I N S I D E T H I S I S S U E :

Macro-Environment Review and Outlook In line with the expectations the Consumer Price Index (CPI) for the month of March 2016 registered an increase of 3.94% YoY. Despite the withering of low base, the partial reversal in petroleum prices is expected to keep uptick in inflation subdued. Incorporating a minuscule uptick in food inflation, inflation for the second half of the year is expected to average around 3.2% keeping the yearly average around 2.7%. The current account found its way into positive territory in the month of February where it recorded a surplus of USD 157 million. The recovery in exports helped provide much needed respite to the current account with exports increasing by USD 163 million. However, the cumulative exports for the eight months decreased by 9.9% mainly driven by lower commodity prices and unfavorable exchange rate regime. The imports continued with the downward trajectory reducing by 8.20% in the month of February relative to January triggered by significant dip in oil prices in the month of January and reduction in import of power machinery. The economy might be unable to experience similar quantum of reduction in imports going forward because recovery in oil prices by more than 30% from their low in January, imminent import of cotton bales due to meager local production and import of power machinery is expected to keep the import bill in check. Overall Balance of payment account reported a surplus of near USD 1.04 billion in the 8month FY16 supported by a narrower current account and inflows in financial account. Despite muted foreign inflows during the month, the foreign exchange reserves stayed strong at around US$ 20.5 billion. Consequently, the rupee showed resilience against dollar which appreciated by 0.07% relative to US dollar during the month. Although low inflation outlook does provide room for a 50 bps cut however the potential risks to remittances, current account and inflation (due to volatility in oil prices) highlighted in the minutes of last monetary policy meeting warrant a status quo.

Equity Market Performance Review and Outlook Pessimism dissipated during the month of March, after KSE-100 Index managed to gain 5.7%, eclipsing the returns witnessed by global equities. Foreigners selling continued while at a slower pace, with an outflow of USD 11 million during the month. This took the net selling of FIPI account for 9MFY16 to USD 340 million. With uplift in sentiments, the volumes improved to 145 million shares compared with 134 million shares traded during the preceding month.

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Sector Updates – Mar 2016

This monthly newsletter is prepared by Market Research Unit, Risk Management Department. Its purpose is to provide latest news & developments in important economic sectors of the country. All information in this newsletter is taken from published sources & does not contain any analysis or opinions by Risk Management. For feedback and suggestions please contact: Muhammad Taha Ekram taha.ekram@meezanbank.com Altaf Hassan Khan Altaf.hassan@meezanbank.com

Sector Updates

Economy…….…….….....2

Power……...…………......6

Oil & Gas…………..……10

Cement..…..……………..12

Fertilizer.…..………….....14

Textile……..……………..15

I N S I D E T H I S I S S U E :

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Robust cement dispatches along with the potential growth from CPEC lead activities kept investor interests alive in the sector. Alongside, 18% MoM gain in Crude Oil (Arab Light), revived investor’s interest in Oil & Gas Exploration Sector, which gained 10.0% during the month. Money Market Performance Review Yield curve continued to slid lower on the back of favorable macroeconomic indicators. Decline in curve is also attributed to hefty liquidity due in the month of July.16. This liquidity pressure enhanced the demand of longer tenor issues also evident from auction participation. SBP conducted second Ijarah auction on fixed rate basis where it accepted PKR 80.4 bn at 5.59% against participation of PKR 199 billion M2 witnessed an increase of 4.82% in FY16YTD to stand at PKR 11.83 trillion. NFA posted decent contribution in M2 growth. The government’s borrowing for budgetary support stood at PKR 585.91 billion vs PKR 515.97 billion in the same period last year. Short term market liquidity continues to remain supported through continuous OMOs. An uncertainty prevails in the market related to delay in monetary policy announcement where most of the market participants believe that SBP will keep its policy rate unchanged in the upcoming monetary policy. Given the expected maturity of PIBs in July, interest is likely to remain strong in PIB auctions and may not result in significant upward adjustment in Yield curve even in case of status quo however risks to remittances and forex flows become dominant factors in defining the yield curve direction. MCB Arif habib Fund Manager Report- Mar -16 ECONOMY

Moody's cuts China outlook on eve of NPC, cites reform, fiscal risks Moody’s downgraded its outlook on Chinese government debt to “negative” from “stable” on Wednesday, citing uncertainty over authorities’ capacity to implement

economic reforms, rising government debt and falling reserves. The Moody’s downgrade comes just days before the National People’s Congress (NPC) is due to vote on China’s 13th five year plan, a closely held development blueprint for the next five years, which policymakers began formally drafting in 2015. While Moody’s put actual government debt at only 40.6 per cent of GDP at end-2015, Standard & Poor’s estimated in July that corporate debt had already risen to 160 per cent of GDP in 2014, twice the level in the United States and up from 120 per cent in 2013. “There has been a lot of poor credit allocation, with too much credit directed at inefficient state firms and not enough going towards smaller efficient firms,” said Julian Evans-Pritchard, China Economist at Capital Economics in Singapore. In a separate note on Wednesday, ratings agency Fitch also highlighted rising risks to Chinese banks from accelerating credit growth. “The 50bp cut to the reserve requirement ratio (RJR) for Chinese banks on Tuesday, together with record loan growth in January, could point to an increasing likelihood that the authorities are shifting policy to enable more credit-fuelled growth,” Fitch analysts wrote. “Rolling over more debt will only delay and not resolve an expected rise in non-performing loans.” Reuters - March 3, 2016

Rising concerns over Pakistan’s debt-to-GDP ratio Rising concerns over Pakistan’s debt-to-GDP ratio and weakening credit worthiness are pressuring the USD PKR, which saw a low of 104.0200 and a high of 105.0100. Debt-to-GDP is heading towards 65 per cent at $70.2 billion, estimates the International Monetary Fund (IMF). This is currencies roundup of Februaryby an international online forex broker. The underlying fundamentals are looking more precarious given that at the last-measured level of 4.7 per cent for the year 2014 - the country’s GDP continues to lag behind its regional rivals. The market news in February continued to focus strongly on the oil markets, with headline attention remaining on the commodity and more specifically OPEC after four members of the committee group agreed to freeze their production levels.The aggressive oversupply in the markets continued to weigh on investor sentiment however, and

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acted like an anchor on the price with WTI oil dipping back below $30 within a week. WTI Oil did however encounter a far more positive end to February with the commodity rallying towards $35 at the end of the month. $35 is seen as a strong psychological level for WTI and if the commodity manages to close above this level, it would open up the gates for further gains towards $40. As if that wasn’t enough action in the commodities markets, Gold was back in the trading spotlight, charging from $1127 on February 1st up to $1247 by the middle of the month. The Gold price was driven higher by safe-haven buying and a bearish outlook on other assets like currencies and equities, with the high level of volatility encouraging extreme Dollar weakness on the hopes that the federal reserve would postpone any further increases in US interest rates. The other main headline was significant Dollar weakness, which allowed the Euro to climb significantly higher against the Dollar. The EURUSD jumped out of its 1.07 – 1.10 trading range set in January on the Dollar weakness, with the Euro-Dollar extending to a peak at 1.1375 by the middle of the month. The major loser of the currency markets since the beginning of the year has however been the GBP, with the GBPUSD falling from 1.49 at the beginning of January to a six-year low around 1.3835 in February.The GBPUSD has suffered from a horrendous period of weak investor attraction since 2016 commenced, with the British Pound falling heavily on the back of repeatedly pushed back UK interest rate expectations, prolonged weakness in inflation and signs of UK economic momentum slowing down. Investors then received even further encouragement to price in additional declines into the British Pound following UK Prime Minister David Cameron finally confirming the date for the EU referendum in late June, which has basically plagued the UK economy for months of uncertainty ahead.After the People’s Bank of China hurt investor confidence by weakening the RMB by an alarming rate at the beginning of the year, the RMB has regained some stability and is trying to recover losses against the Dollar. With the China economy still suffering from a decline in growth that is set to continue throughout 2016 and uncertainty remaining over capital outflows and a recent cut in outlook from leading ratings agency Moody’s, “I would still say that I remain bearish on the future trend of the RMB. Unless there is an exception Dollar sell-off, or return to riskier assets like the emerging markets from

investors I still believe it is possible that the USDCNY will slowly move towards 7.00 by the end of the year.” Wrapping up, the continued concerns over China’s slowdown and its worldwide impact caused all the major assets with the exception of Gold to remain under pressure in February. As we move into March, stocks, currencies, and commodities may continue to come under similar price pressure. Daily Times -March 05, 2016

