THE NEWS
Pakistan economy: good news all the way](Daily Jang: Urdu News - Latest Breaking News update Pakistan - jang.com.pk)
Some encouraging developments in recent days and others that are in the offing in the near future suggest that the economy may be coming out of the woods at last
ECONOMYWATCH
By Kaleem Omar
It was a good week for the economy. The Karachi Stock Exchange index broke through the 2,500-point barrier, closing at 2,535.44 points on Thursday, and market analysts predicted that the bullish trend was likely to continue, though there could be some hiccups over the next couple of weeks because of financial institutions being relatively less active in buying stocks due to December book closings.
Awash as they are with liquidity, however, commercial banks and other financial institutions are expected to resume pouring money into the stock market by about mid-January, pushing the KSE-100 index even higher. According to some analysts, the index could hit 3,000 before the middle of next year, provided, of course, that the political situation in the country remains stable and its economy is not hit by fallout from a US military strike against Iraq - two big ifs.
In another piece of good news, it was announced last week that Pakistan and Iran have agreed to jointly set up an oil refinery in Hub, Balochistan, near Karachi, at an estimated total project cost of $ 1.23 billion. An agreement to this effect is due to be signed at the end of this month when Iranian President Mohammed Khatami visits Pakistan.
According to the ministry of petroleum and natural resources, the refinery will process six million tons of Iranian heavy crude oil per year at a price of $ 124.79 per ton. The expected yield of refined products includes 3.689 million tons of diesel, 1.1 million tons of unleaded gasoline, 293,000 tons of naphta (a product for which there is a good export market), 48,763 tons of sulphur, 412,751 tons of coke, and 93,000 tons of liquefied petroleum gas.
The Hub refinery will be the country’s fifth (the others are KRL and NRL at Karachi, Pak-Arab at Mehmoodkot, near Multan, and Attock, near Rawalpindi), and will boost Pakistan’s refining capacity from the present 9 million tons a year to 15 million tons a year.
The project was approved by the Economic Coordination Committee of the cabinet in September 1998, but failed to make any headway at that time. So its revival now is good news indeed, all the more so since international financial institutions are now said to be more favourably inclined towards funding the project than they were in the past. The Balochistan government has already allotted 2,000 acres of land for the refinery and its residential colony. The new refinery will be the biggest project in Pakistan’s petroleum sector.
Another piece of good news last week in the gas and petroleum sector was Secretary Petroleum and Natural Resources Abdullah Yousaf’s statement on Wednesday, while briefing journalists about a World Bank-sponsored workshop on energy sector reforms held in Islamabad on Thursday, that Pakistan will save between $ 600 million to $ 700 million a year in foreign exchange from December 2003 onwards due to an increased supply of natural gas to the existing distribution network that will replace imported furnace oil as the fuel in thermal power plants.
Yousaf said that in another few years Pakistan might not need to import any natural gas from Iran or the Central Asian states and might even become an exporter of gas, as a result of the gasification of coal from the Thar coalfields in Sindh, which contain the world’s fifth largest coal reserves.
The petroleum secretary said two plans were underway to develop the 175 billion tons of coal reserves in Thar, which could not be exported due to its low quality. He said the Chinese were working on a scheme to use Thar coal for power generation, but that this form of utilisation had its limits. He said the other plan involved a German company, which was working on a project to gasify the coal through Lurgi technology - a process, he said, in which gasification had been carried out without even mining the coal.
More good news in the energy sector could be coming Pakistan’s way in the next few months. According to Yousaf, offshore drilling results indicated some big petroleum discoveries. “We are very hopeful,” he said. He said that Totalfina (the French operator of two offshore blocks) “is excited about the results coming in.”
