Three out of 19 Bombers were Madaris Graduates

Three out of 19 Bombers were Madaris Graduates

ISLAMABAD - Contrary to the widespread assumption about the Pakistani
madaris as centre of terrorism, the profiles of suicide bombers have
revealed there were just three madaris graduates whereas the major motive
behind non-sectarian cases was the anti-US feelings.
In the post 9/11 scenario when suicide bombings hit Pakistan time and again,
as many as 19 suicide bombers blew themselves up in different terrorism
incidents with first of them took place at the International Church in the
federal capital.
A study conducted by security officials of the life history of suicide
bombers pointed out that of 19 attackers, 12 were between 15-25 years while
the five of them were falling in the age group of 25-30 years. Only two
bombers were beyond 30.
The US atrocities on Muslims in Afghanistan and other parts of the world
have been found a chief cause of motivation for these bombers to explode
themselves for, what they considered, a noble cause.
None of the bombers belonged to the rich class as 13 of them have been rated
in poor category while six belonged to middle class families, according to
the security documents available with The Nation.
Apart from the anti-US sentiments and poverty, the third commonality among
them was illiteracy.
Unlike West where the most of such attackers were university graduates such
like the lead pilot of 9/11 incident Mohammad Atta who had a degree from
German University and the operational planner of 9/11 tragedy Khalid Sheikh
Mohammad who studied engineering in North Carolina (USA), none a single
Pakistani suicide bomber could go beyond matriculation.
Most of these bombers had their affiliations with either Lashkar-e-Jangvi or
Jaish Mohammad with also a fair share of Al-Badr, Harkatul Jihad-i-Islami,
Al-Furqan in suicide attacks on dignitaries, churches and Imambargahs.
There were two suicide attackers - Qari Jameel Ahmad and Khalique who killed
themselves in an attack on President Pervez Musharraf on December 25, 2003.
Qari, 26, was an active member of defunct Jaish Muhammad and had spent most
of his lifetime in Madaris. He was resident of Rawla Kot (Azad Jummu and
Kashmir).
Whereas the second bomber, Khalique who was also known with others names
like Omair and Sahfique, was an active member of Harkatul Jihad-i-Islami
with also having close links with al-Qaeda.
Both of them were unemployed with education not beyond 8th grade.
The cause of motivation for their suicide mission has been described as
pro-US policies of the government of Pakistan.
After Qari Jamil, second example of Madrassa student is Muzaffar-ur-Rehman
who got religious education from Dar-ul-Itfal Madrassa of Karachi.
Muzzaffar whose cause of motivation is believed to be sectarian extremism,
blew himself up at an Imambargah, in Rawalpindi on February 28, 2004 at the
age of 27. He was the member of defunct Lashkar-e-Jhanvi. Financially he
belonged to a poor family of Muza Dum Kota (Abbottabad) and received
education till 5th grade.
Irfan, a suicide bomber who exploded himself during an attack on Prime
Minister Shaukat Aziz on July 30, 2004, was another unemployed youth with
education till 8th grade. Pro-American policies of the government have been
described as the cause of motivation in his profile documents. There is no
information available in his profile pointing towards the fact that if he
ever have been enrolled in a madrassa.
Sarfraz Ahmad who had killed himself in the suicide attack on International
Church in Islamabad, was just 2o-year old with education till 10th grade. A
member of defunct Jaish Muhammad (Abdul Jabbar Group), Sarfraz belonged to a
poor family of Shakar Darra (Attock). The cause of his motivation was the US
atrocities on Muslims in Afghainstan and other parts of the world.
The suicide bomber who killed himself in the attack on Missionary Hospital
of Taxila on August 8, 2002, Kamran Mir, also had no madrassa education but
he was affiliated with defunct Lashkar-e-Jhangvi. Again the US atrocities on
the Muslim world was the chief cause of motivation. Mir, 22, was member of a
middle class of Bangash Colony, Rawalpindi. He was matriculated with no job
at hand.
Three non-Madrassa students and activists of Jaish Mohammad - Nawaz
(Gujranwala), Rehan Badar (Muzaffargarh) and Muhammad Zarin (Batagram),
exploded themselves to evade their arrest after attacking Christian School,
Murree, on August 5, 2002.
Nawaz and Rehan were 18-year old at that time while Zarin was 20-year old.
All of them belonged to middle class families and were unemployed.
Again the major motivation was the US atrocities on Muslims in different
parts of the world. Abdul Hameed, 20, is another bomber who exploded himself
in front of the American Consulate in Karachi.
Khair Mohammad and Muhammad Khan between 32-35 years age, were activists of
Lashkar-e-Jhangvi and unemployed at the time when they exploded themselves
during the attack on Imambargah, Quetta, on July 4, 2003.
Two other sectarian activists having affiliation with Harkat-ul-Mujahideen -
Abdul Nabi and Hidayatullah, were also unemployed when they exploded
themselves during Muharram in Quetta on March 2, 2004.
There is a single employed person Akbar Niazi, 22, who exploded himself in
Haidri Masjid, Sindh Madrassa-tul-Islam, on May 7, 2004. Niazi was married
and belonged to a middle class family.
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In The Name of Allah