Pakistan to raise another $3.5b worth of Eurobonds Amid concern over high cost of unconventional borrowings, Pakistan is planning to raise another $3.5 billion from international debt markets by floating Eurobonds over a period of three years to retire earlier loans. A new medium-term debt management strategy that the ministry of finance unveiled this week gives a plan for floating dollar-denominated Eurobonds up to fiscal year 2018-19. Last month, the Senate Standing Committee on Finance decided to summon representatives of three international banks that the government hired for offering $500 million worth of Eurobonds after it suspected that the money invested by foreigners had actually flown from Pakistan. The government insists that the resources mobilised by the bonds were used to retire the expensive domestic debt in the past. It intends to raise $1 billion in 2015-16 and thereafter $500 million each in 2016-17 and 2017-18, according to the debt strategy.

The new debt strategy largely focuses on diversification of financing and lengthening the maturity of debt profile. However, it has completely ignored implications of the off-budget fiscal risk for the country’s debt projections. A recent report of the International Monetary Fund (IMF) has given broader pillars for strengthening the debt and public finance management to reduce fiscal risks. “A debt management strategy based on building funding buffers, assessing off-budget fiscal risks, diversifying financing from both domestic and external sources and lengthening the maturity profile of domestic debt will help mitigate these risks,” said the IMF.

PROJECTIONS

The debt strategy has used ambitious macroeconomic projections for its calculations, unlike the IMF that is taking a conservative approach. The government has projected

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that the economy will grow at a pace of 6.5 per cent in 2016-17 while the IMF puts the expansion at 4.7 per cent

Pakistan Today - March 6, 2016

Trade with Iran: SBP reviews progress made by banks

In the backdrop of lifting of sanctions against Iran, the State Bank of Pakistan (SBP) called a special meeting of all banks and financial institutions on Monday to discuss the progress made by the banking sector for facilitating trade transactions with Iran.

The meeting, chaired by the executive director of Banking Policy and Regulation Group of the SBP, was attended by senior bankers from the banking industry, says a press release.

In line with the federal government’s decision after the lifting of sanctions against Iran, the SBP had advised all banks on February 25 that normal business activities could be started with Iran as per the United Nations resolution and a notification of the federal government on removal of sanctions. The meeting participants discussed the issues related to international restrictions and the future course of action.

The SBP provided general guidance on trade with Iran in the post-sanctions milieu while keeping in view the remaining curbs and clarified the points raised by banks.

The banks were encouraged to take immediate measures for updating their policies, procedures, systems and controls, restoration of communication channels and agreements with their counterparts in Iran for the early resumption of normal trade and business activities.

Given the geographical proximity and economic affinity between Pakistan and Iran, it is expected that the restoration of banking channels would result in revival of normal trade between the two neighbours.

Express Tribune, March 15th, 2016.

Pakistan’s economy steadily improving: IMF

Pakistan’s economy is steadily improving, said IMF Resident Mission Chief Dr Tokhir Mirzonev. He was speaking at a seminar organised by Karachi University’s Applied Economic Research Centre (AERC), a statement issued on Thursday said. Dr Tokhir called for ending

subsidies in the public sector and stated that there was no possibility of default in the near future as the country’s economy was steadily improving. He said that in 2016, Pakistan’s economic growth rate has been 4.6 percent, while India leads the region with 7.5 percent; Bangladesh interestingly has a better growth rate of 6.8 percent than China’s 6.3 percent.

Inflation rate and budget deficit has also declined which is a sign of economic growth. Tax revenue collection has improved and rose to 11 % still it must be raised to at least 20 percent, he added. IMF programme in Pakistan started in 2013 to help the country get out of the financial crisis and out of $6.7 billion; $5.2 billion have been disbursed till yet. The programme has structural reform priorities in the sectors of energy, tax-to-GDP ratio, privatisation of public sector enterprises and lastly improving the business climate and environment.

The IMF resident chief added that Pakistan’s foreign debt is around 64 percent of its total GDP, which is not a very concerning ratio, many states have more debt ratios in this regard but Pakistan has to take advantage of the significant opportunity of low oil prices by reforming the energy sector. UK, Turkey, Korea and many European states have remained on IMF relief programmes and now they are progressing. He said China-Pakistan Economic Corridor (CPEC) is a big opportunity for boosting Pakistan’s economy. Faculty of Social Sciences Dean Prof Dr Moonis Ahmar said the policy of self-reliance is pivotal for economic uplift.

He said China and India followed the policy of self-reliance and now they are the world’s fastest progressing economies.

Daily Times -March 25, 2016

Is Pakistan really a dream destination for China?

Before divulging into the topic of ascertaining Pakistan’s potential, let us first take a look at the demographics of Chinese global investments.

Under its ‘go-global policy since 2000’, the Chinese government has been encouraging its domestic companies to invest overseas for sustaining their profitability and enhancing market share, while taking advantage of the country’s huge foreign exchange reserves.

As per the World Investment Report, prepared by UNTCAD, China has emerged as the third largest outward investor with an investment flow of $116 billion in 2014. Analysts,

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at the American Enterprise Institute; a US-based think tank that has been tracking Chinese investments and construction contracts, valuing over $100 million since 2005, provide an interesting picture of the Chinese overseas business focus. According to them, bulk of the Chinese investment stock (56%) resides in developed countries whereas China has clinched over 96% of its construction contracts in the developing countries.

This simply means that Pakistan has a better chance of attracting Chinese companies for construction contracts than for investment on ground.

The actual situation in Pakistan corroborates this fact.

In terms of investment focus; energy, metals and real estate remain the top sectors for Chinese companies.

Energy sector alone attracted over 40% of total investment stock, whereas the other two sectors enjoy a share of 17.8% and 10.1% respectively. As far as the construction contracts are concerned, energy and transport sectors have a predominant combined share of over 76% in monetary values of contracts.

How should we interpret Chinese investment trends?

We can deduce that excess capacity lies in the Chinese infrastructure sector, for which it is encouraging companies to seek contracts in overseas market of developing countries.

China’s large policy banks, such as China Development Bank and EXIM Bank, are rolling these infrastructure projects through provision of funds. It is also seeking resources in the shape of minerals and metals, for which Chinese companies are investing around the world.

We need to clearly demarcate boundaries between ‘outward investments and construction contracts’ here. In actual, it is the investment part that creates long-term employment on ground and induces value addition and probable technology transfer.

Where does Pakistan stand?

This $46-billion China-Pakistan Economic Corridor (CPEC) initiative should be deemed more of an infrastructure project. Here, the bulk of money will be spent on energy and transport projects; in line with Chinese trend in construction contracts.

As to the question of where will the investment portion of Chinese exposure reside, we know that large infrastructure projects are usually financed through debt with smaller equity segment.

