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CONTENTS

10 Reza Baqir’s salary and banking woes - this week in Pakistan’s business and economics twitterverse 14 Understanding unemployment

16 16 Is a third LNG terminal just a pipe dream? 22 The risky math underlying Sehat Sahulat Program Ammar H Khan 24 Can RAAST usher in the promised fintech revolution? Uzair Younas

25 25 A guide on how to avoid financial fraud 27 How Samin Textiles became Waves Home Appliances

Profit

30 Hyundai Pakistan’s Kashmir day saga

Publishing Editor: Babar Nizami l Editor: Khurram Husain lJoint Editor: Yousaf Nizami l Assistant Editor: Abdullah Niazi Reporters: Ariba Shahid l Babar Khan Javed l Taimoor Hassan l Meiryum Ali l Shahab Omer Chief of Staff & Product Manager: Muhammad Faran Bukhari Regional Heads of Marketing: Muddasir Alam (Khi) l Zulfiqar Butt (Lhr) l Malik Israr (Isl) Layout: Ahmad Salahuddin l Photographers: Zubair Mehfooz & Imran Gillani l Business, Economic & Financial news by 'Pakistan Today' Contact: profit@pakistantoday.com.pk

Editorial The LNG pipedream It has been more than four years since the second LNG terminal commenced commercial operations back in 2017 and so far not a single new terminal has been commissioned. In 2019 then Petroleum Minister Omar Ayub Khan made an announcement in his characteristic style of triumphalist bombast that plans for five new LNG terminals have been approved and they will be in operation “within two to three years”. It is now three years later and out of three out of those five players have already dropped out, while the other two are still running from one government department to another seeking a string of NOCs and approvals so long it seems to have become a wild goose chase. Partially in response to this the government decided back on December 30, 2021 that it will now build those terminals itself. Yet 46 days since that decision, it does not seem any work has been done so far on this new initiative either, save for one interview by the new Petroleum Minister Hammad Azhar in which he suggested the government plan involves retrofitting “a portion” of the LPG import facility operated by the state owned Sui Southern Gas Company to turn it into an LNG terminal. This was the path taken by Engro, that set up the first LNG terminal of the country by retrofitting their LPG facility. That move took less than 18 months to complete, aided along by the fact that much of the infrastructure was already in place. But how much progress has the government made on its plan to start its own LNG terminal, which they said would be complete by December of this year? This is an ambitious timeline, especially for a state led effort, and if it is to be taken seriously, some steps should have been taken already. For example, has a feasibility been commissioned? Has the process for recruitment of necessary consultants been started? Does the government have a marketing plan for selling the LNG it orders through this terminal? And most importantly, how far have they managed to get in building the pipeline that will be required to carry the gas from this terminal to customers in Punjab, given that existing pipeline capacity is not sufficient any more? Answers are hard to come by these days, unless one is willing to settle for triumphalist rhetoric and bombast. But it is fair to say nobody is harbouring high hopes of the new plan – to build the next LNG terminal in the public sector through a government led effort. The reason is simple. How can one expect a government led effort to be faster than private sector players? And number

two, without the pipeline to carry the gas to upcountry customers, how can a new terminal be viable regardless of who is leading the effort? Some hopes are being pinned on the visit that the Prime Minister is planning to Moscow, which we are told will happen later this month. But the core issues in the pipeline deal with Russia remain unaddressed, such as the sanctions. Even if the Prime Minister returns from that visit (assuming it happens in the first place), the next question will be the one on pricing. The government is advancing the new terminals on the assumption that their operators will be responsible for sourcing the LNG as well as marketing it to their customers in Pakistan. So far LNG has flowed into the country primarily to meet the needs of power generation, where fuel cost is a pass through item, making it much simpler to absorb the cost differential between LNG and domestic gas. But if the government now wants to wean private users of gas off the subsidized price of domestic gas and urge them to shift towards LNG instead, at market prices, it will have a much harder time selling the proposition. Is it ready for this challenge? On top of this it is important to add the transit cost of the gas if it is to pass through a pipeline costing close to $2 billion, built on commercial terms. That investment has to be paid from money generated from the customers of the gas, adding further to the price of the vital fuel. Which industry does the government intend to wean off subsidized domestic gas first for this purpose, textiles or fertilizer? Or does it intend to pass through this cost to domestic consumers instead? Answers are in short supply. We do not know what exactly is the sticking point with the Russians in building the North South gas pipeline, save for a few leaks in the media. We don’t know how far down the road the government has made it towards gas pricing reform (although a good guess would say little progress has been made here too), without which induction of further LNG supplies into the gas system will not be possible. We do know, however, that without additional gas supplies the country will face an even larger deficit in gas supply than it already has. The most expensive gas, it will turn out, will be the gas we don’t have. Too much valuable time has been lost in arranging additional gas supplies and the room for further delays has vanished. If work does not start soon on setting up the new terminals, the coming years could see a gas crisis like the power crisis we saw in the years after 2008.

Readers Say Deeply popular?! I surely think not. Apropos: IMF – Back to square 1 Fahad, Website This is a very good piece of analysis. But does the PTI government have any road map to come out of the economic crisis? In my opinion the answer is a big no. Apropos: IMF – Back to square 1 Mahboob Haque, Website I think the writer here exaggerates a lot and does not take into account the rising global commodity prices. The global economy’s rebound on the back of stimuli provided by respective central banks along with a check on crude supplies by OPEC and the surge in gas and RLNG prices is the driving factor behind current commodity spike. In normal global circumstances, current numbers for exports and remittances are more than enough to offset the increase in import numbers. Apropos: IMF – Back to square 1 Shakeel Ahmed, Website PTI Govt Back to square 1 - IMF program: with a ballooning current account deficit and suppression of growth says @KhurramHusain in Profit. Apropos: IMF – Back to square 1 @sherryrehman, Twitter Why don’t any of you economists/ analysts ever point out that Pakistan requires major debt restructuring , standstill arrangements etc to accompany structural and institutional reforms. How long will you keep borrowing to stay afloat while sacrificing growth and social development. Shabbar is the only person I know who called it correctly that we are no more a going concern. Without major restructuring the problem will only get bigger with time. Apropos: IMF – Back to square 1 @sikoog, Twitter

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More rate hikes, currency depreciation, taxes on the card. In the last full year of its term, PTI govt has managed to land itself back to the same position it was in at the beginning, back in 2018. Apropos: IMF – Back to square 1 @jaf_ak, Twitter More rate hikes, currency depreciation, taxes, expenditure restraints are now on the cards as the government finally moves to unwind its stimulus measures and return to stabilization with the resumption of the IMF program. Apropos: IMF – Back to square 1 @shehzadyounis, Twitter

I am scared of credit cards. They seem useful, but with funds, banks are difficult to deal with. I wonder if they become worse when you owe a debt to them. Apropos: So you want to have a credit card in Pakistan? Here’s all you need to know @Yousayso77, Twitter Use a credit card, it will teach you not to use it again. I know people who withdraw their salaries from their bank account the same day it is added into their bank account. It was a public demand in Britain to separate general banking from investment banking. Apropos: So you want to have a credit card in Pakistan? Here’s all you need to know @NotJustBrowsing, Twitter Emirates alone can connect you to hundreds of cities with just one transit. There are other airlines with code-share that can connect you to distant and remote cities from Karachi. You will reach your dest on a 4th or 5th flight but that's another matter. Apropos: Pakistan is pretty connected for air travel @tabascoaddict, Twitter It will sell like crazy. Just wait and watch. People will be paying as much as Rs 400,00 as ‘On’ to get the car immediately and as soon as possible. Sometimes consumers and their mentalities are at fault also in perpetuating bad business practices. People just want to have this car as soon as possible. Already car deliveries are very late. If you book it now you will get it in September. Apropos: Honda’s big gamble Babar Omar, Facebook Rs 6 million for a Honda Civic is a crime and yet somehow we are paying it. Even before its launch it is fully booked. Apropos: Honda’s big gamble Safi Ullah, Facebook So it is a pretty simple formula at the end of the day. Produce less and sell at a high margin and people will keep lapping it up. But will this be sustainable? For now they are simply banking on the fact that Pakistanis are desperate to have new shapes on the road and want fresh cars - a new model is a big deal because of the limited options. But with competition growing, will they be able to sustain it? Apropos: Honda’s big gamble Raheel Mazhair, Facebook

COMMENTS

IN BRIEF The Lahore Central Business District Development Authority (LCBDDA) on Thursday has started preparations for the auction of commercial plots for the first downtown in Lahore on February 23, 2022. According to the details, the authority had planned to offer seven mixed-use commercial plots in Gulberg, Main Boulevard, Lahore.

The launch of the new Honda Civic has turned some heads over the massive Rs 6 million price tag for a fully loaded model of the car. However, early reports have shown that the car has already been fully booked for deliveries in September.

Pakistan’s budget deficit for the first six months of the current fiscal year 202122 has touched Rs1371.8 billion amounting to 2.1 per cent of GDP. Total revenue for the first six months clocked in at Rs3955.97 billion with Rs3191.04 billion tax revenue and Rs764 billion non-tax revenue.

$3.4 billion:

The World Bank (WB) has disbursed $3.4 billion against the 23 projects worth $7.8 billion. Currently, 54 projects are being implemented under WB’s financing of $12.4 billion across the country. Out of 54 projects, 23 projects worth $7.8 billion are being implemented by the Federal Government against which $3.4 billion has been disbursed so far.

