures, Hafeez Shaikh proposed early operationalisation of the memorandum of understanding signed between the Federation of Pakistan Chambers of Commerce and Industry and the Afghan Chamber of Commerce and Industry (ACCI) in March 2008 for establishment of Pakistan-Afghan Joint Chamber of Commerce.

The Ministry of Commerce has already approved registration of Pakistan-Afghan Joint Chamber of Commerce, and Pakistan proposes its inaugural session on the sidelines of the current joint economic commission meeting, Hafeez Shaikh said.

In the meantime, the Japanese government`s special representative on Afghanistan and Pakistan, Ambassador Tadamichi Yamamoto arrived in Islamabad on Monday.

He is expected to participate in the deliberations of the joint economic commission and hold talks with finance ministers of Pakistan and Afghanistan, official sources told Dawn.

In his inaugural speech, Hafeez Shaikh stated that Pakistan recognises that the new Afghan Transit Trade Agreement was now fully operational `but we are more than willing to discuss any issue that leads to furthersmooth bilateral trade relations between the two countries.

The finance minister stated that bilateral trade environment needs support of an efficient transportation network and sound trade infrastructure. Pakistan is committed to G8 initiatives for PeshawarJalalabad Expressway as well as Peshawar-Jalalabad rail link and to complete the Torkham-Jalalabad highway project, he said.

The finance minister said that Pakistan has embarked upon a major reform programme that aims at fiscal stabilisation, mobilising domestic resources, phasing out subsidies, restructuring the power sector and other public sector enterprises and strengthening social safety nets.

`We are working towards laying the foundation for a new growth model driven by domestic demand with a flexible exchange rate that moves in response to market forces with a more open, markedbased economy and a more developed and diversified financial system,` said Hafeez Shaikh.

The finance minister stated that the biggest challenge Pakistan was encountering was to rebalance the economy that will achieve multiple goals of high economic growth, employment and reasonable price stability in an uncertain international economic and financial environment.The volume of PakistanAfghan trade has risen from less than $200 million in 200001 to $2.5 billion in 2010-11, yet it does not reflect the true potential that exists between the two countries, notes the finance minister.

According to an official announcement, the joint commission will review the status of $300 million grant committed by Pakistan for the reconstruction and rehabilitation of Afghanistan.

A number of projects have already been started by Pakistan utilising the grant to build infrastructure, provide transport and educational and health facilities.

Finance Minister Abdul Hafeez Shaikh. — AFP photo

WASHINGTON: Pakistan will not take up the final $3.7 billion tranche of an International Monetary Fund loan package after rejecting strict reform demands, the Financial Times said Tuesday.

Finance Minister Abdul Hafeez Shaikh told the daily that the IMF conditions were too tough and the government would instead pursue a home-grown reform program, adding that the “resilient” economy did not need IMF help.

The Washington-based fund bailed out Pakistan with an $11.3 billion loan package launched in November 2008 as the country faced 30-year-high inflation rates and fast-depleting reserves, as well as a deadly insurgency.

But the IMF earlier this year indicated it was unsatisfied with Islamabad’s progress in dealing with its chronic fiscal problems and introducing promised structural reforms.

“Inflation remains persistently high, and budgetary problems are undermining macroeconomic stability,” it said in May.

An IMF spokesman declined to comment on the Financial Times report, but said that the standby facility had expired on schedule on September 30.

The fund has paid out two-thirds of the loan package, with the latest installment disbursed in May 2010.

Three months later the country was hit by the worst floods in its history, which led to a separate emergency aid payment of 450 million dollars. Since then however, the IMF and Pakistan have been at odds over fiscal management.

The IMF forecasts Pakistan to post growth of just 2.6 per cent in 2011, among the lowest in Asia, while inflation is tipped to stand at around 14 per cent this year and next — among the highest in the world.