It would not be different for the Chinese case in Pakistan. Companies would be investing a small equity portion in the large energy projects whereas debt from Chinese banks will be covering the greater lab.

Should we expect Chinese companies from other sectors coming in droves during or after completion of this CPEC project?

We need a bit of a reality check here.

China is indeed building other such economic corridors in South-East Asian and Central-Asian regions under its ‘one belt one road’ initiative. Building economic corridor is one part and attracting Chinese investments, on ground, is another story.

The economic corridor may facilitate investment flow, however, Pakistan needs to take into account the competitive nature of the investment business. It will be competing against more robust economies of emerging markets for Chinese money. Brazil, India, Malaysia and Indonesia are some of the developing countries where Chinese investment stock is much larger than in Pakistan. Trade linkages of these countries with China are much deeper. Pakistan needs to take a leaf from the connection between trade and investment.

It is pertinent to mention here that the Chinese private sector has taken a lead over State-owned Enterprises in investing abroad. The trend is evident from the presence of large number of Chinese private companies among the investor delegations visiting Pakistan in recent times.

And why should these companies look outside for business? Well, the rising labour costs and reduced margins in Eastern China where majority of these companies are located are some of the contributing factors for production relocations.

And do we offer conducive environment to Chinese investors vis-à-vis other competitors? A million dollar question, whose answer will commence with security situation on ground.

Pakistan is making all-out efforts to ensure wider security, but unfortunately the perception is harder to beat as every single terrorist incident augments this perception. Also, we

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need not ignore the entertainment element for foreign investors in the host economy.

Pakistan also rates low on this entertainment aspect as compared to its competitors. The entertainment element may not account high for foreign investors in case of extractive industries. However, for manufacturing and service sectors, it has its weight.

As for investment incentives or infrastructure deficiencies, the former are more or less the same across similar economies; the latter, however, can be overcome through dedicated economic zones and other facilitations.

The security and entertainment also remain key factors, which the government needs to take in stride for making a rigorous pitch for Chinese investors. Otherwise, distinction for dream investment location might not be achieved.

The writer is an entrepreneur based in China

Express Tribune, April 4th, 2016.

POWER

Lucky Cement gets licence to generate 660MW coal power The government has licenced Lucky Electric Power Company, a concern of Lucky Cement, to generate electricity from its 660-megawatt coal-fired plant at the country’s industrial hub, a document revealed on Saturday. “In order to meet the future energy needs of the country and to improve the energy mix, the Pakistan Power Infrastructure Board issued letter of intent to various local and foreign investors/groups, including Lucky Cement Limited for setting up 660-MW imported coal-based

generation facility at Deh Ghangario, Bin Qasim Town,” the document said. “The entire electric output will be sold to the National Transmission & Despatch Company (NTDC) and NTDC will be responsible for the construction of the infrastructure and transmission line and will seek and obtain all related approvals pertaining to the construction of transmission line and power evacuation.” Earlier, the Pakistan Mineral Development Corporation (PMDC) raised objection over the coal projects. It called the establishment of coal power projects near big cities like Karachi unsuitable as they produce large quantity of ashes and other effluents. The PMDC contended that hazards of coal power generation will be borne by the residents of Karachi alone, while the benefits are for the entire country as the power are to be supplied to the NTDC. The corporation directed Lucky Electric Power to submit a report on a bi-annual basis and confirm that the operation of its proposed generation facility is compliant with the required environmental standards. The National Electric Power Regulatory Authority (Nepra), however, said all types of electric power generation resources, including coal, hydel, wind, solar and other renewable energy resources must be tapped and developed on priority basis both in public and private sectors for sustainable development. “Growing power consumption can directly stimulate faster economic growth and indirectly achieve enhanced social development,” the Nepra said. “The economic growth of any country is directly linked with the availability of safe, secure, reliable and cheaper supply of electricity.” The Port Qasim Authority signed an implementation agreement with the Pakistan International Bulk Terminal (PITB) for the establishment of coal and clinker/cement terminal with handling capacity of 12 million tons coal and four million tons clinker/cement. The project is expected to be completed by December 20. The coal requirement of the Lucky’s project can be handled at PITB for which sponsors are likely to enter into coal handling agreement. The News -April 05, 2016

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Port Qasim Coal-fired Power Project: CPEC’s first project witnesses emphatic progress on ground The $2.085-billion project which will generate 1,320MW of power to be completed by June 2018 Malik Azhar is a happy man today. He has received his first increment – a 20 per cent bump in his salary. For Azhar, this is a dream come true, and in such a short span of time. Only last year, he had no job and a family to feed. But now, he has a job as a driver working for Powerchina, which hired him last year for the Port Qasim Coal-fired Power Project. Pakistan Today recently visited Port Qasim Power Project’s site to learn about the progress on the project as well as the effect that it was having on the local community. A number of Chinese companies are working inside Pakistan on various projects under the China Pakistan Economic Corridor (CPEC) agreement between the two countries. The Port Qasim project is being jointly developed by Power Construction Corporation of China through Powerchina Resources Limited and Al Mirqab Capital S.P.C. Powerchina and Al Maqrib have holding of 51% and 49% shares respectively on Build-Own-Operate (BOO) basis in the 1320MW power project. The project ranks first among the Priority Implementation Projects in the energy sector being developed under CPEC. This is one of the early harvest projects and is expected to achieve commercial operation status by June 2018. The project, however, will start generating power by the end of 2017. Malik Azhar is not a local – he hails from a small village near Rawalpindi. He has travelled to Karachi in search of a living. “Most of the people working on this project are locals. But outsiders like myself are also getting hired. I came here looking for work, and I’m very happy here. I am planning to work here in future also,” Azhar said. Azhar is one of around 1,700 Pakistanis working on the project. As work on the project gathers pace, thousands more are likely to join the workforce in the next few months. PROJECT COMPLETION: Port Qasim is a 2x660MW coal-fired power project. It is located in the Port Qasim Industrial Park, 37 km Southeast of Karachi. It comprises two units with total gross capacity of 1320 MW (with integrated self-use Jetty) and an average annual energy output of around 9000GWh, able to support 3-4 million families’ power consumption for a year. Fueled

by imported coal, the project adopts the world’s leading supercritical thermal technology. The environment-friendly operations including seawater desalination and flue gas desulfurisation, satisfying the environmental standards of the World Bank. The generated power will be evacuated through a 180km-long 500KV AC transmission line connecting the project with the national grid. The construction period of the project is 36 months. “The total investment of the project is approximately $2.085 billion. The ratio of equity is approximately 25 per cent, while the rest will be arranged by the sponsors through debt financing from the Import-Export Bank of China (China EXIM Bank),” said He Shiyou, the assistant general manager of the Port Qasim Electric Power Company while talking to Pakistan Today. “This arrangement does not increase the financial burden on the government of Pakistan. Rather this burden will have to be borne by the companies involved,” he clarified. Pakistan Today -March 7, 2016 Thar coal – separating facts from fiction Ever since Thar’s vast 175-billion-ton coal resources were discovered in the early 1990s, concerns have been raised about their potential to generate electricity, their economic viability and sustainability, the coal quality and their environmental impact. Thar coal can sustain the production of 100,000 megawatts of electricity for more than two centuries. With its gas reserves nearly depleted, Pakistan generates 37% of its electricity using oil, the most expensive source of power generation. However, the region itself ranks the lowest on all socio-economic indicators, its people are impoverished and there is an undeniable lack of adequate health and educational facilities. Any corporation engaging in mining activities in Thar is duty-bound to ensure that the local Thari community is kept at the forefront of all project-related activity in the region. Sindh Engro Coal Mining Company (SECMC) has been allocated block-II for mining activities by the Sindh Coal Authority. The company and its sister concern, Engro Powergen Thar Limited, intend to build a 3.8mt/mine and 2x330MW power plant in the block, which will be operational by 2018.