$7 billion:

United States President Joe Biden will sign an executive order on Friday to split the $7 billion in Afghan assets frozen in the U.S. to fund humanitarian relief in Afghanistan and to create a third-party trust fund to compensate victims of the Sept. 11, 2001, attacks, the White House said.

Sui Southern Gas Company Limited (SSGCL) has announced it will resume gas supply to all those Compressed Natural Gas (CNG) stations that are operating on Regasified Liquefied Natural Gas (RLNG) from Monday (today) after the gas supply was halted 45 days ago. The Special Court for Offence in Banks (SCOIB) in Karachi on Thursday granted interim prearrest bail to 25 suspects in a case pertaining to Rs54 billion alleged bank fraud by various officers of Hascol Petroleum Limited (HPL), National Bank of Pakistan (NBP) and other organisations.

Reza Baqir’s salary and banking woes this week in Pakistan’s business and economics twitterverse

e have some serious issues on our mind this week. Legacy banks are trying to keep up with all of the changing fads in the banking industry and there are questions being raised about debt servicing after the announcement of the new IMF program. Ariba Shahid brings you the woes of banking, CEO salaries, and more in this week’s social media roundup.

Rs222,422,000 is the yearly compensation the CEO of one of the largest banks received in 2020. The fact is, the salary of an individual should be in line with their experience, credentials, and the position they are settling in at. It makes very little sense for minimal salaries to be glamorized.

The stock market is ruthless. But hey, follow the money.

Banks in Pakistan need to realize that people already resent walking into a bank. The link being down makes it all the more worse. There’s a lot to be understood about Raast, this thread explains it well.

Jumping through hoops just to get some foreign currency only makes it easier for a grey market to operate. Ridiculous requirements do not put off people from getting what they want, instead it makes it incentivizes one to find other means.

Things are heating up. Legacy banks, logistics services, and brick and mortar businesses need to be on their toes considering the rapid pace at which things are going. As Sameer rightly points out, being overtaken may not be that far.

The growth in new accounts is slowing down. The SBP, however, has encouraged banks to carry on with marketing activities in order to encourage people to open up accounts. As for NPC, there is a lot that is happeneing behind the screen.

SOCIAL MEDIA ROUNDUP

Understanding unemployment

There is very little understanding of this very important economic indicator

By Zunairah Qureshi and Ghulam Abbas

nemployment. Berozgari. It is an economic indicator that has brought down governments and is constantly a bone of contention. At the very core of it the entire concept is very simple. People need livelihoods and in an economy where the services industry is the only path for anyone with no capital backing them - jobs are crucial. That said, there is very little understanding among people regarding what the ‘employment rate’ that is often at the center of economic debates is, how it is calculated, and what it stands for. Any A level economics textbook will tell you that the unemployment rate is the percentage of unemployed persons in the labour force which includes only those individuals who are eligible and available for employment. That makes sense. There is a certain

section of the population that wants to be employed to qualify for employment and some of those people do not have jobs. But calculating the unemployment rate is a little more complicated than this.

A matter of definitions

o get a clearer picture, we need to understand how unemployed persons as well as the labour force are defined. Each country may have slightly-but-impactfully varying definitions for these terms. In our case how these terms are defined and consequently how the unemployment rate is calculated, is decided by the Pakistan Bureau of Statistics (PBS). A number of labour market indicators like the unemployment, underemployment, labour force participation rates, and others are derived from data collected through the Labor Force Survey (LFS). The survey is supposed to be conducted by PBS yearly.

However, the latest publicly available results are from the 2018 – 2019 LFS, which were published in September 2021. According to this survey, Pakistan’s unemployment rate for the fiscal year 2019 was 6.9%. This was a significant increase from the previous fiscal year when unemployment was recorded at 5.8%. However, bear in mind that LFS sets the working age at 10 years old, which is lower than the international standard of 15 years old. The unemployment rate for 2018 was reported at 5.8% in the 2017-2018 LFS results. However, in the Employment Trends Report 2018 published by PBS, the labour force was calculated with the minimum age limit set at 15 years instead of 10. This was likely done to make labour force related figures within this report comparable to international rates which meant that the unemployment rate for 2018 was reported as 5.7% in the Employment Trends Report. (Note that there may be other differences between how countries define and

measure unemployment rates. This makes comparison less accurate in general.) To understand what these figures really mean, we need to clarify a few things. Firstly, ‘unemployed persons’ does not include every person that is jobless or without an income in Pakistan. Remember that the unemployment rate is not the percentage of unemployed people out of Pakistan’s total population, but out of its labour force. And to be counted as part of the country’s labour force you have to meet some conditions. The Labour Force Survey 2018 – 2019 Annual Report terms the labour force as the ‘currently active population’ and defines it as consisting of ‘all persons ten years of age and above who can be categorized as employed or unemployed during the reference period i.e. one week preceding the date of interview’. Let’s break this down. One of the most basic conditions, as was referred to above, is the working age limit of 10 years. This means that all persons below the age of 10 are not part of the labour force and hence are not represented in the unemployment rate. Even school going children who are above 10 years of age are not included as part of the labour force as they are not available for employment. Another thing to note is the ‘reference period’. This period refers to exactly one week before the survey is being taken from an individual. The survey includes a number of questions regarding the individual’s occupational activities in the previous week in order to determine her employment status. Moving on, those persons who are categorised as ‘employed’ have to, broadly speaking, either have been paid employees or self-employed (this includes employers) during the reference period. Paid employees can be those who are paid regularly, casually, by piece rate or work performed or paid ‘non-family’ apprentices. On the other hand, those persons who are categorised as ‘unemployed’ are, for the duration of the reference period, not engaged in any kind of paid employment or self-employment. These persons are called ‘without work’. However, it should be noted that, those who are without work have to also be available for work during the reference period, that is, they have to be able and willing to work. In the case that they are not available for work, they are no longer factored into the labour force and are not counted among unemployed persons. This is why people who willingly choose not to work or handicapped persons are not included in the unemployed population. There are certain cases in which

persons who have been unavailable for work during the reference period will be considered unemployed. This only happens if they are not working on account of illness, being temporarily laid off, an ongoing apprenticeship during which they willingly choose not to work, or because they will take a job within the next month. Lastly, people without work who are seeking jobs within the last week are also considered unemployed. The LFS asks specific job-seeking questions such as ‘What steps did (name) take during the past month to seek work?’ and ‘How long has (name) been seeking work?’ to verify whether each person has legitimately been looking for work. Since, being part of the labour force means you can either be employed or unemployed, if you fall outside of the above-listed conditions for being employed or unemployed, you are not part of the population that makes up the labour force.

Exceptions and complications

o, if you are above 10 years of age, without work and not interested in getting a job, you are not part of the labour force and hence do not figure into Pakistan’s unemployment rate. This naturally excludes groups such as the majority of students and women dedicated to housewifery from the labour force. To illustrate women’s performance in the labour market, consider this: in FY19, while labour force participation rate—the labour force as a percentage of the total population—of men was 67.8%, participation rate for women was merely 21.5%. Meaning that, 79.5% of Pakistan’s female population, that makes up almost 40% of Pakistan’s total population, was not part of the labour force. Overall, the labor participation rate for both sexes was 44.8% in FY19. In another interesting scenario, assume you are above 10 years of age, without work and have been seeking a job for a year or even more and finally decide to quit your search out of dejection and hopelessness. Then a week after you have quit job seeking, an LFS surveyor approaches you and in response to ‘Was (your name) seeking work during the past week?’ and ‘Was (your name) available for work during last week?’ you say no. The surveyor will then ask you why you weren’t available and you say that you have given up. In this case, you admit to having quit the labour force and are not going to be counted as unemployed. You will now be considered as part of the population that is ‘not currently active’. Naturally, handicapped persons and

others unable to work, retired persons not willing to work, those who are too old to work, and agricultural/property landowners not willing to work among other groups, are also part of the not currently active population. In addition, those being paid income solely through dividends, royalties, etc. and those involved in immoral pursuits such as prostitution, begging, etc. are also not considered active. Remember, those who are currently not active, are not part of the labour force, so even if they are not working, they are not considered unemployed and hence not included in the unemployment rate. The unemployment rate is based on the number of people who are currently active, meaning they are part of the labour force, but they are not in employment. Since the unemployment rate is derived from the LFS. It would help to know a little bit about how the LFS is conducted. Unlike a census, the LFS is not filled by every individual in the country. Instead it is taken from a selected but representative sample. This means that a group of households from both urban and rural areas of all four provinces and Islamabad are randomly selected to be surveyed. This group is selected using sampling techniques that make sure that the individuals within this sample proportionally represent the rural and urban populations of each region. This is to ensure that the answers this sample group will give in the survey are as representative of the rest of the population as can be. For example, in the 2018 - 2019 LFS, a total of 41184 households were sampled. Out of these, 26688 were selected from rural areas and 14496 were selected from urban areas. These numbers were representative of Pakistan’s 65% rural and 35% urban population in 2018. Similarly, the sample for LFS is selectively representative of each region’s population composition. Lastly, also take note that the sample is of households. The surveyor goes to each household within the sample and asks one person, usually the breadwinner of the house, to answer for every member of the household. The unemployment rate is a widely-accepted measure for the labour market. It can express underutilization of the labour supply, showing that there are not enough skills and jobs being generated to actually maximise available human capital potential. It is also one of the accepted indicators that measure progress towards the SDGs. National policies for the economy, youth, education, market conditions of different sectors and many other vital decisions are informed by the unemployment rate. n

