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IMF wants govt to pass on Rs65bn burden to power consumers

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  • Government has agreed with IMF that Rs55 billion would be passed on to consumers. 
  • Remaining Rs10 billion would be absorbed through subsidy.
  • Pakistan’s cash-bleeding power sector is moving rapidly towards bankruptcy.

ISLAMABAD: The International Monetary Fund (IMF) has asked Pakistan to pass on Rs65 billion to consumers of electricity which has been deferred in the shape of Fuel Price Adjustments (FPA) during the peak of last summer season.

Out of the total outstanding amount of Rs65 billion on account of deferment of FPA in the electricity bills in the current fiscal year, the government has agreed with the IMF that Rs55 billion would be passed on to consumers and that would be recovered through bills. The remaining Rs10 billion would be absorbed through the allocation of subsidy amount.

In a grim situation, Pakistan’s cash-bleeding power sector is moving rapidly towards bankruptcy, as its total accumulated losses might climb up to Rs1,734 billion for the current fiscal year with the adoption of a status quo approach. 

On the other hand, the consumers consider themselves voiceless because the word reform means hiking of tariffs, but actually it results in jumping theft in this sector.

Out of the total accumulated losses of Rs1,700 to Rs1,800 billion, there is a possibility of a subsidy of Rs1,000 billion and around Rs700 to 800 billion piling up in the monster of circular debt if no remedial measures are taken by the government.

Now, the multilateral creditors, including IMF/World Bank, are asking the government to come up with plans to finance the un-budgeted subsidies, including the K-Electric subsidy for which the Ministry of Finance allocated Rs26 billion against revised projections of Rs162 billion, surfacing a gap of Rs136 billion where no amount was available to bridge this gap.

The same scenario prevailed for the Zero Rating Industry (ZRI) and Kissan Package for which the government did not make subsidy allocations of Rs118 billion and Rs28 billion respectively in the current fiscal year.

The IMF also raised concerns over the failure to receive a deferred payment of bills on account of Fuel Price Adjustment, which is estimated to cost Rs65 billion. The bill recovery was reduced from the original target of 93.58% to 92%, creating a gap of Rs55 billion in the current fiscal year. 

The theft of electricity target is also missed as the Transmission and Distribution (T&D) losses target was revised upward from 15.83% to 16.27%, which would result in a deficit of Rs31 billion.

The generation cost recovery is going to cause a financial loss of Rs63 billion. Rs24 billion for May-23 and Jun-23 FCA and Rs39 billion for Q3 & Q4 FY-23 Quarterly Tariff Adjustment (QTA) would be recovered in FY-24.

The hike in markup in recent months also jumped up liabilities of the power sector as the markup on IPPs and Power Holding Company increased from Rs185 billion to Rs249 billion, registering an increase of Rs64 billion.

The K-Electric resolution of subsidy will cause an additional burden of Rs136 billion for which the Finance Division did not make any budgetary allocation in the budget.

In the wake of less demand for power from 45 billion units to 40 billion units in the first quarter of the current fiscal year, the revenues dropped from Rs493 billion to Rs347 billion, registering a loss of Rs55 billion. The non-recovered GST paid to FBR is projected to cause a loss of Rs91 billion in the current fiscal year.

Now, it is expected there will be a possibility of generating financial losses in the range of Rs700 to Rs800 billion accumulating into the form of circular debt in the current fiscal year if the government did not hike the tariffs, bring efficiency and improve governance in cash-bleeding power sector.

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Bulls toss KSE-100 index above historic 60,000 mark

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  • Index has increased by 648 points today.
  • Overall trading numbers reach 60,460 points.
  • Index had gained 1.23% to close at 59,811.34 on Monday.

The bullish trend continued at the Pakistan Stock Exchange (PSX) as traders cashed in on the index rising by 405 points which has now crossed the 60,000 mark on Tuesday.

In November alone, the KSE-100 index has hiked by more than 8,000 points.

KSE-100 index at 10:19am. — Screengrab/PSX website
KSE-100 index at 10:19am. — Screengrab/PSX website 

At 10:19am, the benchmark KSE-100 index was at 60,460 points up by 648 points compared to yesterday’s closing of 59,811.