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SECMC engaged several renowned international organisations, including RWE Germany, SRK UK, Hagler Bailly, Sino Coal China and NCGB China, which conducted feasibility and socio-economic impact assessments of the mining and power project. This was important because the ecological and environmental impact of mining activities is a recurrent argument against the development of Thar coal. Mining activities require pits of up to 135-metre depth to be dug. However, the ecology of the desert will not be affected as these pits will be filled back once the coal has been extracted. Under its environmental management plan, SECMC will plant hundreds of thousands of trees to maintain the natural ecosystem of the desert. It will incorporate wind and water erosion control measures, inclusive of dune management where necessary, in project design. SECMC has also explored bio-saline agriculture as an alternative means of livelihood for the locals of Thar to reduce their dependence on rain for agriculture and enhance the region’s biodiversity. Water resources not under threat Hagler Bailley’s environmental and social impact assessment (ESIA) shows that there is no immediate risk to groundwater resources. SECMC will provide an alternative water supply source for domestic uses to those affected by the project. The underground water will not be contaminated or pumped into the sea as erroneously believed. Storage ponds and an effluent disposal system being established by the Sindh government will ensure that underground water is extracted from the aquifers according to conventional industrial practices before any contact with coal. Nearby communities will be provided with reverse osmosis (RO) plants to ensure access to clean water in the unlikely event that any contamination occurs. Little risk of wind pollution Another popular misconception is that mining operations will cause large-scale wind pollution. The ESIA report has determined this risk to be minimal and manageable. The company will take dusk management measures to further minimise the adverse environmental impact. Another recurrent issue is the lack of provision of pastoral land for affected families which is crucial as livestock rearing is their main means of income generation. Both villages of block-II to be relocated will be provided separate Goucher land measuring between 850 and 1,200 acres.

Moreover, SECMC has developed a resettlement action plan in line with the Sindh government’s resettlement policy framework under which the company will equip relocated villages with facilities equal or better than their current residential structures. Expert town planners and architects have been hired to design structures which support indigenous traditional features and are also equipped with modern amenities for the village being relocated in the first phase. The writer is the CEO of Sindh Engro Coal Mining Company Published in The Express Tribune, March 21st, 2016. NEPRA imposes Rs 10 million fine on K-Electric The National Electric Power Regulatory Authority (NEPRA) on Friday imposed a fine of Rs 10 million on K-Electric (KE) for failure to provide uninterrupted electric power services to its consumers and deliberately underutilising its available generation capacity. The NEPRA decision said that failing to provide uninterrupted electric power services and restoring the power of affected consumers within reasonable time, the authority hereby imposed a fine of Rs 5 million to be paid by the KE within 30 days of issuance of this decision. In respect of underutilisation of its available generation capacity, the authority imposed a fine of Rs 5 million to be paid by the KE within 30 days of issuance of this decision. If the KE continues with the practice of reducing or underutilising its generation capacity, strict punitive action would be taken against it, the decision said. In respect of failure to provide electric power services to all consumers on non-discriminatory basis, the authority directed the KE to provide electric power services to all consumers without any discrimination who meet the consumer eligibility criteria and are neither defaulters nor involved in theft of electricity. Earlier in June 2015, extended hours of load shedding, system failures and power supply breakdowns were noted in the service territory of K-Electric resulting in serious complaints by the consumers of KE. The authority constituted a fact finding committee to collect necessary information and submit a report of its findings. After considering the recommendations and information submitted by the committee, the authority issued a show-cause notice to the KE. Regarding overloading, tripping and other distribution and transmission failures, the authority took serious notice of

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failure of the KE to properly maintain and upgrade its distribution and transmission system, however, considering the commitment of KE to improve its system and investment plan of around 400 million dollars the authority decided to provide an opportunity to the KE to increase its generation capacity and improve its transmission and distribution system strictly in accordance with the investment plans submitted by it. The authority also directed the KE to complete all indicated investment plans within the timelines and file quarterly reports to the authority. The authority further decided that in case of failure of the KE to follow instructions/directions of the authority and non-implementation of committed investment plans, the authority will be constrained to take further punitive actions under Section 28 of NEPRA Act. Pakistan Today - March 26, 2016 Qatar interested in building power plants in Pakistan The Qatar government has expressed its interest in building two power plants in Pakistan for which the initial feasibility study is in progress, said Ambassador of Qatar to Pakistan Saqr Bin Mubarak Al-Mansouri while talking to members of the Islamabad Chamber of Commerce and Industry (ICCI). “Qatari and Chinese companies are already working on four coal-based power plants in Pakistan. The construction of these plants would go a long way in reducing Pakistan’s energy problems,” the ambassador was quoted as saying. Referring to the recent deal between Pakistan and Qatar, the ambassador said the Middle Eastern country was giving priority to Pakistan in promoting trade and economic relations. “This is a positive development in bringing the two countries even closer. “The next meeting of the Qatar-Pakistan Joint Ministerial Committee will be held in Pakistan this year, which would be a good forum to discuss new areas of mutual cooperation,” he informed, adding that over 112,000 Pakistanis were working in Qatar and making useful contribution to its economic development. “Qatar also plans to import more manpower from Pakistan for various on-going projects.” Al-Mansouri was of the view that exchange of trade delegations was an effective tool to explore new areas of trade promotion. The country already imports many products from Pakistan including rice, medical equipment, medicines, sports goods, dry fruits, leather products and fish.

“Qatar has allowed foreign investment in specific sectors and Pakistani investors should take advantage of such incentives,” said the ambassador. “Both countries have great potential to enhance cooperation in many fields and the Qatari embassy is ready to cooperate with Pakistani entrepreneurs in finding out new avenues in our country,” he added. “The current bilateral trade between Qatar and Pakistan stands at $300 million, much below actual potential,“said ICCI President Atif Ikram Sheikh. Express Tribune, March 30th, 2016. Pakistan, China: Interconnecting power grid to be built The Ministry of Water and Power and the State Grid Corporation of China are working closely to build an interconnecting electricity grid between the two countries to enable them to utilise each other’s energy potential. Water and Power Secretary Muhammad Younus Dagha stated this at the Global Energy Interconnection Conference in Beijing where more than 700 delegates were present. According to a statement issued by the ministry, the secretary said the building of the interconnecting grid would allow Pakistan to meet its growing energy demand according to the requirement. On the other hand, China will benefit from the clean energy potential in Pakistan, especially the hydroelectric power generation along the Indus River cascade, which is on the route of the China-Pakistan Economic Corridor. Dagha said Pakistan was very much positioned to become an energy corridor for the region and facilitate the exchange of clean energy in South Asia, Central Asia, the Middle East and China. Speaking about the Central Asia-South Asia (Casa) 1,000 power supply project, Dagha stressed that Pakistan had a unique geographical position as it was strategically located at the confluence of South Asia, Central Asia, the Middle East and China. He noted that Pakistan was moving fast to bridge the deficit and become an energy-surplus country in the next three years. “We hope to become self-sufficient in power generation by 2018, still we will be left with an untapped potential of more than 60,000 megawatts of hydroelectric power” he said.