EXPLAIN-IT-LIKE-I’M-FIVE

COVER STORY

By Asadullah Kamran

ere is what happened. Nearly 50 days ago the government decided that the private sector was failing to come through on their promise of building a new processing terminal for Liquified Natural Gas (LNG) in the country. So what did the government do about it? They decided to commandeer the project and construct the terminal themselves. At first glance, the move comes across very much as a government being tired of private sector inefficiencies and rolling up their sleeves to take matters into their own hands. However, as with most things, it is all a little more complicated than that. Pakistan currently has more demand and capacity to transport LNG throughout the country than it is able to process. Essentially, we want LNG for domestic and industrial use, but do not have enough terminals to process it. This is part of what leads to gas shortages and has in these past few months of winter resulted in massive domestic gas load-shedding. The plans to build a third LNG terminal have been in the works for years. In fact, when the incumbent government first came to power they had made tall claims of building five new terminals which would be operational within a few years. Those claims have been far from realised. The government is currently pointing fingers at the backers of the two private sector companies who have been blamed for moving slowly on the project of LNG terminals. The private sector companies, in response, have said that they have been unable to get the project rolling in the first place precisely because they have been tangled up in the government’s bureaucratic red-tape. And according to sources in Tabeer energy, the government has made next to no progress in the nearly two months that have passed since it strong-armed control of the project out of private sector hands. With ever growing demand and industrial requirements, the government is in a rush to make this happen. In a recent statement, energy

minister Hammad Azhar has claimed that the LNG terminal would be operational by 2023. “The government is looking into setting up its own import facility by converting a portion of a state-owned liquefied petroleum gas terminal,” he said in an interview with Bloomberg. But statements like this have been made in the past and to no end. How we got here has been a long and complicated road that is as important to understand as anything else to make head or foot of the entire fiasco. To understand exactly what is happening, it is important to know why Pakistan needs this much LNG, what the position and function of the two existing LNG terminals is, and why there have been so many delays that have resulted in construction of the third terminal not even starting.

Some context

he crux of it is that Pakistan needs LNG, and if you know what that is and why that is then feel free to skip this section. But to those uninitiated in the murky world of Pakistan’s energy sector, read on. To put a very long story short, somewhere in the middle of the last decade, Pakistan decided to stop importing furnace oil and allow the private sector to instead set up LNG import terminals. That meant that the thermal power plants that could no longer run on domestic gas could now run on imported gas rather than imported oil. Now, the term LNG itself stands for “liquified natural gas.” Essentially, as the name suggests, natural gas is converted into liquid form to make it easier to transport since transporting a gas across vast distances is virtually impossible. However, when natural gas is in liquid ‘LNG’ form, it is quite useless. It can only be used as fuel in gaseous form. This means that when LNG is transported to a country, it then needs to be ‘regasified’ in a controlled environment so that no natural gas is wasted. This process is undertaken at large import terminals, called regasification terminals, where LNG carriers which are basically tanker ships discharge their LNG cargo. The

LNG is transferred to these terminals where it is stored in tanks and then regasified prior to being transferred through pipelines in the form of natural gas. These terminals (or the lack thereof) are at the centre of the current debate surrounding LNG. There are essentially two kinds of LNG terminals. The first kind are fixed and on-shore terminals that are built on a certain area as one would expect. The other kind is the Floating Storage Regasification Unit (FSRU). You can read all about how they work and the trouble they have caused in Profit’s story from back in June 2021, but in essence these are large, stationary, floating ships that have the capacity to “regasify” natural gas and transport it from their stationary position in the sea to shore. At present, two LNG terminals with a total capacity of 1.3 billion cubic feet per day (bcfd) are operational in Pakistan - both of them are FSRUs. The first is the state-owned Pakistan LNG Ltd’s terminal, which was built by PGP Consortium Ltd and has the capacity for 750 mmcfd (Metric Million Cubic Feet per Day). The other is the Engro Elengy FSRU with a capacity of 690 mmcfd. Both of these terminals use FSRU ships to regasify the natural gas, and Hammad Azhar in recent interviews has hinted that the new terminal will also be another FSRU (more on the merits and demerits of FSRUs later).

Chain of events

n March 2019, the government authorised the creation of a third LNG processing terminal on a fast-track basis to address the exceeding demand – for completion by next winter (that was supposed to be in 2020), and authorised Rs1.63 billion in supplemental funding for security and paramilitary force facilities. Of the five companies that showed interest in the project, only two - Energas and Tabeer Energy (Mitsubishi) - submitted applications, seeking Letter of Intent (LOI) from the Port Qasim Authority (PQA) for building the third LNG terminal. Tabeer Energy is a wholly owned subsidiary of Mitsubishi Corporation

Sponsors are not receiving any clear direction from the departments concerned for the allocation of pipeline capacity. Moreover, decisions of both the federal cabinet and Cabinet Committee on Energy (CCoE) are not implemented and regularly delayed Kosuke Makino, CEO of Tabeer Energy

Japan, whereas Energas is a consortium, of three local business groups (Lucky, Sapphire and Halmore) The PQA issued a provisional Letter of Intent (LoI) to Energas and Tabeer for the establishment of a LNG terminal at Port Qasim in September of 2019. Duly afterwards both companies further pursued jumping through hoops to get the required approvals and NOC’s from the relevant government authorities. Both private enterprises requested an extension in the acceptance date of the final LoI, which PQA issued in May 2020 along with a draft Implementation Agreement (IA). In light of Covid-19, new extensions were granted due to challenges with site NOCs and pipeline capacity allotment. A few months down the road in September 2020, the companies were still bogged down by NOC’s and getting approvals. Upon realising that “winter is coming”, the Federal Cabinet issued directives to the Petroleum and Defence ministries to clear all the “hurdles” within 30 days. The Petroleum Division directed to undertake and commit to the new terminal operators for RLNG allocation in the existing systems of the Sui companies. This was to be done on a first-come, first-served basis. Additionally capacity provisions to both terminal operators in the new planned gas pipeline [PSGP] were to be made. The two companies also got their marketing licence from Ogra in January 2021 despite the protests from PLL and other LNG importers. The licences allowed the two companies to engage in regulated activity of selling natural gas/RLNG to consumers. With immense pressure on the government from residential and commercial users alike following the winters, the LNG issue is on the top of the agenda for the government. In April of the same year Ogra granted construction permits to both companies. The construction licences were a must for the two companies to make final investment decisions (FID) on LNG terminal construction. Tabeer terminal was supposed to be at Chara Chan Waddo, Jhari Creek, and the Energas terminal to be at Chara Creek. This essentially meant that the developers could build terminals, buy LNG, re-gasify it at approved terminals, sell RLNG to the domestic market, and even supply to associated companies. The last remaining issue was the allocation of pipeline capacity, despite persistent efforts to get capacity. The CCoE had granted pipeline capacity on a firm basis in February 2021 and urged the Sui firms to facilitate this allocation. As a result of the CCoE ruling, Ogra asked gas providers to allocate 250-300 mmcfd by September of this year. These directives however fell on deaf

The government is looking into setting up its own import facility by converting a portion of a state-owned liquefied petroleum gas terminal Hammad Azhar, Minister for Energy

ears, and the government itself was incapable of implementing it. Lack of government oversight, and sheer disregard for the directions coming from the top are key culprits causing delays. It was pretty obvious that the Sui gas companies were “reluctant to allocate pipeline capacity”. A summary from the CCoE meeting held in early October was very critical of the two Sui companies. It criticised the two Sui companies for causing delays in allocating pipeline capacity until the new pipeline was built. Hurdles were also raised in land allocation for tie-in points. In the same month it was also reported that the companies had written a harsh letter to the government expressing their frustration. The letter read that both companies remained in limbo, “despite three years having passed and despite the CCoE as well as Ogra directing SSGC/SNGPL to allocate pipeline capacity”. “Sponsors are not receiving any clear direction from the departments concerned for the allocation of pipeline capacity. Moreover, decisions of both the federal cabinet and Cabinet Committee on Energy (CCoE) are not implemented and regularly delayed”, alleged Tabeer Chief Executive Officer Kosuke Makino in a letter to the Prime Minister that was reported by Dawn. Despite back and forth over the exact allocation of the pipeline capacity, the current Sui infrastructure does not have the ability to enable a feasible solution. To further complicate the whole situation the allocation was based on a three month rolling period rather than a firm basis added more ambiguity. The sheer scale and longevity of the project requires the companies to have long term assurances. In short the government has done very little in terms of addressing the growing LNG debacle. As the time tested adage goes “if you want something done right, do it yourself”, the government too is now pursuing its own plans to develop the LNG terminals. Will the government be able to complete the projects in the designated timeline by next yet, only time will tell.