In The Name of Allah

By Nadeem Malik

"If Allah assists you, then there is none that can overcome you, and if He
forsakes you, who is there then that can assist you after Him? And on Allah
should the believers rely." - The Holy Koran 3:160

ISLAMABAD - A day begins with prayers before sunrise at a madrassa (Islamic
seminary). Young students sitting cross-legged rock back and forth reciting
verses from the Holy Koran. They pledge unity and entreat success for the
ummah (the Muslim people).

Near the Khyber Pass, Darul Uloom Haqania is the most prestigious of many
such schools in the North West Frontier Province city of Peshawar. Haqania
boasts of being the breeding ground of the entire Taliban leadership.
Maulana Samiul Haq, with henna beard, is the founding father of this largest
South Asian seminary.

There are an estimated 10,000 to 15,000 madrassas across Pakistan. These
schools, largely frequented by destitute Afghans and poor Pakistanis, are
run by individual charities and rely almost exclusively on donations. During
the Afghan jihad days in the 1980s, the US Central Intelligence Agency
(CIA), Saudi Arabia and the other Gulf states generously financed them. Some
estimates suggest that the CIA also recruited almost 30,000 jihadis from the
Middle East to fight against the Soviets, and channeled billions of dollars
to run the operation.

The top Pakistani army brass of military ruler General Zia ul-Haq promoted
these religious schools, which numbered a mere 1,700 in Pakistan in 1979 at
the start of the Afghan war. Afghan refugees from the war-ravaged country
sent their young ones to these schools during the jihad days, and even after
the Russians withdrew in 1989.

A World Bank "Country Assistance Strategies" report on Pakistan estimated
that 15-20% of madrassas are involved in military-related teaching and
training. The World Bank maintains that the radicalization process started
with their politicization during the 1980s.

"With active support from the Zia regime (1977-88), madaris [madrassas] with
extremist administrations were established along the Pakistan-Afghan
border," the bank stated. The objective, it said, was to form a cadre of
religiously motivated mujahideen to fight in Afghanistan and provide
political support to Zia's regime. Degrees from madrassas were made
equivalent to degrees obtained from formal universities. This, the bank
observed, facilitated recruitment of madrassa students into the civil
service, leading to the state's accommodation of activities encouraging
religious intolerance and sectarian divisions.

"The contribution of the mujahideen to the Afghan victory, poverty, falling
standards of public education, and weak governance, account for much of the
success of the madaris in the 1990s," the bank said. Since they provide free
board and lodging, they became popular with the parents of poor children.

"Marginalized, the graduates from the non-mainstream madaris [those which do
not include formal education curricula] with no career-oriented education
resorted to violence to influence the country's policies," the report said.
Successive governments have done little to restrain them or bring them into
the mainstream education system.

There are conflicting reports on the number of students that go to the
religious schools. International organizations, like the International
Crisis Group, put the number at somewhere between 1 million and 1.7 million.
A detailed of study, "Religious School Enrollment in Pakistan: A Look at the
Data", conducted by Jishnu Das of the World Bank, Asim Ijaz Khwaja and
Tristan Zajonc of Harvard University and Tahir Andrabi of Pomona College,
found Western media reports highly exaggerated in terms of the number of
students and religious schools.

It estimated that less than 1% of school-going children in Pakistan go to
madrassas, a figure that has remained constant since 2001, according to the
study. Some studies point out (Berman and Stepanyan 2003) that as a
percentage of total school enrollment, madrassa enrollment in Pakistan is
roughly equivalent to that in Bangladesh and the Ivory Coast and much less
than in India (two states only) or Indonesia.

The study noted that household data in Pakistan tell whether a child is
enrolled full time in a madrassa, but not whether the child goes for just an
hour on any given day to study the Koran. Therefore, the data do not
reconcile full-time with part-time attendees - a child who attends a public
school during the day and a madrassa in the evening is recorded as enrolled
in a public school.