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Pakistan also has an untapped potential for more than 90,000MW of wind power in its south and an unlimited solar power potential across 850,000 square km of its area. Express Tribune, April 1st, 2016. Required: PQA demands textile city’s land for LNG power plants The Port Qasim Authority (PQA) has asked the prime minister to provide 1,500 acres of land, which was earlier allocated for setting up a textile city, for building new liquefied natural gas (LNG)-based power plants. “PQA is short of land which is needed for installing more LNG-based power production plants,” an official quoted PQA chairman as telling Prime Minister Nawaz Sharif in a meeting of the Cabinet Committee on Energy. He noted that 1,500 acres of land initially earmarked for establishing a textile city at Port Qasim was lying unutilised as nine years had passed and not a single project had been undertaken on that piece of land. Furthermore, he said, the textile city had become a liability with a debt burden of Rs2.8 billion and its land should be handed over to the PQA for installing new LNG plants. Express Tribune, April 2nd, 2016. OIL AND GAS

Hashoo Group acquires BHP Billiton’s operations The Hashoo Group has announced that it has completed the acquisition of oil and gas exploration company BHPL, which was part of Australia-based BHP Billiton Limited. Now, the company has been renamed as Orient Petroleum Pty Limited (OPPL), registered in Australia.

BHPL had a 38.5% working interest and was the operator of Zamzama field. The field was discovered in 1988, its production peaked at over 500 mmcfd in 2009 and it became one of the largest gas producers in Pakistan. Express Tribune, March 2nd, 2016. Iranian oil import via land under consideration Pakistan is considering allowing oil imports from Iran via land route in the face of lifting of international sanctions. According to an official aware of the development, discussions are going on in government circles that the country, which had stopped oil import through land route about six years ago, should remove the restrictions as UN and US sanctions on Tehran have been withdrawn. “This plan will lead to resumption of oil imports from Iran which has been on halt since 2010,” the official said. This way oil smuggling from Iran, which has been continuing without much interruption through Balochistan, will come to an end and legal avenues will open up. Instead of refined oil, Iran is capable of exporting crude oil in big volumes. Two Pakistani refineries – Pakistan Refinery Limited and Bosicor – had been importing Iranian crude until 2010 but after the sanctions banks refused to open letters of credit for oil purchases. In an effort to check smuggling of goods, particularly petroleum products, Pakistan’s law enforcement agencies have sealed a 500km belt along the border by digging trenches and placing barbed wire. However, despite that, smugglers still find a way to dodge the security checks. Among the smuggled goods, oil has a dominant place for decades. Apart from other means of transportation, mules are used to ship oil canisters from the other side of the border. Small-scale smugglers hire children who carry bottles of fuel and cross into Pakistan. According to a government study, the main stumbling block in the way of trade with Iran is the payment for goods through banks. Now after the lifting of sanctions, Pakistan is hoping to open banking channels in June this year, which will also lead to the opening of land route for oil supply from Iran. At present, oil demand in Pakistan stands at 22 million tons per year. Local refineries produce 13 million tons and the remaining is imported.

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Pakistan State Oil is a major oil supplier and importer. Local refineries meet 45% of demand for high-speed diesel, which is widely used in transport and agricultural sectors. They also meet 35-40% of need for petrol and 30-35% of demand for furnace oil, which is consumed in power plants. Pakistan is currently importing crude oil from the United Arab Emirates (UAE) and Saudi Arabia to meet the requirement of refineries including Parco, Pakistan Refinery, Attock Refinery, National Refinery and Byco. Express Tribune, March 5th, 2016. OGRA determines LNG price at $ 8.99 per MMBTU The Oil and Gas Regulatory Authority (OGRA) has determined price of the Liquefied Natural Gas (LNG) delivered on ex-ship (DES) basis as $ 8.99 MMBTU without the inclusion of the general sales tax. The decision was made in a review petition of the provisional LNG price filed by the stated-owned Pakistan State Oil (PSO), Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL). In its decision, the OGRA noted that all the matters relating to LNG were decided at the Economic Coordination Committee (ECC) of the cabinet. These decisions should be ratified by the cabinet and federal government. All issues relating to RLNG should be governed under one set of laws – OGRA Ordinance. The OGRA has determined a provisional LNG price of $ 8.63 without GST in October last year. The authority has set a profit margin of 1.8 per cent for the PSO against the claimed 4 per cent, while it disallowed all other claimed administrative and services charges. On instruction from the government, the PSO and both the Sui gas companies had filed review petitions. The PSO had claimed that one third of its total business portfolio of Rs 880 million is allocated to LNG business. It said the common administrative expenses were of Rs 2.3 billion. The company wanted to fix its profit margin to four per cent. However, the Authority observed in its order that the PSO was not taking any risk in LNG business as LCs were established in advance. Any liability on account of take or pay basis is hedged through back-to-back agreements. The authority rejected the PSO’s plea of oil marketing companies’ (OMC’s) margin of four percent as irrelevant noting that OMCs have to develop huge infrastructure and supply chain. It said the PSO calculated margin on hypothetical figures and no working on the basis of actual figures was submitted for consideration of the Authority.

The OGRA allowed increasing the PSO margin of 2.5 per cent on DES price from the previous level of 1.8 per cent. However, it noted that the company will have to provide actual expenses and taxes paid in last 12 months. The Authority disallowed administrative margin sought by the Sui gas companies for the supply of LNG. Similarly, it disallowed the cost of service for the RLNG. The OGRA said that margin was built in the price of a commodity to cover overhead costs. The RLNG has no overhead cost as it will be supplied to the existing consumers. The companies are already getting cost of service for supplying gas. The OGRA maintained terminal charges of $ 0.66 MMBTU. However, the authority disallowed inclusion of gas infrastructure cess as part of price of LNG till final decision was made by the government. The Authority noted that a number of legal and constitutional issues were raised at the public hearings on the LNG. These issues have been forwarded to the federal government for consideration and advice. The OGRA has asked the federal government to ensure commercial prudence and transparency in LNG procurement and that the terminal should be utilised optimally. Pakistan Today - March 30, 2016 Oil Refineries: GRMs on the rise On monthly basis domestic GRMs would show a moderate expansion in April, 2016 given relatively improved product spreads. Lower oil prices are helping to scale up the demand (international) of the end product which is reflecting in higher products’ spread. As per our calculations, domestic GRMs would increase to US$7.5/bbl in April, 2016 against US$5.5/bbl in previous month. Among the listed companies, ATRL margins are likely to outperform the industry (US$9.0/bbl), while NRL’s GRM (ex-lube) to remain around US$4.5/bbl. Though we acknowledge the volatile nature of the GRM as a constraint on future predictability, the current oil market scenario along with modernization of local refineries should bode well for sector’s dynamics. Hence, we are cautiously optimistic on the sector and recommend accumulation in ATRL and NRL. Impact Higher HSD margins instigating MoM increase: The domestic GRMs for April, 2016 are calculated at US$7.5/bbl which is on a higher side compared to US$5.4/bbl (fine tuned with the actual crude oil price in March) in last month. The higher month on month increase in margins is primarily attributable to higher margins on HSD which

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accounts for ~37% of the product slate. The monthly margins are lower than 10MFY16 average GRMs of US$10/bbl (vs US$10.5/bbl in 10MFY15) due to current product prices catching up with the lower crude oil prices. We see this as a function of the cyclic nature of the GRM as highlighted in our previous report on GRM published last month;

Plant shutdown may create deviation in ATRL’s margins: We estimate ATRL to outperform the industry; our calculation suggests GRMs of US$9.0/bbl in April against US$7.5/bbl in previous month. However, ATRL’s throughput is relatively restricted due to on-going modernization of the plant and actual product slate may vary from our base case assumption (As per company’s notice PMG production is expected to resume from mid-April which was shutdown from January 2016). Restricted ATRL throughput due to up-gradation work is likely to keep 2HFY16 earnings under pressure but from FY17 ATRL’s GRMs are likely to improve that would reflect well on its bottom-line Investorguide360 - April 4, 2016 CEMENT

CPEC adds to local cement consumption as exports fall

Local cement consumption surged 17.49 percent in the first eight months of the current fiscal due to the growing infrastructure development projects in the country, data released by All Pakistan Cement Manufacturers Association (APCMA) said on Friday.