What is the government doing now?

his is the latest update. When the decision came by the government in late December 2021 to take over things, an order issued by Ministry of Energy Petroleum Division (MEPD) stated that, “against the backdrop of slow progress in the development of new LNG terminals by the private sector (Tabeer Energy and Energas), a consortium comprising state entities (port authorities, Sui companies and PSO) will work together for speedy development of a new LNG terminal in the public sector, preferably FSRU (floating storage and regasification unit) based, to bring new LNG by next winter (2022-23)”. Not so surprisingly, the private-sector investors had been protesting at every forum about the appropriate government entities’ for not working with them, which had hampered their final investment decision. The government has been trying for the past three years to build two new terminals to increase supply. In a recent statement by Hammad Azhar, he said that “The government is looking into setting up its own import facility by converting a portion of a state-owned liquefied petroleum gas terminal.” This has been the only update on any progress since the government has taken over, and indications show that the intention is for the government to get another FSRU. The question that is raised here is why it is taking so long with no visible progress, and secondly why the government did not simply keep larger FSRU ships when they had the opportunity. All of this does not bode well for the government’s claims. After all, as this week’s editorial has also pointed out, making claims is very easy but actually coming out of the bluster and doing something about it is difficult. Meanwhile, sources at Tabeer energy have claimed that the government has made absolutely no solid progress so far. Meetings and discussions are ongoing within the government ranks.

COVER STORY

As far as government statements are concerned, they have kept their cards close to their chest so as to not attract unwanted media attention. As far as the pipeline is concerned, nothing much to show for on that front either. We’ve been at a literal standstill in our ability to cater to the growing industrial and residential demands of gas. Whether the government will be able to manage this is yet to be determined. The two questions that will be pertinent going forward, however, are whether we have the capacity to pull this off in terms of pipelines and whether or not going for another FSRU is a good idea or not.

Do we have the capacity?

aturally with such a large-scale increase in supply planned, the government would need to have pipeline capacity to move that gas from the ports in Sindh to other locations all over Pakistan. The existing pipeline capacity is insufficient to cater demand. To explain it in layman terms, SNGPL and SSGC own the gas infrastructure in their respective zones. There is an intricate system of pipelines that carry RLNG from the terminals to homes and factories. The current pipeline system that transports the gas from the SSGC system to the SNGPL is at max capacity, therefore it is essential to create more pipeline capacity. It is not possible to increase the capacity of the current system, hence new infrastructure has to be built. So, the government back in 2015 decided to collaborate with Russia to develop the North-South Gas Pipeline. It has since been rebranded to Pakistan Stream Gas Pipeline (PSGP). Pakistan neither has the skills or the appropriate technology to carry out such a project. In theory the government was on the right track since it had plans in motion to establish the new pipeline with support from Russian investors. This would’ve worked hand in glove with the development of the LNG terminals and be completed more or less side by side. Russian investors would have contributed $2 billion to the project, with the first phase slated to be completed by December 2017 and fully commissioned by the second quarter of 2020. The 1,100-kilometre pipeline would’ve connected Karachi’s LNG terminals with the pipeline infrastructure in Punjab, with an approximate capacity of 1.2 billion cubic feet per year. It Was anticipated to take three and half years to be built. Here is where international geopolitics come in, with the US and Russia on opposing sides of the iron curtain. RT Global Resources, the original Russian company tasked with the

project, facing US sanctions was prevented from making any headway into Pakistan. It is reported that some progress has been made on the PSGP. The Inter-Governmental Agreement (IGA) with Russia has been revised, and approval is currently pending. The geographical survey and finalisation of the route are also underway. The Defence ministry is yet to issue an approval for the project. Land acquisition collectors have also been alerted in accordance with Land Acquisition laws. Everyone has been hearing about PSGP since 2015, any ground work is yet to be seen. It is interesting to note that PM Imran Khan is scheduled to be in Moscow by the end of this month. How exactly the government plans to get around the sanctions is anyone’s guess at this point. With tensions between Russia and NATO at an all time high since the cold war, it is unlikely that the PM would

Another FSRU?

ith the support of private-sector investors, the government planned to build two new liquefied natural gas (LNG) facilities at Port Qasim, with an accumulative handling and processing capacity of 1.6 billion cubic feet per day (bcfd). The government currently uses Engro Elengy’s terminal facility With ever increasing domestic demand both on the commercial side and residential side new LNG terminals are long overdue. A key decision is whether to get an FSRU or an onshore terminal facility. An FSRU has a relatively lower capital investment requirement and can be made operational much faster than a traditional onshore terminal. However it is prudent to consider the long term strategy as well. Factoring in the high demand an onshore facility would be able to cater to future expansion based on demand and has a much longer operational lifespan. On the other hand a land based terminal facility would have a much higher capital expense, however it compensates for it in lower operating costs. Storage facilities can also come in useful in creating buffers catering to the volatility in prices and supply chain challenges. As an FSRU is essentially a special ship, it is a transitory storage facility with limited built in storage capacity. As a result, it is theoretically preferable to construct an onshore

gas storage facility. That is, not only should a strategic storage be built, but it should also be possible to buy off-peak season gas for peak days, saving money on expensive gas during peak season. This is beneficial to energy security. Furthermore, a greater number of cargos might be handled to meet peak demand and lessen the danger to the system from any cargo delay. You might think the answer to this whole conundrum is right under everyone’s nose, expand the existing terminals? Well the primary concern of the Petroleum Division is to encourage investment by preventing a monopoly of the existing players. That hasn’t worked out for them quite so well, considering the fact the government is going to build or procure the facility itself.

Conclusion

t the end of this long, winding, complicated road what we have is a government making promises and having nothing to show for in terms of what they have done to achieve them. Remember, a few years ago the promise was that we would have five LNG terminals up and running by now. Yet we are currently at a point where work on the first one of those five has not even begun. The government and the private sector have both fumbled the ball badly, and while the private sector has had its role to play, the responsibility is with the federal government at the end of the day. Their decision to take matters into their own hands should not have been needed in the first place. But now that they have made this proactive decision, it is imperative that they come through on it.. Otherwise next year, when the winter months hit again, we will once again be faced with shortages and industries scrambling to get preference. And no one wants that. n

COVER TEXTILES STORY

OPINION

Ammar H. Khan

The risky math underlying Sehat Sahulat Program

tion of risk can be catastrophic for an entity, wherein the business line would be subsidized by a separate insurance vertical. As per news reports, Punjab paid a premium of Rs. 2,849 per household, whereas KPK paid a premium of Rs. 2,625 per household. Compared to the private sector, which has a claim-premium ratio in the range of 90 percent, the risk seems to be grossly underpriced. As the scheme gains traction and adoption increases, there exists a high probability of claims outpacing premiums creating a deficit for the state insurer. A recurring deficit would have to be subsidized by other insurance verticals, which would put the whole entity at risk. A measured and cautious growth model accompanied by development of monitoring and pricing capacity across coverage areas would be extremely important in long-term sustenance of the don’t like being the harbinger of bad news, but such is the life of a program. Extrapolating from the Pakistan Social & Living Measurerisk manager. Identifying, evaluating, and mitigating risks before ments survey 2018-19, cumulative household expenditure on health they materialize such that there is little to no interruption to is Rs. 265 billion, 29 percent of which is attributed to outpatient, normal business is essentially what risk management is all about. and other hospital related expenditures. Similarly, households in The launch of sehat sahulat program, a precursor to universal KPK spent about Rs. 107 billion on healthcare, 26 percent of which healthcare is a welcome development which will allow access to can be attributed to outpatient, and other ancillary expenditures. affordable healthcare possible, while ensuring every citizen (hopefully A universal healthcare program should theoretically reduce this in all provinces) has access to free healthcare services regardless of the expenditure and enhance consumer welfare. nature of the healthcare center. A universal healthcare insurance scheme benefits from the The developmental and social impact of the program is phenomelaw of large numbers, wherein a largely young population would nal, but in order to ensure sustenance of the program, and to ensure that have relatively low healthcare requirements, resulting in a lower it just suddenly does not collapse one day, it is essential to ensure that risk-based pricing relative to other jurisdictions. A risk-based the math underlying the program is also sound. Insurance penetration in pricing would also be inversely related to the capacity and feedback the country is considerably low but private insurers still exist providing mechanism that exists. Standardized pricing for standardized healthcare coverage. A review of underwriting experience of major health services further reduces the variability, as the insurer essentially insurance providers demonstrates that the claims to premium ratio in the becomes the largest buyer of healthcare services. However, such healthcare segment is around 90 percent. a structure is also exposed to adverse incentives, which can range These private insurers are mostly focused on urban centers where from fraudulent claims, to over-invoicing of services. Inability to they have developed capacity and communication channels with hosquickly ramp up capacity can lead to creation of ghost hospitals, or pitals for pricing of various services, gradually reducing inefficiencies even ghost patients, which can significantly hurt financial sustewhich may emerge due to fraud, over-invoicing, and overpriced services nance of the program. (relative to a market benchmark). Despite the presence of safeguards Opening up the program to private insurers would enable and administration capacity, as well as exposure to a niche urban market, price discovery while also enhancing capacity across the board. A claims often make up more than 90 percent of total premium received. A state insurer absorbing all the risk exposes the program, and the feedback loop mechanism and presence of multiple health insurers in the largest insurer in the country to solvency risk. More importantly, private sector ensures premium pricing is risk based. Any underestimaescalation in risk-based pricing to cover increasing claims would also increase burden on the national exchequer, as instead of budgetary allocations towards development of healthcare facilities, the allocation would be towards insurance premium. An adverse incentive in this case would be emergence The writer is an of private sector hospitals with tiered pricing structures, with the state insurer possibly paying more than a independent patient over-the-counter, in absence of strong institutional bargaining mechanism. macroeconomist and The scheme will strengthen the social net available to the people, enable access to quality healthcare energy analyst. infrastructure, reduce out-of-pocket healthcare expenditure, and eventually enhance overall disposable income. However, an accelerated rollout without corresponding development of capacity, institutional bargaining mechanism, and risk-based pricing would threaten the long-term sustenance of the program. Populist rhetoric must not outweigh potential risks associated with the program which can become an existential threat if not managed well.

