Provinces as panacea

The federal government’s attempt at carving out a new province from Punjab, oddly titled ‘Bahawalpur Janoobi Punjab’ (BJP), has raised a cacophony of voices either objecting to its composition, or calling for the creation of another province as well, or questioning the constitutionality of proposing the BJP in disregard of the Punjab Assembly’s resolution. Partners in the ruling coalition crossed swords, with the PML-Q and the MQM putting across the idea of a Hazara province and the ANP feeling outraged at it and staging a walkout. The JUI-F, an opposition party, and the ANP filed their note of dissent on the report of the National Commission on New Provinces. The PML-N is boycotting the commission for ignoring the Punjab Assembly’s resolutions, with Chief Minister Shahbaz Sharif terming BJP as an unnatural hybrid being created as a ruse to put off elections. Besides, Monday witnessed a shutter-down in Mianwali, protests in Multan, Bahawalpur, Sargodha and Bhakkar, and boycott of courts by lawyers in Bakkar – making different, some even contradictory, demands. Tehreek Hazara threatened to stage a sit-in before Parliament in favour of its demand for a separate province.
The new-fangled proposal is, basically, the outcome of the ruling parties’ urge to make political gains by currying favour with the local population, which is made to believe that the root cause of their problems is the larger governing unit they have at present and that the new province is the deal that would solve them. Looking at it keenly would convince anyone, though, that there is little to recommend in terms of real benefit to the local people. Rather, the new provinces’ resources would straightaway come under strain when it would have to bear the expenses of the ministerial and administrative paraphernalia; and its functionaries would demand perks and privileges enjoyed by their counterparts in the other units of the federation. For a country already under heavy pressure of a ruined economy and mounting debts, the very thought of another financial obligation would prove lethal.
The financial and economic factor apart, the idea of a new province suggests poor appreciation of another fundamental issue facing the country, which strike even a casual observer of the local scene straight in the eye. And that is the dangerous evil of parochial thinking in the face of issues crying out for a national approach to solve. Efforts at this point in time should mainly be focused on reversing the fissiparous trend. The creation of another federating unit on linguistic or ethnic grounds would rather tend to harden the local feeling and prove disastrous for the country, as we already hear calls for Hazara province; and soon the demand for Jinnahabad i.e. Karachi province would hit the newspaper headlines.
It is difficult to imagine that the BJP proposal would pass muster at the Supreme Court whose intercession would certainly be sought to judge its constitutional validity. It lacks the seriousness needed for such a crucial move; one would, thus, tend to agree with the view that the whole drama is being enacted to gain political support from southern Punjab during the coming elections.

Miners’ misery

The mine safety record in Pakistan is dismally poor. Fatal accidents are frequent and generally do little to provoke meaningful debate or influence the move towards a safety culture. There were fatal accidents in Hangu and Orakzai Agency late last year, and 43 died in a single incident in 2011. On Monday eight miners died in an incident at a private mine in the Dukki tehsil of Loralai district. They died as a result of an accumulation of methane gas which either exploded and killed them or simply suffocated them to death. The sequence of events is depressingly familiar. The men go to work as normal and fail to reappear at the end of their shift. Others go to see what is wrong, discover the tragedy and call the rescue teams – and then it takes several hours for relief to arrive.

The chief inspector of mines has ordered the enquiry that is always ordered and which never makes one iota of difference to the safety of poor men who go underground to work and try and feed their families. The mineworkers union has rightly held the mine owners responsible. Owners never invest in safety equipment and training. Mass-casualty accidents happen in places where large workforces drawn from impoverished communities work in often appalling conditions. Even where the number of casualties is in the hundreds, as in the Baldia factory fire, nothing is done to either enforce existing safety legislation or encourage a culture of safety in the workplace. Life is cheap, and the lives of the poorest the cheapest of all.

GDP growth 3.7pc in FY-12: State Bank warns of debt trap

KARACHI: The State Bank of Pakistan has warned that the fiscal deficit of 8.5 per cent last year (FY-12) is not sustainable and could push the country towards a debt trap as the public debt-to-GDP ratio has reached 62.6 per cent.

The annual report for FY-12 released by the bank here on Wednesday rejected the government’s expectations for higher economic growth and low fiscal deficit for the current fiscal year, FY-13.

It said the real Gross Domestic Product grew by 3.7 per cent in FY-12, less than the target of 4.2 per cent.

