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Pakistan requires $62bn to $155bn for energy sector till 2030: ADB

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  • Power, energy sector need most significant investments.
  • Largest investments needed for hydropower capacity’s development.
  • Investment needs for wind, solar energy expected to reach nearly $12bn.

ISLAMABAD: The Asian Development Bank (ADB) has said that Pakistan’s energy investment ranges from $62 billion to $155 billion till 2030, The News reported Sunday.

According to ADB’s Central Asia Regional Economic Cooperation (CAREC) Energy Outlook for 2030 report, energy investment needs until 2030 vary significantly across the three scenarios.

The power generation and the energy efficiency sector need the most significant investments owing to the rapidly growing demand and low baseline efficiency. In all three scenarios, the largest investments are needed for the development of the country’s hydropower capacity, ranging from $11 billion to $26 billion.

Investment needs for wind and solar energy are expected to reach nearly $12 billion in the business-as-usual scenario, $36 billion in the government commitments scenario, and $57 billion in the green growth scenario, which illustrates the country’s ambitious plans for harnessing its large renewable energy potential.

Furthermore, according to the country’s nuclear power generation targets, investments for nuclear facility expansion and rehabilitation total nearly $12 billion in the business-as-usual scenario, $21 billion in the government commitments scenario, and $31 billion in the green growth scenario.

Generational rehabilitation and expansion are the investment categories estimated to require the largest share of the total — ranging from 60% to 75%, or $38 billion to $115 billion, varying across scenarios. The second biggest category is energy efficiency measures on the consumption side, requiring $12 billion in the business-as-usual scenario, almost $21 billion in the government commitment scenario, and over $26 billion in the green growth scenario.

The modernisation and expansion of the power and gas grids and the introduction of advanced metering equipment require investments of approximately $13 billion to $14 billion.

To further unlock Pakistan’s energy market for private companies, several challenges must be addressed. One of the key challenges is the lack of clarity regarding the categorisation of resources.

For example, although hydropower is generally considered a renewable energy resource across the world, the Alternative and Renewable Energy Policy has categorised hydropower sources as nonrenewables.

Considering the 30% renewable energy target in 2030, it would be hardly possible to reach this level only via wind and solar PV sources. If hydropower were to be included in the definition of renewable energy sources, it would make reaching the stated target and introducing stronger competition more realistic.

Another challenge is the lack of a detailed energy plan for the energy sector. Although the National Energy Policy has been approved, the corresponding division of roles among policymakers who would assign policy areas to all relevant stakeholders has not been completed yet.

In the current framework, sector-specific policies are developed by relevant authorities. For instance, the alternative energy policy is developed by the Alternative Energy Development Board (AEDB), whereas the power generation policy is drafted by National Electric Power Regulatory Authority (NEPRA). This not only creates uncertainty regarding the long-term direction of sector development but also leads to unnecessary bureaucracy and delays in project implementation.

With a strong focus on generation over the last several decades, the T&D sectors suffered greatly from underinvestment. As a result, transmission losses in Pakistan are one of the highest in the region, with some distribution companies reaching losses of 38%. While policies, such as the Transmission Line Policy, have been established to attract private investments, a centralised transmission plan considering load development in the future is required to set a long-term direction for network development and to establish realistic targets for reducing T&D losses and attracting investments.

Another challenge stems from the country’s electrification rate, with more than 25Z% of the population having no access to electricity. With an increase in rural electrification, demand will increase significantly, putting more strain on distribution companies and generation. Finally, challenges in the T&D sector are reinforced by the issue of circular debt.

With growing power generation from thermal plants, higher costs were inflicted via the import of high-priced fuels and currency devaluation. At the same time, distribution utilities tasked with energy supply face financial hurdles due to the low collection rate of tariffs and their inability to meet regulatory targets for T&D losses. As a result, distribution companies are unable to pay generation companies for purchased electricity, starting a chain of debts that reach fuel providers via power generation companies.

The differential between NEPRA-approved and uniform tariffs is paid via a tariff differential subsidy, which adds a significant financial burden to the government. However, the government is moving toward tackling these challenges and improving the investment climate by establishing a clear and favourable environment for private investors in the energy sector. Pakistan recently approved an implementation plan for a regulatory framework that will establish a competitive market structure in the wholesale segment via a bilateral contract.

Furthermore, the government plans to unbundle natural gas utilities into transportation and distribution companies and establish a competitive natural gas market, which will prove beneficial in terms of attracting private investments in the long term.

Pakistan has already introduced specific incentives for its renewable power sector to take advantage of its substantial renewable resource potential of more than 3,000 GW (including hydropower). With feed-in tariffs for wind and solar PV technologies and a clear plan for renewable energy generation, it aims to support further development of renewable energy.

Considering the sizeable development needs in the energy sector and the government’s prioritisation of renewable energy, investment opportunities are significant.

To resolve power issues and improve energy distribution capabilities, the government is considering partial privatisation of distribution companies through management contracts and concession agreements. This opens up the possibility of ensuring sufficient power supplies, mitigating losses, and increasing competitiveness in the distribution market.

Being one of the largest markets in the CAREC region, Pakistan’s population is currently growing by 2% annually, with an ever-growing potential customer base. However, more than a quarter of the population does not have access to power. With suitable government priorities and regulatory frameworks, this would provide a substantial basis for investment in the energy sector, with more possibilities for return on investment and project implementation.

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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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