Theoretically it should work, but the math behind the program is worrying

COMMENT

OPINION

Uzair Younus Can RAAST usher in the promised fintech revolution?

no-cost platform, would make cash a more burdensome mode of transactions versus digital payments. The coronavirus pandemic has already changed consumer habits in Pakistan and around the world, and Raast will only reinforce these behavioral changes. As this system scales up, digital-first fintech providers are likely to step in and innovate for the masses, disrupting old-economy banks that have failed in their duty to promote financial inclusion. This disruption would further accelerate consumer adoption, generating a virtuous Easy to sign up for and a possible self-reinforcing cycle that formalizes payments, enhances access to credit, and provides on-ramps for citizens to participate in the formal game-changer, the SBP’s top-down savings market. approach might prove fruitful A similar story has played out across the border in India, where the Unified Payments Interface (UPI) has driven a fintech revolun Thursday, February 3, the State Bank of Pakistan tion. PhonePe, the leader in the digital payments ecosystem in India, instructed banks to provide free person-to-perhas digitized over 25 million kiranas, allowing them to have digital son (P2P) payments services under Raast, the storefronts, credit histories, and automated sales and tax data, all of country’s digital payments system. The launch which makes it easy for millions of small businesses to formalize and of this service is a major milestone: Pakistan was digitize. As a result, India’s fintech ecosystem raised over $9 billion in a first mover when it came to a digital identity 2021 alone, a record amount. system but fell behind peer economies in leveraging digital identity Pakistan is moving in a similar direction, but accelerating this to enable payments. A ubiquitous digital payments ecosystem, shift requires policy makers to have a forward-looking approach which provides instant, reliable, and zero-cost transfer facilities to that does not just stop at the Raast rollout. Digital payments will citizens, can help transform the country’s economy and catalyze not become ubiquitous so long as barriers to accessing internet data new investments in financial services. remain high. According to a recent Tabadlab report, only 9 percent of For decades, the country’s policymakers have tried, with cell phone towers are connected to fiber; the gap presents a $6 billion limited success, to document the economy. These efforts have been investment opportunity in the country. To realize this opportunity, made by successive governments, civilian and military, but they the policy environment must be tweaked to reduce the tax burden all have been unable to incentivize citizens and businesses to be on purchase of low-cost mobile phones and internet connectivity, transparent about their economic dealings. A major issue indeed incentivize investment in fiber connectivity, and unlock financing to is a culture of evasion, which is reinforced by a state that is unable make it cheaper for the private sector to invest in digital connectivity. to provide efficient services which reinforce the social contract. The government should also consider bold proposals that lower However, we must not discount the fact that the country’s financial the overall cost of a digital transaction. For example, payments made services ecosystem has been broken, which means that it has been through Raast could have a lower sales tax rate, thereby incentivizeasy and convenient to transact in cash and not bother with the ing the consumer to demand that a business accept digital payments. complications of operating in the formal economy. Such a proposal has already been tested in Punjab in the restaurant This is why Raast has serious potential: the adoption of industry and has shown success. The short-term loss of revenue, in digital payments at the micro level, through a convenient and this instance, would be offset by accelerated digitization of payments in the consumer economy, providing the state with a more holistic view into the size of the overall economy, which can then be taxed at a lower overall rate to generate higher revenues. Another policy intervention that must be paid is with regards to sharing of credit history developed through analysis of The writer is Director of payments data: this can unlock financing for small and medium businesses, who currently face tremendous the Pakistan Initiative barriers in access finance through traditional banking channels. By providing these entrepreneurs with at the Atlantic Council, a access to finance based on their digital payment history would incentivize them to switch away from cash. Washington D.C.-based This would kill two birds with one stone, as entrepreneurs would both document themselves and adopt think tank, and host of formal finance to invest in and grow their business. the podcast Pakistonomy. Raast opens an exciting new world full of possibilities for the Pakistani economy. To build momenHe tweets @uzairyounus. tum, policy makers ought to look beyond the next few months. Such an approach can create an enabling environment that can bring about a fintech revolution in Pakistan, empowering consumers and small businesses, and also formalizing the economy. n

COMMENT

A guide on how to avoid financial fraud If something seems too good to be true, it most likely is not true

By Ahtesam Ahmad

hat would you do if someone came up to you and told you they had a great investment opportunity with quick returns? While only you can know yourself well enough to answer that question, what we can do is give you advice - run. There are two key ingredients in everyday financial fraud. And no, we are not talking about the kind of financial fraud committed by high rolling bankers, corporate executives, or government officials. We are talking about the kind of scams faced by the everyday, working-man, investor. The first element in these scams is the desire to get rich quickly. The second is the desire to trust. These two desires are basic. After all, who wouldn’t want to get rich and who wouldn’t want to believe that humans look out for each other? Wealth and trust are both evolutionarily wired into our brains. Yet both of these things can lead to complete financial ruin. Essentially, the scammer in question scopes people and finds the easy ones to prey on. Usually, these scammers are fully aware of what they are doing and are doing it with malicious intent. If they are wiley, they choose weaker targets with liquid cash and very little understanding of how finance works. They get these people to trust them by promising big returns. Greed and blind trust are a bad combi-

PERSONAL FINANCE

nation, and the victims of these scams fall prey to the scammers that target their ‘get rich quick’ mentalities. After all, the idea of getting rich overnight is wildly attractive and has been played out in entertainment media ad nauseum, from winning the lottery to a mysterious distant uncle leaving you a vast estate. At times this urge of instant gratification can be so overwhelming that people impair their ability of thinking straight and logically. Thus, end up being scammed. While we’re all out there on our own, what we can give you is a list of common scams that someone might try on you, and some general rules on how to identify scammers and people that are lying to you. (Spoiler: If it sounds too good to be true, it probably isn’t true).

Advance Fee Scam

dvance fee scams are one of the most popular ways of scamming people (your spam folder will vouch for it) and believe me people still fall for it. These scams are usually orchestrated with the scammer making the victim believe that they have won some prize money or are entitled to some other benefit but they are required to pay charges upfront to claim their prize or entitlement. However, once these charges are disbursed, the scammer vanishes in thin air. A very suitable local example was when Jeeto Pakistan’s (A popular comedy, ahm, I mean game show) name was used to fool people around the country into losing their money.

An unknown group sent texts to random people claiming that they have won prizes in the game show. For the supposed prize people were asked to contact a certain number and pay a certain amount. Once the victims paid up, the scammers would switch off their phones. However, to avoid being scammed by such perpetrators one should remember a few simple things. The language in these messages and emails is incoherent and most of the time grammatically incorrect. Furthermore, if you get a call from someone claiming that you have won a prize, post a counter question about their identity, they will be taken off guard and most likely disconnect the call if you keep on insisting. Lastly, the most important thing is to not make an impulsive decision, research about the matter, try to call an official source to confirm about any possibility of lottery winnings.

Ponzi Schemes

onzi Schemes are basically structured in a way that involves the “Borrowing from Peter to Pay Paul” approach. The organizers of Ponzi schemes usually promise to invest the money they collect to generate supernormal profits with little to no risk. However, in the real sense, the fraudsters don’t really plan to invest the money. Their intention is to pay off the earliest investors to make the scheme look believable. As such, a Ponzi scheme requires a constant flow of funds to sustain itself. When the

organizers can no longer recruit more members or when a vast proportion of the existing investors decide to cash out, the scheme tumbles. One of the most infamous fraudsters of our country, Sibtul Hassan aka Double Shah, also ran a Ponzi scheme. The con man quit his job in 2005 and reached out to his neighbors in Wazirabad to get them onboard for investing into his scheme which promised to double their money in 70 days. (No prizes for guessing where the name double shah came from). Soon the scheme picked up and scores of people joined it with an estimated Rs. 5.4 billion being raised through this Ponzi method. The reason why people like these are successful is because they have a respectable stature amongst their target community. They draw on affiliation to gain trust and grow their network. The clear red flags for such schemes are guarantees of abnormal returns, an urgency to invest and a reluctance to share a logical pathway for the investment scheme. People in their retirement age especially need to be wary of such fraudsters as they are usually a desired target. The approach to follow when you are encountered with such a scheme is to research, to question the strategy and to ask for independent advice from a person that you believe has a better financial acumen than yours.

Pyramid Schemes

pyramid scheme is another way of fraud, based on the members of the scheme recruiting others to buy in and promote the scheme. This way, everyone who joins the scheme has to deposit some amount of money and then they can start earning through commissions that are associated with bringing in more people to the scheme. The money from the recruitments are paid to recruiters as well as a share going to the founder of the schemes. However, it becomes extremely difficult to recruit more people as the scheme grows. For example, in a pyramid scheme, the founder recruits six people, sells a product to them and sets a target for everyone to recruit further six more people to sell a product to and expand the chain of agents in order to earn profits. Those six, recruit and sell to six more taking the number to thirty six and the chain goes on. By the time the twelfth round is completed, the total members of the scheme would be more than 2 billion and they would need to recruit around 12 billion people to turn profits, more than the Earth’s population. (Good Luck with finding someone on Mars). This means that ultimately, participants won’t be able to recruit more people and lose out on their deposited money. That would be the case with the majority taking part in the scheme.