“The target GDP growth of 4.3 per cent for FY-13 appears optimistic; we think Pakistan will grow at about the same rate as it did last year, 3.7 per cent.”

The report sees the fiscal deficit for FY-13 much higher than the target set by the government. “While the government hopes to achieve a fiscal deficit target of 4.7 per cent of GDP, we think a range of 6-7 per cent is more realistic.”

Although the increase in fiscal spending contributed to commercial activity, it did so at the cost of pushing Pakistan’s budget deficit to 8.5 per cent of GDP.

“The size of the fiscal deficit is not sustainable as it is contributing to inflation; squeezing out private investment; impacting the balance sheet of commercial banks; and could push the country into a debt trap.”

The report said the transfer payments were another heavy item on the fiscal side. With income support programmes like the Watan Card and Benazir Income Support Programme, direct outreach was deemed necessary to alleviate the suffering from the floods in FY-11.

“Another fiscal drain is the weak financial position of public sector enterprises (PSEs). Direct support to Pakistan Railways, Pakistan Steel Mills, PIA and others PSEs, amounted to Rs33.8 billion in FY-12,” the report said.

The economy underperformed but this outcome was expected given the energy shortages; security concerns; and floods in two consecutive years, the report said, adding that the growth was more broad-based compared to FY-11, as it was evenly distributed across agriculture, industry and the services sector.

The SBP cautioned over higher consumption during FY-12. “It is important to realise that over-dependence on consumption makes growth unsustainable, especially when the country’s investment rate has been falling.” During FY-12, the investment-to-GDP ratio reached a low of 12.5 per cent, due to security concerns; energy constraint; excess capacity with the manufacturing sector; the fiscal spillover on the balance sheet of commercial banks and concerns about sector-specific policies.

The report said the subsidies turned out to be more than three times the target, but this included Rs391 billion that was spent to consolidate the PSEs’ debt, especially in the power sector. “Excluding subsidies, the fiscal deficit narrows to 6 per cent of GDP.”

This reflects higher-than-target expenditures, including debt-servicing.

“The fiscal devolution has not been as smooth as anticipated.”

The report said the country’s domestic debt increased by Rs1.6 trillion (year-on-year growth of 27 per cent) during the year, and the public debt-to-GDP reached 62.6 per cent.

The shift of this debt towards the shorter-end has not only increased the debt-servicing burden on the country, but has also intensified the rollover and interest rate risks.

These debt dynamics, together with persistence in primary and revenue deficits, indicate that Pakistan could move into a debt trap, said the report.

“On a final note, we would stress the urgent need to embark on structural reforms in the energy sector, PSEs and public finances,” it said.

Nepra unearths another RPP-like scam

ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) has unearthed a rental power projects-like controversy, alleging that distribution companies of Wapda contracted for about 20 years over 135MW generation capacity without following rules and regulatory procedures.

About 10 captive power plants (CPPs) belonging to influential industrial groups in textile, cement and power sectors were contracted by three distribution companies of Wapda under a policy approved by the water and power ministry in 2009, according to eight separate orders issued by the power regulator and sent to the government.

Prime Minister Raja Pervez Ashraf was minister for water and power when the New Captive Power Policy was approved in 2009, which did not pass through the approval process of the federal cabinet or its economic coordination committee.

Interestingly, during the course of public hearing in the recent months, the current leadership at the water and power ministry led by Chaudhry Ahmad Mukhtar and Secretary Nargis Sethi did not fully own its previous policy and advised that scarce gas should be provided on a priority basis to efficient independent power plants (IPP) like Halmore, Orient and Saphhire which most of the time remained closed because of fuel shortage, instead of inefficient CPPs.

Nepra did not approve of gas-based electricity tariff for 10 CPPs approved by the distribution companies, Pakistan Electric Power Company (Pepco), Wapda and the water and power ministry. The average levelised tariff for the CPPs was about Rs6 per unit which at current gas price stands at about Rs9-10 per unit. The regulator was of the opinion that it should not be more than Rs5.20 per unit.

Under the policy, the distribution companies signed 20 years’ contracts with the CPPs for their surplus capacity. The Hyderabad Electric Supply Company signed agreements for 19MW electricity with Thatta Power, 13MW with Omni Power, 20MW with Lucky Cement, 10MW with Anoud Textile and 10.5MW with Khokhar Power.