Local cement supplies were recorded at 20.89 million tons in the July-February period, up from 17.78 million tons in the same period last fiscal. However, cement exports registered massive decline of 22.54 percent, as the volumes reduced from 5 million tons during July-February 2014-15 to 3.8 million tons during the same period this fiscal.

According to the APCMA figures, overall, the cement industry posted a growth of 8.71 percent during the first eight months of the current fiscal year compared with the same period last fiscal. Total dispatches this period were 24.76 million tons against 22.78 million tons last fiscal.

In the month of February 2016, local sales of cement posted an encouraging growth of 29.79 percent. Since December 2014 cement exports indicated a slight growth of 1.47 percent in February 2016 compared to exports during February 2015, resulting in an overall growth of 25.06 percent compared to the same month of last fiscal year. The overall domestic and export volumes were 2,981,904 tons and 467,287 tons respectively during February 2016 compared to 2,297,568 tons and 460,510 tons during February 2015.

The domestic sales up north during February 2016 were 2,428,597 tons compared to the domestic sales of 1,885,982 tons during the same month last year, showing growth of 28.77 percent. The local sales in the south during February 2016 were 553,307 tons compared to the local sales of 411,586 tons during the same month last year, showing growth of 34.43 percent.

Exports from north increased from 251,049 tons during February 2015 to 297,478 tons during February 2016, by 18.5 percent. Total dispatches increased from 2.758 million tons during February 2015 to 3.449 million tons during February 2016 showing an increase of 25.06 percent that has been the highest overall increase in a month during the first eight months of the current fiscal.

A spokesman of the All Pakistan Cement Manufacturers Association said the buoyancy in cement demand has kept the wheel of the industry moving. He said the timely

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increase in capacities has ensured the industry would be able to meet the local demand easily.

He said the industry was going for further expansions anticipating increase in economic activities as the China-Pakistan Economic Corridor nears completion.

The spokesman added that industry was operating at a capacity of more than 80 percent and with a little support of government, it can do wonders. He regretted that the problems faced by the industry remained unresolved.

The All Pakistan Cement Manufacturers Association spokesman said the duty on coal - an important input of the industry, has still not been withdrawn. Moreover, the checks on Pakistan-Iran border were still lax which facilitates smuggling of Iranian cement to the Pakistani market. The issue of under-invoicing of Iranian cement, he added, was also not being addressed.

The News - March 05, 2016

Budget proposal: Cement manufacturers push for lower taxes

All Pakistan Cement Manufacturers Association (APCMA) has suggested the FBR to reduce Federal Excise Duty (FED) step-wise to zero as announced by the previous government to encourage cement off take since this is not a luxury item.

In its budget proposals sent to the chairman of FBR, APCMA Chairman Muhammad Ali Tabba stated that it ought to be noted that the cement industry is subject to FED at the rate of 5% of retail price and General Sales Tax at the rate of 17% of maximum retail price. These taxes come to around Rs100 per bag.

“This incidence of high taxation encourages evasion and negatively impacts consumption. The abolishment of excise duty not only eliminates tax evasion but also enhances cement consumption at reduced price,” he added.

He added that certain services are being taxed twice – first, under the independent Provincial Sales Tax Laws, especially in Sindh, Khyber-Pakhtunkhwa and Punjab. These services are then still taxable under the Federal Excise Act 2005, which is tantamount to double taxation.

The abolishment of excise duty would not only reduce cost of doing business, but also eliminate double taxation.

Appeal

Similarly, he added, before preferring appeal to the Office of Commissioner (Appeals) or Appellate Tribunal, a taxpayer is required to deposit the impugned duty demanded or penalty imposed in the appealable order. “This mandatory compulsion is considered as a hindrance in the dispensation of justice,” he added.

He said the identical provisions in Income Tax and Sales Tax has already been repealed, therefore, it is suggested that such provisions should also be removed from the excise law.

Cheap imports

Moreover, chairman of APCMA added, Iranian cement is being flooded into border areas of Balochistan and is being sold at lower prices.

“This phenomenon is very detrimental for local manufacturers and in the longer run can challenge the survival of local industry. Additional regulatory duty should be immediately imposed on imports of Iranian cement and some prior approval mechanism from the government should be in place regarding quality of Iranian cement being imported in Pakistan,’ requested Chairman APCMA.

Express Tribune, March 16th, 2016.

Iran offers export of cement to Pakistan under barter

Iran has reportedly offered to export cement on barter basis following a trade mission to Pakistan, led by the country's president, Hassan Rouhani.

Pakistan's Ministry of Commerce on its part is exploring various avenues to enhance bilateral trade to US$5bn in five years, in accordance with the vision of the top political leadership of the two countries.

Separately, Khouzestan Morteza Lotfi, managing director of Fars Cement Holding Company, Iran, told media that his country has agreed to export cement to Pakistan as per a swap deal for re-exports to targeted Asian markets. He said part of the exports will be for Pakistan’s domestic consumption and the rest will be re-exported under Iran’s name to the targeted markets throughout Asia.

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He said the two sides have also agreed to set up a cement factory in Quetta, the capital of Balochistan in Pakistan but did not share other information about the project. Earlier this month, the All Pakistan Cement Manufacturers Association (APCMA), in its budget proposal, pointed out that Iranian cement was flooding into the border areas of Balochistan and is being sold at lower prices as compared to locally produced cement. This is detrimental for local manufacturers and in the longer run can challenge the survival of the local industry. Additional regulatory duty should be immediately imposed on imports of Iranian cement and some prior approval mechanism from the government should be in place regarding quality of Iranian cement imported in Pakistan, remarked the APCMA.

Cemnet - 31 March 2016

FERTILIZER

‘Middlemen to take benefit if private sector allowed to import urea’

Former FPCCI Standing Committee chairman Ahmad Jawad has emphasised that the decision to allow the import of urea by the private sector would open up a new window for the middlemen to charge commission.

Jawad criticised the decision of Finance Division and the Ministry of Petroleum to grant permission to allow urea import into the country. He also criticised Ministry of National Food Security and Research for framing the policy.

He insisted that private companies do not have the capacity to enforce a strict mechanism, hence the farming community will be negatively affected by the decision to allow the import of urea. Jawad stressed that “importers will import urea on the existing international rates, and then add customs duty and other taxes and then dump it in their storage houses afterwards”.

At present, the country needs 6 million tonnes of urea annually. Local manufacturers produce 4.5 million tonnes while the remaining 1.5 million tonnes can easily be produced especially after the 15-year LNG import deal with Qatar. Jawad said that the fertiliser has been the only sector in the country consuming gas for value addition, which is why it should be provided more gas.

He urged the government to negotiate with the local manufactures to fix reasonable rates of all the fertiliser products in order to facilitate the farmers and refrain from approving unjustifiable import policy in haste.

Pakistan Today - March 6, 2016

LNG for fertilizer industry

As the major gas reserves in Pakistan are depleting rapidly, the supply-demand gap in the country is broadening and we need alternative sources of fuel to ensure the smooth functioning of our industries. It is heartening to note that the government of Pakistan has now signed a 15-year agreement with Qatar, to import nearly 3.75 million tons of Liquefied Natural Gas (LNG) per year. This long-term deal has been greatly appreciated by the energy-starved business community of Pakistan.