Muhammad Saad Ali, a capital market expert, said that KSE100 has risen 48% since June.

Commenting on the recent positive rally, he said: “Recently the rally has extended after the IMF positive review, good macro data reinforcing market outlook for rate cuts in Dec MPC while global oil prices are under pressure and PKR-USD has stabilised.”

The market also rallied positively on Monday as stocks continued their record-breaking run with the benchmark index closing just shy of the 60,000-point mark.

The PSX index obtained 725 points or 1.23% to close at 59,811.34. Analysts said the equities market has been thriving since the successful first review with the International Monetary Fund (IMF), which will lead to the release of the next loan tranche.

On Monday, the index traded in a range of 896.77 points, with an intraday high of 59,896.08 (+809.73) and a low of 58,999.31 (-87.04) points. The total volume of the KSE-100 Index was 276.858 million shares.

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‘Breach of confidentiality’ lands cargo deal with Azerbaijan in red zone

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  • PLL uses SOCAR’s offered price as tool to bring down bid price. 
  • SOCAR had offered LNG price at $17.96 per MMBtu.
  • Azerbaijan-based company may take legal action against PLL. 

ISLAMABAD: The GtG deal with Azerbaijan on offering one LNG cargo a month has landed in the red zone because of the confidentiality breach allegedly done by Pakistan LNG Limited (PLL), The News reported Sunday. 

The PLL used the price offered from SOCAR, an Azeri state-owned company, as a tool to bring down the bid price from the lowest bidder OQ trading, which was at $18.46 per MMBtu, senior officials involved in the bidding process told The News.

The OQ Trading on Friday offered the lowest bid of $18.46 per MMBtu for one LNG cargo to be delivered on January 08-9, 2024, followed by Vitol Bahrain at $18.58, QatarEnergy Trading at $19.43, and Trafigura at $19.64 per MMBtu. The OQ Trading offered the lowest bid, but the price was still higher than the previous spot cargoes procured by Pakistan LNG Limited.

Earlier, SOCAR was evasive from offering the price of one cargo for the month of January on account of higher LNG prices. However, the PLL Board met after the bids were opened and decided to contact SOCAR for its offer for January LNG cargo.

In return, SOCAR offered the LNG price at $17.96 per MMBtu, but PLL management cleverly contacted OQ trading and let it know about the SOCAR offer which was under GtG, not the bidding process.

It asked the lowest bidder to match the SOCAR offer. The OQ trading revised down its offer to $17.95 per MMBtu than the SOCAR-offered price below one cent. This is how the PLL managed the LNG cargo for January at $17.95 by using SOCAR’s price as a tool to bargain with the lowest bidder. This may warrant legal action by SOCAR.

The PLL after getting the price offer from SOCAR did not contact again for further decrease but preferred to ask OQ trading to match its price. The price under the GtG contract can’t be matched with the bid price.

The sources said the price difference between the lowest bid price of $18.46 per MMBtu from OQ trading and SOCAR’s offer was $1.5 million per cargo but then the lowest bidder gave a price of $0.01 cheaper to get the order. One cent reduction means a $32,000 reduction in LNG cargo price.

“This has virtually annoyed SOCAR as it is of the view that PLL has breached the sanctity of confidentiality, which is against the spirit of GtG deal. It says PLL has no right to use the price offered under the GtG contract with the bidders’ price. SOCAR came up with the offer under its contract at $17.96 per MMBtu with the impact of a lower price of $1.5 million a cargo compared to the bid price offered by OQ trading at $18.46 per MMBtu,” officials said while quoting the SOCAR management, which got agitated after the confidential violation.

When contacted, SOCAR didn’t reply in detail but confirmed that confidentiality had been breached. However, this scribe contacted time and again PLL MD Masood Nabi who did not respond to the calls. He was also sent a question on his WhatsApp but he did not respond to the calls.

The question from The News correspondent reads, ”I have learnt that PLL has awarded the contract to OQ trading at $17.95 per MMBtu against its lowest bid of $18.46. Also came to know that PLL asked SOCAR to give its offer soon after the bids were opened for January. SOCAR offered the price under its GtG contract at $17.96 per MMBtu, but PLL by breaching confidentiality asked OQ trading to match and it offered a lower price by one cent at $ 17.95 per MMBtu. Don’t you think PLL played foul with SOCAR and it may go for legal action? Plz reply in detail.” 

