The Following made headlines during the previous week.
ADB approves US$1.4bn for energy sector
The Asian Development Bank (ADB) approved a combined loan assistance of US$1.4bn on 20th Nov. The loan is aimed to assist the government in resolving the power crisis. The first US$900mn program for power distribution enhancement will support advance metering infrastructure (AMI) and establishment of new customer information billing system and the second sub-program of US$400mn for the Sustainable Energy Sector Reform Program will support ongoing policy reforms.
KPOGCL plans to raise crude oil output to 0.2mnbpd
The Khyber Pakhtunkhawa Oil and Gas Company Limited (KPOGCL) plans to raise the crude oil production in the province from 50,000bpd to 200,000bpd and gas production from 385mmcfd to 2bcfd within next 10 years, by beckoning about US$12.5bn of investment in the sector.
Chinese firms to invest US$250mn in Sindh
The Sindh government signed a memorandum of understanding with two Chinese firms under which the province would receive foreign direct investment of US$250mn to set up a cement plant in Sindh. The two firms, Sinohydro Corporation Ltd in collaboration with Deer International Group Ltd (DIGL).
Textile exports decline 7% in Jul-Oct
As per the recent data released by Pakistan Bureau of Statistics, exports from the textile industry have posted a 6.9% YoY decline to US$4.27bn during 4MFY16. According to the Chairman of Pakistan Apparel Forum Muhammad Jawed Bilwani, increase in sales tax from 2% to 3% along with 10% regulatory duty imposed by the government on yarn imports has increased the cost of doing business. Uncertainty in the international markets is also a factor behind declining exports. In Oct-15, textile exports are down 10.63% YoY to US$1.05bn.
China not willing to exclude more than 10% items
During the 6th round of negotiations for the 2nd phase of China-Pakistan Free Trade Agreement (CPFTA), Chinese side has refused to agree on Pakistan’s request to enhance the exclusion of Pakistani products from 10% to 20% of the total tariff line to make the CPFTA work in Pakistan’s favor. On the other side, Chinese side has pointed out its concern on the recent regulatory duty levied by the Pakistani government on all the products imported from China.
In a bid to generate PRs40bn to bridge the revenue shortfall during 1QFY16, Prime Minister Nawaz Sharif is likely to approve new revenue generation measures. These measures include
- increase in regulatory duty (RD) from 5% to 10% on the import of luxury and non-essential items and 15% to 20% RD on certain items
- enhancement of Federal Excise Duty (FED) on few items like cigarettes.
Reportedly, the govt. has decided to raise regulatory duty (RD) on more than 313 items within the next 72hrs, in a bid to generate PRs40bn to bridge the revenue shortfall. The items under consideration include waste and scrap of tinned iron or steel, semi-finished products of iron or non-alloy steel (billets, slabs and blooms), hot rolled bars and rods, irregularly wound coils of iron or non-alloy steel. We believe the increase in RD on imported steel products will negatively impact the margins of steel melting and re-rolling units (Mughal, Amreli) as imported steel scrap and billets constitute more than 80% of the production costs for most of the manufacturers in the industry.
In a major development in Pakistan telecom space, VimpelCom Ltd (“VimpelCom”) and Global Telecom Holding S.A.E. (“GTH”), have reached an agreement with Warid Telecom Pakistan LLC and Bank Alfalah Limited (Dhabi Group shareholders) to merge their Pakistan telecom businesses (Pakistan Mobile Communication Ltd and Warid Telecom PVt Ltd respectively). Dhabi Group shareholders will own 15% in the merged entity (BAFL likely to own its proportionate share), though total value of the merged entity is not known. The deal carries a mandatory lock-in period of 4-years and provides call option to Mobilik’s parent company VimpelCom/GTH.
The government is planning to increase regulatory duty (RD) on import of vehicles including old and used cars and increase rate of the import duty slabs under Pakistan Customs Tariff from Dec 1, 2015. The government is examining three proposals for imposition of RD on the import of vehicles i.e. 5%, 10% and 15%. One of these slabs is yet to be finalised. Currently 50% RD is applicable on the import of above 1800cc cars, jeeps and SUVs. If RD is imposed on import of above 1,300cc vehicles as well, it would bode well for Toyota and Honda cars.