This is an important distinction since parents might use some madrassa- or
mosque-based education to teach their children about religion. The study
indicated that about 200,000 children were enrolled full time in madrassas
before 2001.

"Madrassa enrollment declined from 1940 to 1980, but increased during the
religion-based resistance to the invasion of Afghanistan by the Soviets in
1979. The largest jump in madrassa enrollment is for the cohort aged 10 in
the period 1989-93 - coinciding with the withdrawal of the Soviet Union and
the rise of the Taliban."

The study noted that "Pakistan's endemic poverty, widespread corruption and
often ineffective government create opportunities for Islamist recruitment.
Poor education is a particular concern. Millions of families, especially
those with little money, send their children to religious schools, or
madrassas. Many of these schools are the only opportunity available for an
education, but some have been used as incubators for violent extremism.
According to a Karachi's police commander, there are 859 madrassas teaching
more than 200,000 youngsters in his city alone."

Since September 11, 2001, Pakistan has launched periodic crackdowns against
extremist groups, also targeting religious schools. This led to the banning
of several armed groups and the arrests of hundreds of activists. In
addition, half-hearted efforts were made to reform the madrassa education
system.

However, growing pressure after the July 7 blasts in London, where three of
the bombers were of Pakistani descent and had visited madrassas in Pakistan,
has led to a new and more crucial phase, necessitating reforms with real
implementation, like the provision of books, teachers and funds to introduce
new curricula.

However, what Pakistan is being asked to do is not easy. Pakistani society
has suffered much since offering its support to the US in the "war on
terror", as many sections of society resent this.

"Few countries suffered as much from terrorism in 2004 as Pakistan, and few
did as much to combat it," says the latest US State Department publication
on "Country Reports on Terrorism 2004". The report clearly acknowledges that
Pakistan cracked down (in 2004) on several groups that had been active in
the Kashmir insurgency, "detaining the head of Harakat ul-Mujahideen (HUM)
for several months and arranging the extradition of the head of the Harakat
ul-Jihad-I-Islami (HUJI)".

In Pakistan, the US, under its Anti-Terrorist Assistance-trained Special
Investigation Group (SIG) arrested members of a terrorist organization that
had twice attempted to assassinate President General Pervez Musharraf and
which had detonated two car bombs near the US Consulate General in Karachi.
The SIG also arrested 12 terrorists involved in the attempted assassination
of prime minister-designate Shaukat Aziz.

The State Department report stated that al-Qaeda had declared the government
of Pakistan to be one of its main enemies, and called for its overthrow. The
government of Pakistan continues to pursue al-Qaeda and its allies through
counterterrorist police measures throughout the country and large-scale
military operations in the Federally Administered Tribal Areas (FATA) along
the rugged Afghanistan-Pakistan border.

Pakistani army and Frontier Corps units have launched operations against
al-Qaeda safe havens in South Waziristan Agency (part of the FATA), killing
and dispersing many militants. "These operations significantly degraded
al-Qaeda's command and control capabilities in the region, but at a cost of
approximately 200 Pakistani servicemen killed in action," the report said.

Information-sharing with the United Kingdom and Pakistan led to the
disclosure and disruption of al-Qaeda plans against US financial
institutions. In 2004, the capture of so-called al-Qaeda communications
expert and Heathrow bomb plot suspect Naeem Noor Khan was seen as a
significant development.

A report by United Press International claimed last week that Pakistan had
also permitted detectives from Scotland Yard to investigate Naeem Noor Khan
to learn about the contacts of the three London suicide bombers who visited
Pakistan.

Two of the bombers, Mohammad Sidique Khan and Shehzad Tanweer, flew into the
southern city of Karachi together in November 2004. They spent three months
in the country before heading back to the UK in February this year. Hasib
Hussain arrived in Karachi in July last year.

The vast majority of the religious schools in Pakistan are not involved in
militancy. But they represent a failure of the religious scholars, as well
as the vested interests of the ruling elite, which constrains these
institutions to just basic religious education. They have failed to meet the
challenges of a transition to modern education.

A recent working paper released by a leading international financial
institution explained the issue. "The elites will oppose mass education
because the more educated the population the greater the pressures for
democratization, and the greater the threat to the power of these privileged
groups. Their monopoly position is dependent on keeping their constituents
backward."