The Sukkur Electric Supply Company signed agreements for 16MW electricity with Naudero Energy, 19MW with Dadu Energy and 16MW with Shikarpur Power. The Multan Electric Power signed an agreement for 10.5MW with Roomi Fabrics and the Faisalabad Electric Supply Company signed an agreement for 11.6Mw with Galaxy Textile.

Nepra said the New Captive Power Policy was formulated and approved by the board of directors of Pepco and endorsed by the water and power ministry for brand new thermal power plants by the industrial sector.

It said it had approved generation licences for the CPPs subject to condition that the exclusive responsibility of determining tariff, rates and charges under the Nepra Act would remain with the regulator. “The authority considers that prescribing tariff by the government or any of its agencies other than Nepra is inconsistent with sections 7(6) and 12 of the Nepra Act, and hence the approval of tariff by the distribution companies or Pepco’s board or its endorsement by the power ministry was without any jurisdiction,” Nepra wrote in its orders.

Interestingly, Nepra has been allowing the tariff being paid to the CPPs through the consumer-end tariff until a year ago when the Supreme Court started hearing into the RPP case. Nepra discontinued payments to the CPPs through consumer-end tariff for three months and then allowed fuel cost to be built in the consumer tariff and disallowed financing cost and fixed charges.

Nepra said rules required the distribution companies to get the draft of power purchase agreement (PPA) with the CPPs scrutinised by the regulator before its formal signing with the CPPs, but this requirement was not complied with. It said the distribution companies did not approach the regulator for approval of its PPA under Nepra’s interim power procurement regulations of 2005.

Nepra said it was also a matter of record that the distribution companies did not even know the underlying assumptions/basis of the agreed (negotiated) tariff. “In view thereof the authority is constrained to construe that the consumers’ interest was not protected while agreeing different tariff components, particularly fuel cost component,” Nepra wrote.

It said the distribution companies had been asked to explain the basis of fuel cost to assess reasonability of its rates, but they had no information or basis of the tariff and terms and condition agreed in the PPA signed with the CPPs. The regulator said even the Central Power Purchase Agency (CPPA) – the umbrella organisation of distribution companies – did not have information about the actual thermal efficiency of the plants.

It said the CPPA claimed that heat rate and efficiencies of old and new plants had remained the same over the past 16 years even though a lot of improvements had been made in technologies and that tariff were negotiated without proper working and analysis. The CPPA’s response was “misconceived and misinterpreted” while “relevant laws, rules and regulations were not complied with”.

Nepra said the water and power ministry now conceded that the CPPs had low efficiency and argued that “utilisation of gas allocation may not be wasted on single cycle (of CPPs) of low efficiency rather it is advisable to use this pipeline quality gas to more efficient, bigger plants like Orient, Sapphire and Halmore”.

Discount rate may be increased by 50bps

ISLAMABAD: With expectations of a 50 basis points increase in discount rate in the upcoming monetary policy, which is to be announced on February 8, interest rates would return to double digits mainly due to an increasing trend in core inflation, it is learnt.

In order to harmonise the country’s fiscal and monetary policies, the Monetary and Fiscal Coordination Board is scheduled to meet with Finance Minister Dr Abdul Hafeez Sheikh here today in which efforts would be made to narrow down the differences in fiscal projections between the finance ministry and State Bank of Pakistan.

During the International Monetary Fund’s (IMF) recent visit, the hike in interest rate has not been made part of any prior action if Islamabad chooses to seek the next bailout package of $4 to $5 billion in coming months on the pretext that it was central bank’s domain and the Fund did not want to intervene in the SBP’s arena.

Most importantly, the IMF had been made part of prior action by raising the discount rate by a few percentage points during the last programme with Pakistan in November 2008.

However, there is a broader agreement now that the SBP’s monetary board would take the final decision. But rising core inflation suggests that the central bank would have to abandon the popular trend of decreasing discount rate this time and the discount rate might witness an upward revision by 50 basis points, thereby increasing to 10 percent from the existing 9.5 percent.

“The IMF will place certain conditions for amending the SBP Act to allow more autonomy to the central bank in case Pakistan enters into a new programme with the Fund,” said sources.

According to sources, the finance ministry still insists on achieving the budget deficit target of five percent of GDP in the current fiscal year, despite being aware that conservative stipulation of macroeconomic modeling suggests that the budget deficit could not remain below 6.4 percent of GDP in the ongoing financial year.