A recent example of this type of fraud in Pakistan was the B4U group of companies. The investment wing of the company ran a scheme under which it gets $50-$75 investment from each investor while asking them to bring more investors on board to earn more profit. One investor has to get seven more investors to complete the first step. After this, the profit of the first investor would double to 14%. This chain of investors would continue and each investor would have to bring seven more investors. This structure screams of fraud but people still fell for it. According to FIA and NAB the scam was able to rack in more than Rs 119 billion. The question here is how to avoid falling prey to such schemes? The answer is to look for early red flags. The first one is time pressure, don’t fall for statements like “hurry up or you will miss a once in a lifetime opportunity”. Furthermore, promises of large amounts of money should ring an alarm and the last logical thing is that a legitimate business would never ask for deposits from people working for it.

Pump and Dump Schemes

“pump and dump” is a form of securities fraud that involves artificially inflating the price of an owned stock through false and misleading positive statements, in order to sell the cheaply purchased stock at a higher price. To explain, let’s use a simplified example of a stock that is valued at Rs 10. How this scheme works is that insiders (part of the fraud) send signals to buy the stock. They pump in the money for the stock and send out false tips that encourage retail investors to jump in. The market catches on to the increased interest in the stock and prices shoot up to say Rs 15 and then those “Insiders” pull out their money which leads to stock prices to fall sharply and the only loser is the retail trader. (Basically, Insiders are asking retail traders “Aam Khayega Aam?”) Last year, in February, the Pakistani market saw a trade of more than billion shares in a single day. A rare occurrence and one that last happened 16 years ago in 2005. However, many experts stated it as a pump and dump exercise that was used to artificially hype up the market. But why so? The reason for this is the fact that most shares were traded for two companies, World Call and K-Electric, both of which are worthless stock with companies struggling with debt and barely keeping afloat. These types of shares are a favorite target for scammers as they are easy to manipulate because of large volumes available at a considerably low price. The easiest way to identify such schemes is to look out for some red flags; The past

performance of the stock, the general market sentiments about it (Google it) the reputation of the company, if you have received unsolicited advice to invest in the company and the advisor is adamant that you will make huge gains thus, you need to invest immediately and is there any reason for the hype, has market conditions or company’s performance changed drastically? Most of these red flags need to be looked out for if you are trading in other securities like Crypto also. The less the market is regulated the more it is susceptible to such frauds.

Coaching Schemes

nother unique scam that is out there are these coaching schemes. These schemes promise to teach shortcuts to earn money and lure in customers with promises to turn their life around but in reality they fail to deliver. (No need to worry “Millionairon” we got you covered). Such scams are actually very difficult to distinguish from legitimate coaching programs as they are trading knowledge in return of money. The perpetrators who run these scams are great salesmen. They have a compelling rags to riches story to win over the audience and they bring in people to give fake testimonials of how the scheme changed their life. Furthermore, they try to create exclusivity by using phrases like “only for select people” or “Hurry up before the secret gets out”. Overtime, these courses get more expensive as once you have taken part in one of the courses you are encouraged to opt-in for another one and so on until you have realised that there is no actual gain of knowledge. For anyone that has been living on this edge and is now realising what has happened to them, yes Waqar Zaka falls within this ambit. (All these well orchestrated fraud schemes occur at major moments of change. They strike when people are vulnerable due to volatility. They see War, Pandemics, Recessions and waves of Technological change as an opportunity. Like in the case of cryptocurrency, many people rushed in with their investments just out of FOMO. This led to some fraudsters creating fake coins and fake crypto investment schemes that people followed blindly. The major red flag in all these cases is that the perpetrators heavily emphasise on the fact that “They are not a fraud” (Typical chor ki dari mein tinka). Furthermore, it is extremely important to report these frauds. In Pakistan, complaints against such schemes can be launched online with SECP or FIA. If you have been scammed, you might feel embarrassed to tell anyone but the fact is that the sooner you file a complaint the higher are the chances of the fraud being caught and your money being returned. n

PERSONAL FINANCE

How

Samin Textiles became Waves Home Appliances Pakistani corporations are looking for alternatives to Initial Public Offerings

By Saad Tanvir

rom a textile manufacturer to a home appliances distributor. Waves has managed to convert a dormant, going concern, listed company into an active home appliances distributor and is eyeing to mold it into a large-scale retail organization with its own home appliances manufacturing unit. As per a recent notification posted on the PSX, Waves Singer Pakistan has demerged its home appliances manufacturing division and merged it into Samin Textile, which would now be renamed to Waves home appliances. The notification presented that the principal line of business would be changed to include manufacturing & assembly, alongside wholesale of home appliances & other light engineering products. Samin textiles, a quiescent listed company on the PSX, had caught the attention of a large conglomerate - Waves Singer Pakistan Limited. Mr. Haroon Ahmed, the CEO and majority shareholder at Waves singer Pakistan, had increasingly shown interest in the acquisition

CORPORATE

of the bleeding Samin textile at the beginning of last year. He managed to present a revival plan for its transformation and successfully went on to acquire the textile company. The Sale Purchase Agreement was originally signed in January 2021 between the sponsors and Mr. Haroon, constituting a consideration of Rs. 25 million against 67.1% ownership of the company. There, Haroon saw an opportunity to carve out a separate business segment for his expanding company, Waves Singer. The business of Waves was to be transferred to Samin, which included its manufacturing and retail business, while waves itself would venture into the real estate business. A great strategy, but why pay Rs. 25 million for it? Why not just create a privately listed entity? or a listed one for that matter. Why did waves acquire an already listed company with essentially no real balance sheet? No assets, only liabilities. Since Waves had planned to completely restructure a textiles manufacturing and distribution company into a home appliances business, were its dealership network, brand name, customer base, or supply chain of any use? Other than it’s Tangible assets – which Waves had not acquired, what benefit could Samin textiles yield for waves? There was

seemingly no synergy at all.

A bit about Samin Textiles

amin Textiles Limited (SMTM) was incorporated in Pakistan in November 1989 and was listed on the PSX in 1994. The principal business of the company used to be manufacturing and sale of textile products. The company had its registered office at Main Gulberg, Lahore, while the plant used to be situated at Manga Raiwind Road, Kasur. Historically, the company had been afloat for quite some time, but the last 10 years proved to be fatal for its survival. It experienced its first blow in 2012 when its sales declined drastically from Rs. 3,096 million in 2011 to Rs. 2,435 million in 2012. The company then managed to keep them stable around the Rs. 2,500 million mark for the next 2 years, but in 2015 eventually witnessed a decay in its sales which continued to haunt it, until its ultimate shut-down in 2018. The company had experienced substantial losses during its last couple of years, including a loss of Rs. 283 million in 2017, and a colossal Rs. 898 million in 2018.

What happened?

s per the official statement given by the company itself in a notification, the company ceased its operations in September 2018, subject to massive losses & piling up of substantial liabilities pertaining to: sluggish textile demand in the international market; obsolescence of the existing plant and machinery; lack of investment from sponsors; and the non-availability of viable orders. This led to the ultimate demise of the textile mill, as the board of directors were forced to liquidate the company’s assets in order to clear-off its burgeoning debt obligations. Although, upon liquidation, an alternative business plan was drawn out, the company never managed to set its foot back in the game. The plan suggested to convert the company’s core line of business to trading, importing & exporting of textiles rather than manufacturing. This, however, miserably failed and the company incurred a loss of Rs. 36.3 million in 2019. Subsequently, the board of directors announced that due to high energy costs, deteriorating condition of the textile sector and high taxes, it was not viable to implement the business plan and the idea was dissolved. Ever since, the company conducted multiple feasibilities to venture into different businesses, but never managed to gain any success and has been predominantly considered dormant until the start of this fiscal year when the revival plan presented by waves came into play.

Why go for acquisition

onsidering that Samin textiles had liquidated long before Haroon decided to present them with an offer, what exactly was he or Waves interested in? Why would they buy a listed company with zero assets? Well, what waves was buying was nothing more than the listed status of the company. But why? “In order to carve out the appliances business and make it part of a dedicated & independent company, whose shares are also listed on the stock exchange, we used Samin textiles.” – Mr. Haroon Ahmed Khan Profit asked Haroon why Waves would not create its own subsidiary and list it on the stock exchange rather than acquire a dormant listed entity thereby paying a hefty cost. Haroon emphasized if waves had created a separate private limited company for its manufacturing segment and later went on to list it, it may have taken a few years. However, if he bought an already listed company, which had no business or assets, he could rather mitigate that time and carve out his manufacturing segment into that listed company in a much more efficient manner. This raises the question: Haroon paid

Listing enables the company to showcase its growth, performance and market value to the general public, attract further investments from both High-net-worth individuals (HNWI) or retail investors, and increase its market capitalization. Listing provides free publicity and outreach, indirectly benefiting the core operations of the organization, it enhances the company’s public perception and a more credible image essentially Rs. 25 million to get his foot in the door right away rather than wait a few years and maybe save a few millions. Why did he do that?

Benefits of listed corporations

isted companies often enjoy certain benefits that unlisted or private limited corporations do not. For starters, the platform for a listed company is very useful for the management to raise equity for expansionary projects in case needed and pursue growth opportunities as compared to a non-listed entity. It opens up doors for investors to directly participate in the entity rather than take the indirect route via the holding company i.e if an investor wants to directly acquire a stake in the appliances business rather than the other business segments of the holding company, he could easily do so. Listing enables the company to showcase its growth, performance and market value to the general public, attract further investments from both Highnet-worth individuals (HNWI) or retail investors, and increase its market capitalization. Listing provides free publicity and outreach, indirectly benefiting the core operations of the organization, it enhances the company’s public perception and a more credible image. Listing can also help attract the best talent, enhance the company’s relationship with its current & potential customers and suppliers, increase the opportunities for partnering with local and international companies, and strengthen employee commitment via share ownership schemes. For these benefits Haroon wanted waves’ manufacturing company to be listed on the PSX, acting as a separate legal entity in its dealing with its investors.