Asia Times
http://www.atimes.com/atimes/South_Asia/GG27Df02.html
July 27, 2005
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Egypt Identifies Body of Possible Bomber

Egypt Identifies Body of Possible Bomber

 

SHARM EL-SHEIK, Egypt - Investigators identified an Egyptian as a possible suicide bomber in the weekend terror attacks at this Red Sea resort and were searching Tuesday for his suspected Islamic militant cohorts — the first break in the probe.

 
A relative of Moussa Badran told The Associated Press that he disappeared after deadly attacks at two other Sinai resorts in October, and that some family members were detained afterward.

 

The development came as two security officials revealed that authorities received information of an imminent terror attack in Sharm el-Sheik several days before the bombings Saturday. But they believed casinos would be targeted, so security was increased around those sites, not hotels.

 

The officials would not say where the tip came from but said headquarters in Cairo told security forces in Sharm to be on alert and to step up measures around key locations.

 

It appeared authorities chose the wrong possible targets to watch, said one of the officials in Cairo. Both officials are close to the inquiry and spoke on condition of anonymity because the information was not authorized for release.

 

Security was heightened around casinos on the theory they would be attacked because Israelis come to Sharm for gambling, which is banned in their country.

 

The government has sacked the heads of security in North and South Sinai provinces, an apparent sign of the failures that may have allowed the assault on one of Egypt's most closely guarded tourist towns.

 

Instead of going after casinos, bombers in two explosives-laden trucks targeted hotels. One plowed into the Ghazala Gardens reception area, leveling the lobby. A second headed for another hotel but got caught in traffic and blew up before reaching the target. A third explosive device, hidden in a knapsack, went off minutes after the Ghazala blast at the entrance to a beach promenade. As many as 88 people were killed.

 

Police had been studying two bodies found at the Ghazala as possible bombers because the remains were dismembered. DNA tests identified one of the bodies as that of Moussa Badran, an Egyptian resident of Sinai who police said has links to Islamic militants.

 

Initially, officials said the body was that of Badran's brother Youssef. The officials, who spoke on condition of anonymity because the release of the details had not been authorized, did not give a reason for the change in identification.

 

The second body from the Ghazala is still being tested. A third body in Sharm's Old Market, the site of the other truck explosion, is also being examined as a possible bomber.

 

Moussa Badran — a resident of Sheik Zawaid, a town near el-Arish in northern Sinai — fled the family house soon after a terror attack last October at two other Red Sea resorts, his stepmother told AP.

 

Many relatives — including women — were arrested after Badran's disappearance and tortured, and another brother remains in custody, said the stepmother, Mariam Hamad Salem al-Sawarka.

 

Hours after the Sharm blast, police took DNA samples from Badran's father and siblings and from other families with relatives who have gone into hiding since the Taba attacks, al-Sawarka said. She said Youssef Badran moved to another town near Sheik Zawaid several years ago and she had not seen him since.

 

Investigators have been exploring possible links between Saturday's attacks and those in October against hotels in the resorts of Taba and Ras Shitan, near the Israeli border. Those earlier attacks killed 34 people, including many Israelis.

 

    Israel warned Israelis a year ago not to visit Egypt, and especially Sinai, because of the possibility terrorists would attack tourist sites. No Israelis are known to have died in the Sharm bombings, although Israeli media have said there were a number of Israelis there at the time.

 

Security forces detained thousands of people after the October attacks — mainly from the north Sinai area.

 

This time, across Sinai, security forces took in 70 people for questioning on Tuesday, bringing to 140 the number questioned since Saturday's attacks. Police detained an unspecified number of people overnight in the villages of Husseinat and Muqataa near the Gaza border.

 

Security officials in el-Arish said that, based on information from interrogations, they were looking for two other people from the area, Moussa Ayad Suleiman Awda and Ahmed Ibrahim Hamad Ibrahim, in connection with the Sharm attacks.

 

Investigators are concentrating on the theory that the bombings were carried out by Egyptian militants, but were not excluding the possibility they received international help, the security officials in Cairo said.

 

They noted that there has been an increasing number of hard-line Islamists in Sinai who may have formed cells. In previous years, the sparsely populated peninsula saw little militant activity, in contrast to the Nile Valley where the majority of Egyptians live and where an Islamic insurgency took hold in the 1990s.

 

Investigators were looking closely at funding for Islamists in Sinai, possibly from abroad. Large sums have come into the area in recent years, and no one is sure of the source, one of the officials in Cairo said.