The same question was sent to the PLL board chairman and the spokesman for the Petroleum Division as well, but the scribe did not get a reply.

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Rupee likely to trade around 285-286 against dollar next week

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  • Rupee faces pressure from inflation, decline in reserves this week.
  • Local currency closes at Rs285.37 against greenback on Friday.
  • Rupee’s outlook to depend on dollar buying, selling next week. 

KARACHI: The rupee is expected to hold a narrow range and hover around 285-286 against the dollar in the upcoming week as importers and exporters weigh the impact of mixed economic signals on the country’s currency, The News reported Sunday. 

In the outgoing week, the local currency gained some ground against the greenback in the first three sessions as optimism surrounded the economy over the completion of the first International Monetary Fund (IMF) review and the decline in the current account deficit.

However, the rupee lost some of its gains in the last two sessions, as demand for dollars from importers increased and exporters remained reluctant to sell their foreign exchange holdings. 

The rupee also faced pressure from rising inflation, falling foreign exchange reserves and uncertainty over the interest rate outlook.

The rupee closed at 285.37 against the dollar on Friday, compared with 285.97 on Monday, gaining 0.20% for the week.

“The rupee’s outlook for the coming week will depend on whether importers and businesses step in to buy dollars to meet their end-of-month demand as well as whether exporters, who are still hesitant, come to the market to sell their dollar holdings,” said a foreign exchange trader.

“We expect the rupee to trade in a range of 285-286 against the dollar next week unless there is any major positive or negative news flow.”

Tresmark, a financial data provider, said the rupee had not lost much ground over the previous two trading sessions. The real effective exchange rate (REER), which increased from 91.7 to 98.6, and the diminishing foreign exchange reserves, which decreased by $232 million, were the main causes.

“However, most analysts think the lion’s share of rupee weakness came as SBP did Sell Buy swaps to prop forward premiums and subsequently started buying dollars from the market to boost reserves. Despite lucrative premiums, exporters were not active in selling forwards,” it said in a weekly report.

“In the coming week, we see the rupee to be range-bound and vulnerable to news flows. Importers and exporters should just wait and see which comes earlier — positive or negative news flows.”

Pakistan’s forex reserves fell by $233 million to $12.302 billion in the week that ended on November 17. The reserves held by the State Bank of Pakistan (SBP) dropped by $217 million to $7.180 billion. Analysts said that was enough to cover less than two months of imports.

Even if recent statements from government officials have calmed market sentiment, Tresmark believes that they are still creating uncertainty.

“One of the biggest uncertain segments is interest rate. When CPI [consumer price index] inflation clocked in around 26% for October, the market went on a bond-buying spree predicting rates to come down,” it said.

“Subsequently, the increase in gas prices and the two consecutive SPI [sensitive price indicator] numbers of over 40% has cast solid doubts. Yields have consequently ticked up last week, and everyone is now looking for another round of data to project future inflation rates.”.

While most analysts don’t think of an increase in interest rates, they insist a no change will be akin to a hike, because the market has strongly factored in a cut. But a cut looks tricky if CPI comes above 30% (as is the market consensus), especially amidst a hawkish Fed and a unique interest rate trajectory in Turkey — in which they increased rates by another 5% on Friday to take it to 40%, it noted.

Pakistan expects to secure a tranche of $700 million from the IMF’s existing loan programme after completing a first review. The IMF executive board is expected to approve the staff-level agreement with Pakistan for the first review of the $3 billion stand-by arrangement early next month.

It is projected that Pakistan will get approximately $1.2 billion in financing from the multilateral partners. October saw a 91% reduction in the current account deficit (CAD) to $74 million compared to the same month last year, thanks to a rise in exports and remittances and a decrease in imports.

Despite a 61% month-on-month increase in the current account deficit in October, primarily as a result of a higher trade gap brought on by an increase in imports, analysts believe that the deficit for this fiscal year will be manageable because anticipated foreign inflows are likely to materialise. The CAD declined by 66% to $1.1 billion in the first four months (July-October) of the current fiscal year.

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