The IMF, on other hand, had predicted that the budget deficit would increase to seven to 7.5 percent of GDP in FY13. Financing of such a huge deficit would remain a major challenge for economic managers.

To bridge the financing of Rs1,700 billion, in case the budget deficit stands at seven to 7.5 percent of GDP, would be a major challenge for the government in months ahead. In view of revenue shortfall by the Federal Board of Revenue to the tune of Rs200 billion, the International Monetary Fund asked the government to take additional measures to increase collection up to Rs2,190 billion against the desired target of Rs2,381 billion.

SBP report projects 3.7pc GDP growth in FY13

KARACHI: Pakistan’s gross domestic product (GDP) is likely to grow by 3.7 percent in the current fiscal year, while fiscal deficit target would remain in the range of six and seven percent of GDP, according to the annual report for the fiscal year 2011-12 issued by the central bank on Wednesday.

The State Bank of Pakistan (SBP) also expressed concern over the rising domestic debt and fall in private investment.

Usually, the SBP annual report was issued between October and December each year; however, this is the first time that the report has been released in January.

The SBP’s actual projection for the Pakistan’s real gross domestic product (GDP) is between three and four percent against the official target of 4.3 percent but, at the same time, it assumes that the economy will grow around the same rate (3.7 percent) as it did last year.

Despite the fact that the central bank believes solution to Pakistan’s economic problems lies in initiating decisive reforms in the fiscal, public sector enterprises and energy sector, it also predicts that structural problems in the energy sector are unlikely to resolve in the near-term.

“Since the government has paid the accumulated subsidies in FY12, we do not expect the same level of fiscal pressure this year. The government is hopeful to achieve a fiscal deficit target of 4.7 percent of GDP but we think a range of six and seven percent is more realistic,” according to the report.

A key apprehension for the central bank is the ongoing decline in domestic investment. Although saying that the investment environment in Pakistan is likely to remain challenging and with the recent 250 basis points cut in the benchmark interest rate, it seems that private investment would be revived, providing some relief to commercial enterprises.

“With interest rates at the current levels, commercial banks may be incentivised to book high return private assets, rather than just place money with the government. Although the SBP does not tell banks what to do, commercial banks should be cautious about how their balance-sheets are evolving and look to diversify their asset portfolio with a long-term view,” it said.

The report showed that Pakistan’s foreign exchange reserves fell by $4 billion against an initial projection of $4.4 billion. Nevertheless, this contributed to 9.1 percent depreciation of the rupee during the course of the year. The rupee depreciated from November to late December 2011.

“The increase in fiscal spending pushed the budget deficit to 8.5 percent of GDP during the last fiscal year. This outcome is not surprising with the settlement of accumulated circular debt, losses stemming from the public sector enterprises, higher interest payments and floods during the last few years, which boosted public works and transfer payments,” it said.

“However, the size of the fiscal deficit is not sustainable as it is contributing to inflation; squeezing out private investment; impacting the balance-sheet of commercial banks; and could push the country into a debt trap,” it said.

Given the bank-dominated financial sector in Pakistan, the State Bank has expressed concern that the banks are shifting away from their role as intermediaries between private savers and borrowers. This shift in lending strategy is marginalising the private sector.

“Commercial banks are clearly not averse to lending to the government. As of June 2012, just the deficit financing by commercial banks (ie, their holdings of government securities) accounted for 34.4 percent of their aggregate balance-sheet, while total private sector lending was only 39 percent. In June 2008, the stock of government securities was only 16.4 percent, while lending to the private sector was 52.4 percent of their total assets,” the report revealed.

The State Bank expects inflows from privatisation (Etisalat) and the 3G licences to be realised in FY13.

During FY12, the investment-to-GDP ratio reached the low of 12.5 percent, due to security concerns, energy constraints, excess capacity with the manufacturing sector, fiscal spillover on the balance-sheet of commercial banks, and concerns over sector-specific policies. The country’s domestic debt increased by Rs1.6 trillion (year-on-year growth of 27 percent) during the year, and the public debt-to-GDP has reached 62.6 percent.

The SBP remains optimistic that inward remittances will continue to post strong growth. It expects a current account deficit of 0.5 to 1.5 percent of GDP against the government’s target of 1.9 percent for FY13.

The SBP estimates inflation to be in the range of eight-nine percent in FY13, against the annual plan target of 9.5 percent.