Another major development in the gas sector will be the signing by Pakistan this week, on December 26, at a two-day summit conference in Ashkabad, the capital of Turkmenistan, of a tri-country deal with Turkmenistan and Afghanistan to lay the groundwork for a long-awaited key regional gas pipeline that will run from the Turkmen gas field of Daulatabad through Afghanistan to the Pakistani port of Gwadar on the Mekran coast, where a plant will be installed to convert the gas to liquefied gas for export. Another branch of the pipeline will go to Multan, to feed the 1,650 MW thermal power plant at Kot Addu, which is presently running on costly, imported furnace oil
All three countries will profit from the deal. Turkmenistan, which holds abundant reserves of natural gas, lacks export outlets. The new pipeline will provide it with an export outlet. Afghanistan, devastated by 23 years of Soviet occupation and the civil war that followed it and America’s still on-going military campaign, will earn hundreds of millions of dollars in gas transit fees. And Pakistan will also profit from transit fees and from handling export operations at Gwadar, as well as from the foreign exchange it will save by replacing costly furnace oil imports with cheaper gas imports for running the Kot Addu power plant.
The deal to be signed at Ashkabad this week will set up an international consortium to build the pipeline. “Once the feasibility study of the pipeline is prepared in June 2003, international companies will be invited to form a consortium to realise the project,” Turkmen Oil and Gas Indystry Minister Tachgeldy Tagiyev told an oil and gas conference in Ashkabad on Wednesday.
The 1,400-kilometre pipeline, half of which would run via Afghanistan, may cost up to $ 2.5 billion. Afghan officials estimate its capacity at 15 billion cubic metres (bcm) a year, but Turkmen officials say the pipeline can transport 20-30 bcm a year.
Turkmenistan has the world’s third largest gas reserves. But its current exports are almost exclusively directed at cash-strapped ex-Soviet states supplied via pipelines owned by Russia. Small amounts are exported to neighbouring Iran. Unocal Corporation of the United States and Bridas of Argentina have vied in the past to build pipelines from Turkmenistan to Pakistan and, potentially, to India via Afghanistan. But the continuing fighting in northern Afghanistan even after the Taliban took over the government in Kabul had put the projects on hold.
In another piece of good news, Export Promotion Bureau Chairman Tariq Ikram said last week that an increase of about 16 per cent in Pakistan’s export earnings in the last five months has been a very encouraging development for export planners and exporters who now expect to significantly exceed the export target of $ 10.4 billion fixed for the current fiscal year.
According to some analysts, exports could go beyond $ 11 billion by June next year, though the EPB chairman was reportedly “reluctant” to commit himself to this figure. A press report on Thursday quoted Ikram as saying: “We are reviewing our export performance over the last five months and are in the process of drawing up a new strategy to consolidate our gains.”
Pakistan has never had exports of $ 10 billion or more in any single fiscal year. For the last five years, its exports have stagnated at around $ 8 billion to $ 9 billion a year. So achieving exports of $ 11 billion in the current fiscal year would be more good news for the economy.
Pakistan’s textile exports to the United States are currently about $ 2 billion a year. Exporters say they can increase this figure to $ 4 billion a year if coordinated efforts to boost exports are made by the government and exporters.
A press report quoted EPB Chairman Tariq Ikram as saying: “I have held meetings with textile exporters to discuss the potential of each and every item for marketing in the US.” He said that a draft of the proposed export development plan had been prepared by the Export Promotion Bureau and was being given final touches. He said he had also discussed export prospects in the US with Pakistani embassy officials in Washington and Pakistani businessmen in New York and other cities in the United States.
To revert to the performance of the Karachi stock market, however. It has been the world’s best performing market over the last twelve months, with the KSE-100 index shooting up almost 100 per cent. The market’s performance has been all the more remarkable when one considers that most other bourses have performed poorly during the same period.
Most other Asian stock markets were also flat to lower last week, with investors in the region pressured after Wall Street declined. The region’s key market in Tokyo led the fall, with the Topix index of all first issues hitting a new 18-year low due to the fall in US stocks and due to uncertainty over the domestic economy. The Topic index on the Tokyo Stock Exchange tumbled 16.18 points on Wednesday to end the day at 815.74 - its lowest closing since October 2, 1984. The Nikkei-25 average lost two per cent, or 166.72 points, to close at 8,344.01 - a far cry from its high of over 42,000 points in the mid-1980s.
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