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BUSINESS Sunday, 4 August, 2013
AkISTAnI government has decided to place a request before the new Iranian government for completely financing the vital energy project of Iran-Pakistan gas pipeline. Iran had committed to the previous PPP-led government a loan of $500 million for laying the pipeline in Pakistan, which would cost more than $1 billion. The two governments also agreed to award construction contract to Iranian firm Tadbir Energy. However, the contract could not be signed in the absence of sovereign guarantees by Pakistan. Speaking to the media the other day, Petroleum Minister Shahid khaqan Abbasi stressed that the government would continue work on the IP gas pipeline and “we will discuss the project with the new Iranian cabinet for seeking the entire financing.” Talking about liquefied natural gas (LnG) import from Qatar, Abbasi said Qatari government had asked Pakistan to build an LnG terminal before going for a gas supply deal. So far, no agreement had been signed for LnG import from Qatar, he clarified. “I visited Qatar along with Punjab chief minister, but the Qatari energy minister asked us to give a commitment that
Pakistan wants Iran to finance
gas PIPelIne Project
LnG terminal will be built first,” he said. Many countries have set up terminals first and then signed the gas supply deal. “We will follow this model,” Abbasi said. The consultant for LnG import has proposed that Pakistan bring the Asian Development Bank (ADB) on board for guarantees in an effort to avoid providing government guarantees. “We want LnG suppliers to accept guarantees provided by gas companies rather than government guarantees,” he said and declared that Pakistan would not import LnG from Qatar if the price was not feasible. He made it clear that the government would not explore the option of striking a state-to-state deal for LnG import from Qatar and said Doha had varying gas price agreements with different countries. Earlier, it provided LnG at $2 to $3 per million British thermal units (mmbtu) to Japan, which has now signed a deal at $16 to $17 per mmbtu. Similarly, India had struck an initial deal at $3 per mmbtu, but now it reached an agreement at $19 per mmbtu. India has also expressed interest in exporting LnG to Pakistan but has demanded a higher price, which Abbasi said was not acceptable. “We have asked India to revise the price.” According to the minister, bids will be invited for import of 200 million cubic feet per day of LnG on fast track through a terminal along with a jetty. In this
program, five parties are interested who claim that they will be able to bring LnG in six to eight months. He expected the government to sign a 10-year contract with the successful bidder and tolling charges would be paid to the terminal owner. “LnG imports will start in mid-October under this project,” he expressed the hope. In the second option, Sui Southern Gas Company (SSGC) had in-
vited bids for starting work on a retrofit project for LnG import. In this program, SSGC will convert Progas LPG terminal into an LnG handing facility. Technical bids had been opened, but financial bids were not. “We have asked SSGC board of directors to examine the financial bids. The government will push ahead with this project if it is technically and financially feasible,” he
said. 4Gas Asia has qualified for it and, according to Abbasi, PPRA rules also allowed the award of contract to a single supplier. Apart from this, two offshore projects of 500 mmcfd each were under consideration, which could be at Port Bin Qasim or Gwadar Port. “We can save $500 to $700 million per annum if we change fuel (from oil to gas),” he added.
IccI exhorts Pak to promote inter-regional trade
QUETTA: Melon vendors display their produce at the fruit market in Hazarganji on Saturday. INP
SECP ISSUES DRAFT REGULATIONS FOR INFORMATION SHARING KARACHI INP
The Securities and Exchange Commission of Pakistan (SECP) has issued the draft regulations for the information sharing with the name of Draft Centralised Information Sharing Solution for Insurance Industry (CISSII) Regulations, 2013. The draft regulations have been published to solicit public opinion and comments from the stakeholders. In its first phase, the CISSII is meant for information sharing among the life insurance companies. This technology-based information sharing solution is being implemented by the Central Depository Company (CDC), which will provide the necessary technological infrastructure to develop and maintain this arrangement. Earlier, the SECP as a part of its on-
going insurance reforms, emphasised the need of coordination between the life insurance companies regarding sharing of the critical information such as conduct of agents, postponed or declined life insurance risks and claims experience, among many others. It was proposed that a formal information-sharing mechanism be developed and managed by an independent body, possessing the capacity and technology infrastructure to manage such large data warehouse and support the efficient dissemination of the data. Accordingly, earlier this year, a memorandum of understanding was signed by all life insurers, and the CDC whereby the latter was mandated to develop and maintain information sharing solution. Commissioner (Insurance) Mo-