Rupee down against dollar

KARACHI: The rupee slightly fell against the dollar in the foreign exchange market on Wednesday, said dealers.

In the interbank market, the rupee closed at 97.70 to the dollar, down by three paisas as compared to Tuesday’s closing of 97.67.

Market dealers said that the market started the day in the range of 97.69 and 97.71 and witnessed the high of 97.70 and the low of 97.67.

The rupee also posted minor losses in the open market, as it was traded lower at 98.60 and 99.15 for buying and selling, respectively, said dealers.

New provinces on administrative not ethnic grounds, says Nawaz

shahbaz-nisar-mushahid-inp-670

LAHORE: Pakistan Muslim League-Nawaz (PML-N) chief Nawaz Sharif on Monday said that creation of new provinces should only be based on administrative grounds and not on linguistic or ethnic, DawnNews reported.

Speaking while chairing the party’s consultative meeting in Model Town Lahore, he said the “Bahawalpur province” is deep-rooted aspiration of people of the area. However, he added that Punjab should only be divided according to resolution passed by the provincial assembly.

The meeting was attended, among others, by Chief Minister Punjab Shahabaz Sharif and Leader of the Opposition in the National Assembly Chaudhry Nisar Ali Khan.

Important national issues like voter lists, limitations of constituencies and overall political situation of the country were consulted upon in the meeting.

During his speech, Nawaz Sharif said the Pakistan People’s Party (PPP) was raising the slogan of dividing Punjab on political grounds, adding that division of the province based on pure abhorrence would not accepted at any cost.

He reiterated that creation of new provinces should only be based on administrative grounds instead of linguistic or ethnic.

Later speaking to media representatives after the meeting, Shahbaz Sharif said the party will table a resolution for Bahawalpur and Southern Punjab province in the provincial assembly. He said Bahawalpur will be the capital of the new province.

Assailing President Asif Ali Zardari, the chief minister asked, “Where was President Zardari when Southern Punjab was inundated during floods?”

Kamran’s body needs to be exhumed: Rana

LAHORE: Punjab Law Minister Rana Sanaullah has claimed that incomplete samples of Kamran Faisal were sent to the forensic laboratory and in order to get correct samples his body would need to be exhumed.

Sanaullah further claims that federal institutions were creating hurdles in this regard. The Punjab Law Minister added that forensic experts from the Punjab Forensic Laboratory wanted to take samples themselves but departments under the federal government did not cooperate with them.

Meanwhile in response to a letter by the Punjab Forensic Science Agency, the Islamabad District Administration has said that the permission to exhume Kamran Faisal’s body will be given by Secretary Punjab.

Kamran Faisal, who was part of the National Accountability Bureau (NAB) team as an investigator to probe the Rental Power Projects (RPP) scam case, was found hanging from the ceiling fan in his room at the federal lodges.

The Supreme Court decided to hold a separate hearing from the RPP case over Kamran Faisal’s death. NAB Chairman Fasih Bokhari has claimed that Kamran committed a suicide, while his family members maintain that he was murdered.

Punjab conducive for investment: CM

Punjab Chief Minister Muhammad Shahbaz Sharif has said that large opportunities of investment exist in livestock sector of Punjab and there is a need to further develop this sector.

He said Punjab government has provided conducive atmosphere for investment, and foreign investors are being extended maximum facilities and incentives. He called on Turkish investors to avail investment opportunities existing in livestock and other sectors of Punjab province.

The chief minister was talking to a Turkish delegation of livestock sector which called on him under the leadership of Turkish businessman, Mr Dursun, at Model Town, Wednesday. During the meeting, views were exchanged regarding cooperation in the livestock sector, besides exporting Halal meat.

Secretary Livestock Punjab was also present during the meeting. Talking on the occasion, Shahbaz Sharif said that Punjab government has taken effective steps to promote livestock sector. He said Pakistan is a prominent country in the world, in terms of milk and meat production, while the economy of the country could be strengthened by providing incentives and facilities to the investors in livestock sector. He informed the Turkish delegation that a modern slaughter house has been established in the provincial capital, which is benefiting livestock farmers. He said modern slaughter houses would also be established in other cities of the province as well, through which precious foreign exchange would be earned by exporting Halal meat.

Talking to the chief minister, the Turkish businessman Dursun said that he is visiting Pakistan for the first time and has realised that great investment opportunities existed in Punjab. He said Turkey is willing to work with Punjab government for the promotion of livestock sector.