Since Pakistan is primarily an agricultural economy, its fertilizer sector plays an essential role in enhancing our agricultural output, to produce numerous high-volume export goods, like; Textiles, Wheat, Sugar, etc. For many years now, the robust fertilizer industry has been suffering due to insufficient supply of Natural Gas – which is used as an important raw material for producing fertilizer.

The first consignment under the Qatar LNG agreement had brought in approximately 141,000 Cubic meters of LNG at the LNG Terminal established in Karachi, from where it is being injected into the supply network of Sui Southern Gas Company Ltd. Following the first consignment, the second shipment of LNG has also arrived at the Port Qasim in Karachi, on 8th March 2016.

The import of LNG from Qatar is stated to be the cheapest source of Gas and offers an instant solution for the energy starved country. The LNG price agreed with Qatar is only 13.37% of International Crude Oil prices. It is more economical than the gas imported through TAPI Gas Pipeline and even cheaper than the indigenously produced gas. Pakistan’s total gas production is around 4 billion cubic feet per day (bcfd), while the national demand stands at 6 bcfd.

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The cheaper LNG will save Rs 100 Billion per year for Pakistan and help the country meet 25% of its energy needs too, by adding nearly 2000 MW of cheap electricity to the national grid. On the global scale, many more countries are now turning towards LNG, as this low-cost fuel promises to power the emerging economies efficiently.

Pakistan Today - March 11, 2016

Fauji Fertilizer Company earns Rs. 16.766b profit

Fauji Fertilizer Company has achieved net profit of Rs 16.766 billion. The FFC has created two new benchmarks in terms of highest-ever sales revenue of Rs. 86.321 billion (including DAP subsidy), besides record investment income of Rs. 1.985 billion.

Company also achieved second highest urea production ever of 2.469 Million tonnes, a press release said here on Thursday. According to data disclosed in the 38th Annual General Meeting of Fauji Fertilizer Company Limited (FFC) chaired by Lt Gen Khalid Nawaz Khan, HI (M), Sitara-e Esar, (Retired).

Addressing the shareholders, he apprised that FFC during the year 2015 surpassed all the budgeted targets in terms of production, sales, revenues, investment income and profitability margins, despite incremental levies and adverse market conditions.

During the year 2015, FFC got first position amongst Top 25 Companies of the Karachi Stock Exchange for the fourth consecutive year and has been adjudged as most transparent and best governed corporate entity by various international and Pakistani institution.

Daily Pakistan - March 17, 2016

Rs1.6b worth of imported urea goes missing

National Fertilizer Marketing Limited (NFML) on Monday revealed that imported urea worth Rs1.6 billion had been stolen from its storages in connivance with people on deputation in 2013 and 2014.

A parliamentary panel was informed that the National Accountability Bureau (NAB) and the Federal Investigation Agency (FIA) were investigating the issue.

NFML has transported or handled approximately 7.5 million tons of imported urea to date. During the operations, various cases of misappropriation/shortage

were detected which were forwarded to NAB and FIA for investigation, legal action and recovery of government dues.

Replying to a question, he said one of the general managers who were involved in the urea scam was behind bars. The standing committee chairman termed the ‘missing’ urea scam blatant corruption which could not be committed without support from the ministry.

Express Tribune, April 5th, 2016.

TEXTILE

High demand for Pakistani textiles in Iran'

Textiles is among several Pakistani items that is in high demand in Iran, Lahore Chamber of Commerce and Industry (LCCI) Senior Vice President Almas Hyder has said after his return from a six-day visit to Iran.

Hyder said that Iran has a higher requirement of Pakistani textile products including T-Shirts, Denim jeans and home textiles. There is a need to form a textile delegation comprising leading companies, as soon as possible, he said, according to a press release of LCCI.

“The Iranian side wanted that the agreed gas pipelines between Pakistan and Iran should be connected soon. The Iranian power companies can provide 5000 megawatt electricity to Pakistan which roughly cost $1.5 billion to connect electricity to eliminate load shedding from Pakistan”, the LCCI Senior Vice President added.

Iranian gas can solve much of Pakistan's energy crisis that has sent the textile industry reeling in recent years.He said Iran wanted to enhance their trade with Pakistan by up to $5 billion. In this regard, necessary steps should be taken by the Pakistani side, Hyder said

Fibre2Fashion News Desk - 7-Mar'16

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Pakistan despite quality yarn to perform poorly in cotton export

Pakistan despite being the fourth largest producer of cotton has been performing poorly in cotton trade. The cotton consumption is likely to decline by 12 percent this year. By consuming 2.2 million tons of cotton, Pakistan would be exporting around $13 billion of cotton products whereas with the same quantity of combined cotton production Bangladesh and Vietnam would generate exports of $54 billion, according to a recent cotton update by the International Cotton Advisory Committee.

Pakistan’s consumption of cotton will be equal to the combined consumption of the silver fibre in Bangladesh and Vietnam where it is likely to register an increase of 22 percent and 13 per cent respectively.

Accounting for 80 percent of exports and employing 40 percent of industrial workforce, Bangladesh’s garment sector specializes in low-end clothing and is the main industry of the impoverished nation, which has emerged as the world’s second largest producer of apparel.

This means that value addition in these two non-cotton producing countries is over four times higher than Pakistan. However, both Bangladesh and Vietnam are among the low value-added textile exporting countries, while China, Turkey, Sri Lanka and Tunisia add much more value to their textiles.

Considered worldwide an important cash crop once, the South Asia Subcontinent was the world leader in cotton textile exports. However, the Subcontinent’s position faded in the 18th century, when the British empire created a monopoly for its own manufacturers at home, choking the textile centres in the areas now constituting Pakistan and India.

Meanwhile, cotton has played a significant role in the industrial growth of many countries. According to Australian economist J.A. Schumpeter, England owes its ascendance to a single industry — the textiles. The same can be said of China and the rest of East Asia.

Japan used cheap labour to surpass England to become the leading exporter of cotton garments by 1930. When Washington forced Tokyo to accept ‘voluntary’ quota in 1955, Japanese investors’ instinct to stay in business impelled them to fund garment companies in Hong Kong, Taiwan and South Korea. Japanese intervention in East Asia led to the upgradation and modernisation of garment industry in the region. In due course, labour-intensive

garment factories laid the seeds for broad-based industrialisation in East Asia, working spectacularly in China after its opening up in 1980s.

With an annual harvest of around 13 million bales, Pakistan is the fourth largest producer of cotton, producing about 10 per cent of the total global production of cotton. Pakistan’s textiles industry consists of 11.3 million spindles, 03 million rotors, 350,000 power looms and some 18,000 knitting machines. It has 700,000 industrial and domestic stitching machines. In addition, it has a strong fibre base of 13 million bales of cotton and 600,000 tons of manmade, including polyester fibre. There are 21 filament yarn units having capacity of 100,000 tons. The filament and yarn industry is supported by PTA plant which has 500,000 tons capacity. Unlike many competitors which have only primary base or the finished base, Pakistan’s textile industry has a complete value chain which is rare in the world.

In yarn production, until 2006, Pakistan was one of the most efficient producers of yarn around the world because it possessed better technology than India, China or Bangladesh. But, Pakistan’s textile industry halted its upgrade, and its technology is now older than all the three regional countries.

As the new spinning equipment is more energy efficient and its production speed is also higher, it has enabled other economies to either match or lower the spinning costs compared with Pakistan. Consequently, the last 18 months have been a nightmare for the energy intensive spinning and weaving industry of Pakistan due to high power tariff and energy shortages. Despite the recent power tariff reduction of Rs3 per unit, the spinning industry is reportedly still facing problems. However, Pakistan’s quality yarn is bringing back global buyers, who are reportedly disappointed by inconsistent and low quality Indian yarn. Though yarn exports from Pakistan are slowly picking-up, around 110 spinning units are still closed down.