The case of SERF

ompanies often find it a cumbersome task to get their segments listed and look for shortcuts to save time. A similar case was witnessed with the acquisition of Service fabrics by the Ghani group.

Service Fabrics Limited (SERF) had also gone out of business primarily due to its profitability and liquidity issues before it had been acquired by Ghani Global Group. The company was a mere shell company with a negative net worth and liabilities standing at Rs. 210 million before acquisition with no land, building property or machinery. The company had been dormant since a long time and was on the verge of dissolution - a winding up process had been started by the SECP. Ghani Global saw an opportunity to acquire the company and mold it for their own use. They presented a revival plan to transform its core line of business from textiles to chemicals. From the manufacturing of fabrics, the company would now be involved in the trading, production, and marketing of calcium carbide. Subsequently, a more suitable name, which would reflect the company’s principal line of business was used – “G3 technologies”. Slightly different in strategy but rather similar in objective.

The transformation

he revival plan drafted to transform Samin textiles to Waves home appliances limited (WHAL) aimed to revamp the company into a distribution organization, with its core focus on the distribution & manufacturing of home appliances. This company would essentially handle the home appliances division of Waves, while another group company would handle the retail segment with a diverse set of electronic products including those produced by WHAL. Waves Singer, on the other hand, would now only act as a holding company for both its manufacturing and retail business. The mega strategy that Haroon devised involved the formation of three distinct subsidiaries, one for the manufacturing of home appliances (Samin textiles), the other one involved in the retail of electrical goods (IPO in the pipeline), while a third new segment in the offing included the construction of a real estate multi-purpose apartments on the old factory area – as the manufacturing plant for shifted to a new site to be operated by WHAL. n

CORPORATE

Hyundai Pakistan’s

Kashmir day saga The Gods of the internet bore down on Hyundai and the consequences were not pretty

By Ariba Shahid

t all started, as most chaotic things do in today’s world, with a facebook post. Early in the afternoon on the 5th of February the official Facebook page for Hyundai Pakistan put up a picture commemorating Kashmir Solidarity Day. It was the sort of page that a lot of company pages make to seem relevant and boost their social media presence and forget about without incident. On most days, the post would have gone unnoticed. But the overlords of the internet had other plans. Somehow the facebook post reached a few Indian social media users and they were not amused. The users commented on the post, complaining that Huyndai, which is relatively new in Pakistan and has a massive presence in India, should not be allowing their local subsidiaries to be making what they claimed were politically insensitive social media posts. At some point, someone took a screenshot of the post and put it up on Twitter. The post was quite tame. “Let us remember the

sacrifices of our Kashmiri brothers and stand in support as they continue to struggle for freedom,” read the caption. Yet over the course of the next few days the post tempers ran high and the well-meaning post shook the highest echelons in the company's international hierarchy and lit a fire that would spread and burn into a diplomatic nightmare and play a role in Hyundai taking a significant hit on the stock market.

What happened

yundai is a big company. The South Korean multinational corporation is one of the largest automobile companies in the world, operating in 6000 dealerships spread across 193 companies of the world with a capacity of producing 1.6 million vehicles a year and a labour force of 75,000 people. Social media proved to be bigger. On Sunday the 6th of February, a day after Hyundai Pakistan posted the Kashmir Day commemoration, the post started to pick up some traction among Indian social media users, and within hours the hashtag “#BoycottHyundai

began to trend. Within hours, unverified news reports ran on the Indian media claiming that 3000 bookings for Hyundai vehicles were cancelled in 12 hours. To put that into perspective, India sold 505,000 Hyundai cars in 2021. In comparison, Hyundai sold a mere 8,000 models in Pakistan in 2021. The 3000 orders that were allegedly cancelled would have accounted for 40% of the total Hyundai sales in Pakistan last year. Normally, companies do have different social media presences in different countries and post in relation to local holidays and culture. At this point, we do have to say that Hyundai making a post on Kashmir Day was not a big deal. It was something that a lot of companies do. Tuning in to local sentiments is a big part of tapping into a market, and in Pakistan not posting on the occasion of Kashmir Day might have been construed as anti-national. However, the force of the response from Indian social media users was harsh and resulted in a storm that no one could have anticipated and that got out of hand very quickly because of an overblown reaction. It says more about the nature of social media and the internet than it does about social media strategy or any

sort of gaffe. Because this was not a gaffe on the part of Hyundai Pakistan - no - this was a phenomenon on the part of India social media. In this particular case, there was also a massive difference in the size of the markets and the Indians unhappy about the post realised that very quickly. Hyundai India tried to make a clarification that very day, sharing a post on Sunday the 6th in which it said it has a "zero-tolerance policy towards insensitive communication and we strongly condemn any such view. The unsolicited social media post linking Hyundai Motor India is offending our unparalleled commitment and service to this great country," it said, adding that it stands firmly behind its "strong ethos of respecting nationalism." However, by this point, the conversation had gone far out of anyone’s control. The statement was too little too late and ended up making things worse, with Indians claiming it did not do enough to address hurt sentiments. By this point, the trend was picked up on by political bigwigs and government officials, and very quickly became a bone of contention to fuel populist rhetoric. Sentiments continued to rise and on Monday the 7th of February, To make matters worse, Hyundai also took serious hits on the stock market on Monday, when its share fell 1.25%, weakening more than Seoul’s benchmark index. The main factors behind the drop were concerns over record numbers of COVID-19 cases in South Korea, and ongoing worries that a global chip shortage could hit production and sales. However, images of the graph of Hyundai stock falling galvanised the boycotters further who thought the boycott was already working. That very day, the issue was also brought up in parliament by India’s commerce minister, Piyush Goyal, who said that Hyundai needed to be more forceful in their apology and that the government had approached Hyundai and the South Korean government for an explanation. "This issue has been taken up both with the government there and the company concerned," Mr Goyal said. "They (Hyundai) have already issued a clarification yesterday. We have also asked them to be more forceful in their unequivocal apology on this issue." This voice being raised in parliament was part of a larger trend. Earlier, Priyanka Chaturvedi of Shiv Sena said certain companies have been offering support and "posting content on Kashmir solidarity day observed by Pakistan". According to her, the companies do business both in India and Pakistan, and "yet have posted content in solidarity with Pakistan over Kashmir." The calls for explanations continued to rise, with the demand going beyond a simple

apology, and now asking for the South Korean car manufacturer to take a clear stance on the political issue. Ashwani Mahajan, an official at the economic wing of the Rashtriya Swayamsevak Sangh (RSS) group, said Hyundai should clarify its position on Kashmir. "While not criticising @HyundaiPakistan, the Indian arm of @Hyundai_Global is not even saying that Kashmir is an integral part of India. Speaks tons about their commitment to India. Doesn't this call for #BoycottHyundai?", he said. Shiv Sena MP Priyanka Chaturvedi called on the automobile manufacturer to avoid “wishy-washy words” and say “we are unequivocally sorry”. BJP’s foreign policy in-charge, Vijay Chauthaiwale, also asked the carmaker to explain the company’s “global stand on anti-India rhetoric”. The entire matter culminated on Tuesday the 8th of February, when South Korea's Hyundai Motor said it deeply regrets any offence caused to Indians by an "unauthorised" tweet from the account of its Pakistan partner that expressed solidarity for the people of Indian-occupied Kashmir (IoK). After the widespread backlash to the earlier clarification, this one was unequivocal. It also became clear where Hyundai stood when Hyundai Pakistan removed the original post. In its new statement, the company said it was “clearly against” its policy that the an independently-owned distributor in Pakistan made “unauthorised” Kashmir-related social media posts from their own accounts. It also said that its Indian subsidiary is not associated with the distributor in Pakistan. “Once the situation was brought to our attention, we made the distributor acutely aware of the inappropriateness of the action. We have since taken measures to ensure the distributor, which misused the Hyundai brand identity, has removed the social media posts and we have put in place processes to prevent a future recurrence,” the company added. In short, the Pakistan distributor of Hyundai posted a Kashmir day post on Saturday. By Sunday Indians were upset and #BoycottHyundai began trending. When Hyundai India responded on the same day, people demanded a stronger statement, and the Indian commerce minister said the same in parliament on Monday. By Tuesday, Hyundai’s headquarters in Seoul offered a more detailed apology, but the matter was not over yet - because now the South Korean government was about to get involved as well.

The diplomatic spillage

ne can imagine that the top executives over at Hyundai’s Seoul headquarters will be annoyed. Pakistan is a new market. A very

new market. And a facebook post from there resulted in them having to apologise to the people of India and contain a crisis that could have jepordised their largest market. Yet it was not just the danger of what might go wrong in terms of business, but also the South Korean government breathing down their necks. On the 8th of February, the Indian Ministry of External Affairs (MEA) summoned the South Korean ambassador on Monday to convey the government's "strong displeasure" over the social media post. According to Indian news agency ANI, the Indian external affairs minister also discussed the post with his Korean counterpart on a telephone call. "While they discussed several issues, the [Korean] foreign minister also conveyed that they regretted the offence caused to the people and Government of India by the social media post," according to a statement of the MEA shared by ANI. In addition, India's ambassador to Seoul contacted the Hyundai Headquarters to seek an explanation, the statement added. In response, the South Korean foreign minister reportedly expressed regret after India summoned the Republic of Korea envoy to lodge “strong displeasure.” While officially nothing more was said other than that the two foreign ministers “discussed” the issue on a call, it does seem that the social media storm ended up resulting in a brief diplomatic kerfuffle that quickly thawed.