COURT ORDERS TO LODGE FIR AGAINST SECP OFFICIALS ISLAMABAD: West Islamabad Sessions Court ordered to lodge an FIR against SECP acting chairman Tahir Mehmood, SECP Commissioner Tahir Abdullah and Director HR & T Abid Hussain on wrongful restraint of an SECP officer. SECP Deputy Director Rana Mustafaa Yousaf filed the petition before the court contending that he was illegally restrained by the above-said officials from entering the office premises. The court ordered the concerned police officials to register the FIR against the accused. Council of petitioner Chaudhary Sohail Akbar Advocate said that Deputy Director Rana Mustafaa Yousaf had challenged the appointment of SECP Acting Chairman Tahir Mehmood which made him (chairman) angry. Rana Mustafaa Yousaf had even got the court orders for resuming his duty, but he was stopped by Abid Hussain on behalf of Tahir Mehmood from entering office and causing obstructions in his official assignments. Rana Mustafaa moved an application in the Kohsar Police Station but the police remained reluctant for weeks to take action against the bigwigs. Being disappointed by the police, the aggrieved officer moved the court through his council. After hearing the petitioner, the Sessions Court ordered the Kohsar SHO to lodge the FIR against the culprits without further delay. NNI
hammed Asif Arif has said that this information-sharing mechanism would help in bridging the gap of knowledge sharing and coordination in the insurance industry. He further said that this would also pave the way for a robust and technolog-
ically-efficient insurance industry envisioned by the SECP. The stakeholders opined that going forward the scope of the information sharing mechanism may be expanded to include non-life (especially health insurance) business as well.
ISLAMABAD: The trend of rising Chinese investment in Pakistan, especially in energy sector, has given a new hope to businessmen as they expect it would reduce energy crisis and help in expanding business activities. However, for sustainable economic development, it is essential that the government should also focus on promoting economic cooperation with all regional countries that offer tremendous scope for promoting trade and exports. Islamabad Chamber of Commerce & Industry President said this while welcoming the signing of MoU between the Punjab government and Norinco International Corporation Limited of China for setting up 300MW solar power plant in Cholistan. Bakhtawari said strong regional economic cooperation was an acknowledged tool for economic prosperity but termed it unfortunate that Pakistan had yet to promote strong relations with South and Central Asian countries to take full benefits of regional economic integration. He said due to lack of regional cooperation, intra-regional trade in South Asia had stagnated at around just 5 percent of its total trade while East Asia enjoyed 50 percent and Latin America enjoyed around 20 percent regional trade. Even Sub-Saharan Africa with poor transport and telecommunication infrastructure had over 10 percent intraregional trade, he said, adding Pakistan could also significantly overcome its energy problems by working for an integrated regional electricity grid with South Asia which would not only reduce power costs but also enhance manufacturing competitiveness for all South Asian countries. Bakhtawari said Pakistan should also make efforts for the development of rail, road and air links with regional countries that would facilitate the flow of trade across the region and would greatly reduce the costs of doing business. He said Pakistan should work for developing strong private sector connectivity with South Asia which was essential to promote regional economic cooperation. He was hopeful that Pakistan’s strong economic cooperation with its neighbours would serve as a credible instrument for peace, poverty alleviation and economic prosperity. INP
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BUSINESS B Sunday, 4 August, 2013
no final cost of electricity, no wheat supply to Iran
HIke In Pol PrIces will unleash inflation: Ptea FAISALABAD
ISLAMABAD: Non-fixation of cost of electricity and non-communication of this price by the National Transmission and Despatch Company (NTDC) to the ministry of food security is causing delay in supply of wheat to Iran. Pakistan had already signed agreement for importing electricity from Iran in return for supply of 1,00,000 tons wheat. In the first phase, 30,000 tones wheat will be consigned to Iran. As per ministry of food security the wheat is kept ready for further supply to Iran. All the reservations voiced by Iran in this connection have been removed. The Iranian food inspector had visited Pakistan and checked the quality of wheat and given clearance chit. But the NTDC has yet to communicate the price of cost of electricity to the ministry of food security so that the cost of electricity and wheat could be determined. But supply of wheat to Iran has been delayed. ONlINE
HE textile exporters have rejected the recent hike in power and petroleum product prices as it will trigger inflationary impact and will ultimately affect the overall trade and business environment. In a statement here on Saturday, Asghar Ali, Chairman, and Muhammad Asif, Vice Chairman of Pakistan Textile Exporters Association (PTEA) said that businesses were already facing tough challenges and further increase in petroleum prices and power tariff would create enormous inflation and great pressure on business activities. Power tariffs in Pakistan were already one of the highest in the region due to which Pakistani products were losing competitiveness in export markets, they said. In China, India, Bangladesh and other countries, electricity was available to industrial sector at lower rates than commercial users while in Pakistan, power rates for industries were far higher than commercial consumers. The decision to increase oil and power prices, particularly at a time when the economy was struggling for revival, was not in the favour of business growth. They said increasing power and petroleum prices would unleash a new wave of inflation and raise cost of doing business in the country. Instead of increasing petroleum prices, government should decrease petroleum levy to save economy from harmful consequences of high petroleum prices. Asghar Ali was of the view that the entire industrial sector was already facing multiple internal and external challenges and the recent increase would further aggravate the economic situation. He said