Cotton and its value added products chain contribute about 57 per cent to Pakistan’s annual export income. A couple of indigenous industries, such as pharmaceutical, soap, chemical and feed, rely heavily on cotton by-products. Besides, cotton provides livelihood to 1.5 million farming families and jobs to about 40 per cent of the country’s labour force. In view of its contribution, cotton is often called the life-blood of Pakistan’s economy.

Furthermore, God has endowed Pakistan with cotton which is very good in quality due to its fibre strength and uniformity. But, Pakistani cotton gets lower price in the

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international market because of problems that affect its quality, thereby causing huge losses in export of cotton and its value addition chain — yarn, cloth, made-ups, linen, knitwear, garments, etc.

Keeping in view the importance and contribution of cotton to its national economy, the government in 2004 created a Ministry of Textiles to deal with this sector exclusively. Since then there has been a lot of rhetoric about shifting the ‘textile sector from commodity to specialty, value addition, skills and vocational training programmes, establishing textile cities, model garment factories, modern textile laboratories, textile research institutes and special economic zones to facilitate export specific textile industries. However, the export of Pakistan’s textiles, despite subsidies and concessions to the textile industry has continued to decline in the country’s overall exports.

Pakistan’s textile tycoons are themselves partly responsible for the sorry state of affairs in this sector because despite availing subsidies in billions, they have neither been able to improve the quality of their products nor bring this sector in conformity with the modern day requirements. Instead of taking a cue from Sialkot’s enlightened entrepreneurs (engaged in the sports, cutlery and surgical instruments industry who instead of demanding that the government upgrade and improve their region’s infrastructure, have created many infrastructural facilities, including an international airport, on self-help basis), the influential textile lobby remains engaged in efforts to get subsidies. In view of the lacklustre performance of this sector, it would be prudent to link subsidies to the quality of the product and the actual performance of textile sub-sectors.

Pakistan’s textile sector has remained stagnant over the last decade largely due to high cost of doing business, global recession and subsidies given by the competing countries to their industry. Taking stock of the situation, the government announced the Second Textile Policy 2014-19 on February 15, 2015. This policy aims at making textile sector more competitive, robust, goal-oriented and sustainable. The policy envisages to double textile exports from $13 billion to $26 billion per annum in the next five years. Converting more primary raw materials into value-added product, increased productivity and quality will be the prime focus of this policy.

Despite the second Textile Policy, the country’s textile exports have reduced by 14 per cent over the last six months. If this trend is allowed to prevail, it could lead to a reduction of $3.5 billion in exports by the year’s end, according to Aamir Fayyaz, Chairman APTMA Punjab Zone.

Earlier cotton crop failure in Punjab had resulted in $1.5 billion loss to farmers.

Keeping the buying and selling potential of the country’s textile and garments industry in view, Pakistan Readymade Garments Manufacturers and Exporters Association has announced to hold 15th Textile Asia 2016 International Textile and Garment Machinery Trade Fair from March 9-11, 2016 in Karachi. According to the organizers, the trade fair will have more than 550 international brands displaying their products in over 700 booths, and over 500 foreign delegates mainly from Austria, China, Czech Republic, France, Germany, India, Italy, Korea, Taiwan, Turkey, UK and US are likely to attend the event.

YarnsandFibers News Bureau, 7th March 2016

Punjab’s textile industry hails 24-hour gas supply

All Pakistan Textile Mills Association (Aptma) Chairman Tariq Saud has said that 24-hour gas supply to Punjab’s textile mills is expected to increase output, as he hinted at a possible revival of the industry that has long been under duress for one reason or another.

The statement came after Sui Northern Gas Pipeline Limited (SNGPL) recently started supplying re-gasified liquefied natural gas (RLNG) to over 300 textile units in Punjab. This has changed the scenario in the province whose textile mills were getting just 4-6 hours of gas supply for over five years or so which virtually crumbled output.

“Punjab’s textile mills have started getting 24-hour gas supply from this week, this development has generated a very positive response from the industry,” he told The Express Tribune.

“We are very hopeful for increased output in March and in the coming months. But from March onwards, the textile industry needs to negotiate the gas price with the government and we expect to get gas on a lower price,” he said when asked about the mechanism of gas price.

At this time, Aptma members in Punjab are getting gas at $6.31 million British thermal units (mmbtu). Textile industry in Punjab is now getting about 200 million cubic feet per day (mmcfd) gas – enough to boost output of most mills in the province.

“We have concerns over the price but the general mood of textile mill owners is very positive because of two reasons. Firstly, textile mills in the province were severely gas

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starved so the gas price was not their primary concern. Secondly, the mill owners believe they will get gas at lower rates in the coming months.

“Our gas demand is so high that we can easily consume 300 mmcfd to 400 mmcfd gas in Punjab alone,” he said. The CEO of ChenOne – a subsidiary of Chenab Group – Mian Kashif Ashfaq acknowledged the development and said this will certainly boost the output of the mills.

“We are confident that the gas supply to Punjab textile mills will also help increase overall textile export of Pakistan,” said Ashfaq. Aptma officials met Federal Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi in the last week of January and urged him to allocate 300 mmcfd gas to the textile industry. The minister assured them that the textile industry would get gas from the first week of March and the government honoured its commitment.

Energy woes have forced every gas consuming sector in the country to run after the newly imported LNG, which is expected to become a major part of Pakistan energy mix in coming years. The sectors that are immediately demanding more gas supplies from the government are textile, power and fertiliser.

In the second week of February, Pakistan and Qatar signed a long term 15-year liquefied natural gas (LNG) supply agreement. According to the agreement, Qatar Liquefied Gas Company Limited will sell LNG from 2016 to year 2031 to Pakistan State Oil (PSO). The annual contract quantity for 2016 has been agreed at a prorate of 2.25 metric tons while the price for each cargo has been agreed at 13.37% of Brent.

Express Tribune, March 10th, 2016.

‘We cannot afford another cotton crop failure’

Member organisations of the Task Force on Cotton reviewed on Thursday the causes of unprecedented decline in the commodity’s production in 2015-16, and proposed measures to boost output in the coming season.

The Farmers Associate Pakistan, Kissan Ittehad, Pakistan Cotton Ginners Association, All Pakistan Textile Mills Association (Aptma) and Karachi Cotton Association participated in the meeting held at the Aptma Punjab office.

The participants observed that the sowing season of new cotton crop was just around the corner, and the country could not afford another damage of the only cash crop and

a subsequent failure of related stakeholders in the supply chain.

They further pointed out that the retail business in the country was already witnessing a visible negative impact of dwindling farmers’ income.

Speaking on the occasion, newly elected chairman of the task force, Seth Muhammad Akbar, said the government should immediately take necessary measures to strengthen cotton production this year.

He said all the taxes on water, electricity, seed, pesticides and fertilisers should be removed to enable cotton growers to compete regionally in terms of the input cost.

Similarly, the services of agriculture extension and the availability of agricultural technology should be made available to growers, right from the land preparation to the crop harvesting at the farm level, he said.

The spinning industry, already facing high cost of doing business, was unable to procure cotton at the import parity, he said, adding that the task force would strive for a free market mechanism while ensuring a level-playing field for all the stakeholders of the cotton economy.

Earlier, the cotton task force unanimously elected Mr Akbar of Aptma Punjab as its first chairman and Khawaja Tahir Mahmood of the KCA as vice-chairman.

Dawn, April 1st, 2016