What has been happening in Pakistan?

he post has been removed, and there should be no love lost towards Hyundai Pakistan given the immense pressure. The Kashmir issue is a sensitive one and tempers run high on both sides of the border. If India gave flack to Hyundai India for a post made by Hyundai Pakistan, what could the possible repercussions be in Pakistan over Hyundai Pakistan removing the post? For now it seems that there have not been any, since Hyundai is nascent and very small in the country. In fact, while Indian twitter users dominated the conversation, their counterparts in Pakistan supported Hyundai Pakistan for their post. “Who said we removed the post? It was taken off after Kashmir day was over like any other post,” claims Mian Hassan Mansha, Chairman Nishat Mills Ltd - the company that has partnered with Hyundai in Pakistan. “We have many social media posts coming off and on. I am sure you might have noticed. It does not make sense to keep an old dated post up unless it is for marketing or product

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information.” Interestingly, the entire kerfuffle comes only a little while after Mian Muhammad Mansha, the CEO of Nishat Group, made a statement in favor of renewed and better trade relations with India. “If things improve between the two neighbours, Indian Prime Minister Narendra Modi could visit Pakistan in a month,” Mian Mansha told a gathering of businessmen at the Lahore Chambers of Commerce and Industry on Wednesday, just three days ahead of Kashmir day. He advised the two countries to resolve their disputes and start trade to fight poverty in the region and used the example of European nations as a role model. “If the economy does not improve, the country may face disastrous consequences. Pakistan should improve trade relations with India and take a regional approach to economic development. Europe fought two great wars, but ultimately settled for peace and regional development. There is no permanent enmity,” said the older Mansha. The most immediate effect in Pakistan, however, was that other international chains operating here scrambled as their Kashmir Day posts started getting attention too. Again, normally these posts would have gone unnoticed but because of this incident a lot of companies tried to correct the course. The entire incident may result in foreign franchises keeping a closer look on the social media activity of their local subsidiaries.

Several large multinational brands, including Pizza Hut IncDomino's Pizza Inc. and Yum Brands Inc.’s KFC, trended on social media in India on Tuesday, with calls for boycotts after some of their affiliates in Pakistan posted support for people in the disputed region of Kashmir. KFC India and Domino’s in India apologised for the post on Monday. Hyundai India said it took steps to remove the posts made by an “independently-owned distributor” in Pakistan. Many

of the tweets were unavailable by Tuesday, even though Twitter users continued to post screenshots, keeping the issue as the main trending topic in India over two days this week, according to Bloomberg. "We deeply apologize for a post that was published on some KFC social media channels outside the country. We honour and respect India, and remain steadfast in our commitment to serving all Indians with pride,” said KFC in a tweet. Pizza Hut, in its statement, said "it does not condone, support or agree with the contents of a post circulating in social media. We remain steadfast in our commitment to serve all our brothers and sisters with pride." Other global brands such as Osaka Batteries, Isuzu D-Max, Bosch Pharmaceuticals, Atlas Honda Limited, Kia Motors Crossroads, and Dominoes also made similar posts and are facing calls from some groups within India for boycotts.

Hyundai in Pakistan and India

ecause the issue with Hyundai was the major trigger for the outrage and caused a diplomatic issue between India and South Korea, we’re going to look at the market dynamics for Hyundai in both countries. In 2017, Hyundai re-entered the Pakistani market by partnering with Nishat Mills. The company used to assemble cars in Pakistan until 2004 through a partnership with Dewan Farooque Motors. They stopped when the latter went bankrupt. The Hyundai Elantra, Sonata, Tuscon, and Porter H-100 are manufactured locally. The Grand Starex,

ing India’s number one exporter for the last 10 years consecutively in the early 2010s. Hyundai is the second largest car manufacturer in India and has captured 14.93%. Maruti Suzuki remains the biggest player. However, both Maruti and Hyundai are losing out on market share as Tata gains a bigger share of the pie.

Why does South Korea care about India?

T Santa Fe, and Loniq are imported. On the flipside, Hyundai Motor India is a wholly owned subsidiary of the Hyundai Motor Company headquartered in South Korea. It has been operational in India since

1996. The operations have grown so large that the subsidiary not only produces for the local market but also exports to 92 countries across Africa, Middle East, Latin America and Asia which has earned it the title of be-

here is also no sugar coating the fact that the Indian economy is vastly bigger than Pakistan’s. It is the world’s sixth largest economy by nominal GDP and the third largest by purchasing power parity. Moreover, the very fact that the stock for Hyundai Motor Company tumbled in South Korea over this issue shows how serious the matter is. The stock fell 4.15% over the past 5 days, roughly 8000 points. If we compare Hyundai in both countries, it is evident that India is clearly a bigger stake for Hyundai considering they’re directly the producers there in contrast to the joint venture operations they have in Pakistan. Moreover, Hyundai India sold 32,312 vehicles in December 2021 compared to 8903 Hyundai Vehicles sold in Pakistan in a year. For more insight of the sheer difference in the size of the markets, 237,424 vehicles were sold in 2021 in Pakistan compared to 505,033 Hyundai cars sold throughout 2021 in India. What this means is the Hyundai India sales for 2021 are more than double of the entire auto sector of Pakistan. However, with Hyundai’s share already shrinking in India as Tata gains more ground, Hyundai is already worried about its placement in India. With calls for boycotts adding to the decrease in market share, there is no surprise that Hyundai global is concerned.

Can brands be patriotic?

his raises the question, can global brands be patriotic in one country in light of their global presence? Danish Ejaz, CEO of Madvertising has mixed views about brands and their displays of patriotism. “Generally, brands tend to speak the consumer mindset of the respective country if they are not educating customers about the brand. In that aspect, yes, brands must be patriotic. But that is more aligned with local brands. Big brands tend to be diplomatic considering their presence in multiple countries and they usually avoid events that can cause issues to other

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Why react now?

(bigger) markets which can cause a huge dip in their sales if they go against them.” While it is easier to exist in peaceful nations, it is also easier for brands to be patriotic in such nations. However in the case of Pakistan and India, it is not that easy. Ejaz explains, “This is where the tricky situation comes for global brands, specifically present in Pakistan & India. If you take Pakistan's side, you are automatically opening yourself for a huge backlash from India. Which we all know is a bigger market and no brand wants to mess with them!” Being a Kashmiri and a social media strategist, his opinion on the matter is one that should be heard. He adds, “In this specific

regard, the issue is whether you want to talk about the ‘narrative’ or do you want to talk about what you feel? In general, all the posts on Kashmir day were focused on solidarity with Kashmir and its citizens but can we talk about something else? The stance about Kashmir in Pakistan is very rigid and that is why it is not possible for brands to talk about anything else. In the future perhaps, we may get something but right now it strictly highlights the injustice on the other side, and a means to show solidarity with Kashmir.” “For global brands the best strategy is not to talk about it which they have been doing every year silently and only this time we have noticed due to the recent incident.”

ashmir day is not a new holiday or a knee jerk reaction to the current India Pakistan relations. Kashmir Solidarity Day or popularly known as Kashmir Day is a national holiday observed in Pakistan on February 5 every year. It’s an annual day to show support and unity with the people of Indian-administered Jammu and Kashmir. It is also a day to pay homage and respect to the Kashmiris that have lost their lives as a result of the conflict. The holiday is a fairly young one and was first proposed by Qazi Hussain Ahmed, former Emir of Jamaat-e-Islami Pakistan in 1990. In 1991, Prime Minister Nawaz Sharif called for a Kashmir Solidarity Day Strike. It was titled Kashmir Solidarity Day in 2004. The fact that a Kashmir day post was taken this seriously this year could be explained by a number of reasons. One could be growing intolerance towards Pakistan in India as a political gimmick to garner more support. Hussain Nadeem, the executive director of the Islamabad Policy Research Institute, a think tank that works on International relations say ”the Indian government reaction is reflective of the deep rooted insecurity and state of crisis that engulfs India at the moment where no critique is tolerated. We witnessed this in how India bullied the social media companies to obey the censorship rules and we see the same attempts on corporate brands.” “Communal violence is out of control and with elections in India right now, the government is desperate, hence all of these over the top measures,” adds Nadeem. However, there is more to it. For instance, Hyundai Pakistan had just restarted sales in Pakistan after more than a decade. The company’s presence on social media was meager. Similarly, brands like Pizza Hut in Pakistan revamped their social media operations as well over the past year. Thus they got more traction than they probably would have a year ago or even earlier.

Social media strategies rethought

his whole ordeal points out that social media strategies need to be planned, coordinated on a global scale, and thought out well. More importantly, at a time when you can get cancelled at a click of a button, Pakistani brands need to improve their communications and their messaging. You can no longer just wing social media. It is as important as your on ground marketing in this day and age. For now, Hyundai sales in Pakistan remain untouched as a result of the issue, but what it means for the future in the larger scheme of things is yet to be seen. n

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