that the share of furnace oil in Pakistan’s energy mix is around 50 percent and hike in petroleum products would significantly push up production cost making our exportable products uncompetitive in international market. Government should make all-out efforts to accelerate oil exploration in potential areas of the country for achieving self-reliance as currently the country is producing just 15 percent of the total oil consumption and a huge amount is spent on oil import due to which our import bill has already surpassed US$ 15 billion. Muhammad Asif said that due to high cost of doing business, ratio of sick industries is on the rise and further increase in power tariff will drastically hit the industrial chain. He said that as result of current increase, especially exporters would suffer a great loss because of continuous fluctuation in tariffs. Instead of frequently increasing energy tariffs, government should develop strategies to control transmission, distribution and theft losses due to which the country is losing more than 30 percent of electricity. Government should focus on exploiting cheap and alternative energy resources for providing uninterrupted power supply to industry at affordable cost so that industrialists could improve productivity and promote exports, he said.
‘HIKE IN POL PRICES ‘DEPRESSING INDUSTRIALISTS’ FAISALABAD: The government needs to review the increase in petroleum products prices on priority basis and relief should be given to industry and people, said Mian Zahid Aslam, President Faisalabad Chamber of Commerce & Industry (FCCI) on Saturday. He said the industry was already suffering due to high manufacturing cost and the current increase in POL prices would add to the cost of production and it would become very difficult for the products to compete in the foreign markets. He said the surge in domestic oil prices would of course have negative consequences for the economy and the lives of ordinary people. He said the rise in prices had overall impact in direct proportion to the increase on all other sectors and products cost, ranging from transportation to industrial products including daily necessities as well as services. He said this would also leave painful impact on the ordinary persons who were suffering a lot due to cost-push inflation in the country. He said that the country’s economy was turning to its revival pace after a long stagnation. He said with the increase in cost of production, industrial activities could slow down and depress growth prospects of economy adding to the incidence of unemployment and raising the poverty level in the country which was already high. He said consistency in the inputs and utility cost should was a key requirement in making long-term business and industrial expansion plans. Such frequent and high increase in POL products might shatter the confidence and leave negative impression and impact on the local and foreign investors which are dire need of the country for economic stabilization. He said that there are international practices for fiscal space in the Budgets to absorb the increase in international prices of oil to offset or lower the impact. He said that energy crisis, deteriorating law and situation and high input cost along with current devaluation of Pak Rupee have already hurt badly the industrialization and economy growth in the country. Any slight increase in the POL product would multiply the cost of doing business, affecting the productivity of economy and competitiveness of exports and depriving the country of the precious foreign exchange earnings. He urged the government to immediately withdraw the hike in POL prices to save the industry and people from further depression. INP
Diamonds in the very rough, Pakistan lures contrarian private equity KARACHI AGENCIES
With its brisk kidnap industry, dirty politics and robust murder rate, Pakistan’s commercial capital karachi is an unlikely destination for a pair of go-getting financiers fired with the follow-the-money ethos of Wall Street. But the risk-hungry duo have forsaken budding careers in the US financial industry in the belief that somewhere in Pakistan’s ranks of unglamorous, overlooked family businesses lie hidden the seeds of future corporate giants. “I feel like being a kid in a candy store,” said Shaharyar Ahmed, 32, who started his career as an equity researcher at Goldman Sachs in new York, but who returned to his native Pakistan last year. “So many companies, amazing returns, growing in leaps and bounds it’s a buyers’ market.” Private equity is poised to take off in Pakistan, with contrarian investors betting that the country is endowed with far greater potential than news reports chronicling Taliban bombings, the war in neighbouring Afghanistan or an evolving democracy’s frequent bouts of political drama might imply. While Pakistan is undoubtedly a high risk play, investor sentiment has improved following a smooth transition at general elections in May and pledges by the new government of Prime Minister nawaz Sharif, himself a wealthy business mogul, to tackle a stubborn power crisis that has stifled manufacturing. Ahmed and his collaborator Isfandiyar Shaheen, 30, are at the vanguard. As co-managers of Cyan Capital, a $50 million private equity fund set up by the Dawood Hercules Group, one of Pakistan’s biggest conglomerates, they must prove that they can find finance-starved companies ready for rapid expansion. The United States, which is slowly mending its roller coaster relations with Islamabad, seems to share Cyan’s confidence.
In June, the US development agency USAID pledged $48 million as the seed capital for two private equity funds to invest in small and medium sized Pakistani businesses. The Abraaj Group, a Dubai-based emerging markets fund, and Pakistan’s JS Private Equity, which pioneered private equity investments in Pakistan in the late2000s, have both pledged to match the contribution, the US embassy said. “There’s a new wave of interest in private equity,” Ali Jehangir Siddiqui, chairman of JS Private Equity, told Reuters. “There’s certainly some funds that are stepping up to the plate, we hope that there will be more.” Wild West: The new funds all aim to introduce the private equity model that is now familiar in rich and poor countries alike: groups of investors buy stakes in privately owned companies in return for a say in how they are run. The theory is that an injection of capital and management savvy will turbocharge the best of Pakistan’s family-run
enterprises, creating jobs for a restive, youthful population and lucrative returns for the funds when they sell their stakes. “It doesn’t take a rocket scientist to figure out how much you can do in this country, it’s absolutely green,” said Cyan’s Shaheen, a Pakistani who began his career in US investment banking but now lives in karachi. “It’s like the Wild West.” Cyan’s confidence in Pakistan’s prospects stems in part from the sheer size of the market in a country of 180 million people, where many conservatively run companies have shied away from scaling up their businesses into nationwide operations. Companies listed on the karachi Stock Exchange have grown their profits by at least 13-15 per cent annually since 2009, according to one market analyst. With 49 per cent returns in 2012, the market was among the world’s top performers. But to make their bet pay, Ahmed and Shaheen will have to be diplomats as well as financial engineers, persuading patriar-
chal heads of family-owned businesses to embrace an alien investment concept touted by upstarts half their age. Shaheen and Ahmed spend much of their time explaining how private equity works to owners who might be fearsome entrepreneurs, but innately wary of exposing their clannish, cash-in-hand operations to the young men’s new-fangled ideas. One company head was particularly reticent to share his accounts with Cyan since he feared the young men might be sizing him up for a ransom demand on behalf of kidnappers. At least seventy per cent of the companies they visit keep double books - one for the tax man, and one containing the true profits. Given the difficulty many small or medium-sized companies have in securing affordable bank loans in Pakistan, the new crop of funds believe there should be plenty of demand for their finance, provided firms are open-minded enough to listen. JS Private Equity says predominantly negative percep-
tions of Pakistan favour investors bold enough to plunge into one of the last, big unexplored frontiers for private equity deals. “People get a very slanted view of Pakistan internationally, which is why we get this very advantageous risk-reward trade-off,” said Steve Smith, a partner at the fund. Robbed at gunpoint: Cyan’s Ahmed left Pakistan at 19 to attend college in the United States, where he would join Goldman Sachs and later the International Finance Corporation, the private-sector arm of the World Bank. He says five years sealing IFC private equity deals in Asia and Africa was ideal preparation for his new mission in Pakistan - though not for his first day at work. In April last year, the airliner ferrying him to karachi made an emergency landing at the city’s airport. Passengers were marooned on the listing vessel as a slick of leaked jet fuel pooled under the fuselage. They were later rescued unharmed. “”The only walk away point from the experience was: I want to fix the airline industry,” Ahmed said. Ahmed would later be robbed at gunpoint outside a restaurant in karachi’s upscale Clifton district. Undaunted, he and Shaheen have met more than 230 companies from across Pakistan in sectors from food processing and warehousing to telecoms and dairy. In the next few months, the pair are hoping to make Cyan’s first private equity investment, saying they have 10 to 15 potential deals in their pipeline that could soak up a combined equity capital of more than $200 million. Despite the wall of suspicion the pair often face, they believe their promise to instill clear corporate governance will ultimately appeal to owners weary of the feuds that so often weaken family-run empires, and unlock higher returns for all. “It’s not a matter of ‘if’, it’s a matter of ‘when’, and I believe that ‘when’ is now,” Shaheen said. “That’s the contrarian bet that we are taking.”
Published on Aug 3, 2013