 

Authorities are also trying to learn the origin of the more than 1,100 pounds of explosives used in the Sham attacks. Police said they were exploring the possibility they may have been brought in from Jordan, Saudi Arabia or Israel.

 

Another possibility was that the bombs were made of old explosives or from explosives used in quarries and hoarded by Sinai's Bedouin inhabitants.

 

Police have set up checkpoints on isolated desert roads north of Sharm, entrances to the region that previously had been only loosely guarded. The attackers may have used such roads to reach the resorts.

 

AP

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President reconstitutes NFC

President reconstitutes NFC

ISLAMABAD: President Pervez Musharraf has constituted a 10-member National
Finance Commission (NFC) to be headed by the finance minister.

The commission has been constituted in pursuance of Article 160 (1) of the
Constitution, according to a notification dated July 21 and issued here on
Saturday. The federal minister for finance will be the chairman of the
commission with provincial finance ministers and adviser to the prime
minister on finance as members. Besides, one member from each province will
be notified in consultation with the respective governors, while the federal
finance secretary will act as official expert in the commission.

The terms of reference for the commission are as under:

(a) The distribution between the federation and the provinces of net
proceeds of (i) Taxes on income, including corporation tax, but not
including taxes on income consisting of remuneration paid out of the Federal
Consolidated Fund (ii) Taxes on the sales and purchases of goods, imported,
exported, produced, manufactured or consumed (iii) Sales tax on services (CE
mode) (iv) Export duties on cotton (v) Consider the inclusion of other
federal taxes including customs duties and federal excises, but not
including taxes on income paid out of Federal Consolidated Fund.

(b) The making of grants-in-aid by the federal government to the provincial
governments.

(c) The exercise by the federal government and the provincial governments of
the borrowing powers conferred by the Constitution.

(d) Examine the question of rationalisation of payment of royalties on crude
oil and of surcharge on natural gas collected by the federal government to
the provincial governments.

(e) To consider review of the distribution of share of taxes between the
federal government and provincial governments.

(f) To develop and enforce a mechanism for setting parameters to achieve
fiscal discipline at the federal and provincial levels for ensuring
consistency in maintaining an appropriate fiscal balance at the consolidated
level.

(g) Any other matter relating to finance referred to the commission by the
president.

The NFC, notified vide Gazette of Pakistan Extraordinary SRO 529(1)/2000,
dated 22nd July 2000, SRO 895(1)/2000 dated 18th December 2000, and SRO
1043(1)/2003 dated 13th November 2003, shall stand dissolved with immediate
effect, the notification said.

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American questioned in London probe

American questioned in London probe

An American accused of conspiring to build a terror training camp in Oregon
has been questioned as part of the probe into the London terrorist attacks,
a government official has confirmed to CNN.

The government official would not say if James Ujaama provided any useful
information.

It was with Haroon Rashid Aswat, the man British police are seeking in their
terrorism investigation, that Ujaama conspired in the 1999 plot to establish
a "jihad training camp" in Bly, Oregon, U.S. officials have told CNN.

Aswat was an unindicted co-conspirator in the case, U.S. officials have told
CNN.

British police are seeking Pakistan's help in locating Aswat. They want to
question him about possible ties to the four bombers who attacked London's
transport system on July 7, according to officials familiar with the
investigation.

As part of Ujaama's plea deal last year, he agreed to cooperate in terrorism
probes.

In 2004 he pleaded guilty to a charge of conspiring to provide goods and
services to the Taliban during a trip to Afghanistan in 2000. He received a
two-year prison sentence, instead of the 10-year sentence he could have
received on the more serious charge.
(CNN)

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Nine-month workers be considered regular

Nine-month workers be considered regular

The Federal Service Tribunal (FST) has given a verdict that all those
employees who work continuously for a period of nine months are eligible to
be deemed as regular employees under the law of the land.

This ruling was made by Moazzam Hayat and Chaudhry Muhammad Aslam members of
the Federal Service Tribunal while allowing 12 different appeals of lower
cadre employees of the National Bank of Pakistan.

The lower cadre employees such as storekeepers, watchmen and others were
sacked by the bank without giving any reason or issuing them show cause.
They filed separate appeals to the departmental hierarchy but these were
rejected accordingly.

Hafiz Tariq Nasim, while representing his 12 clients before members Moazzam
Hayat and Chaudhry Muhammad Aslam, contended that in terms of labour laws
and other statutory provisions, an employee of a private organisation or a
worker of a factory or an employee of the federal government who worked
continuously for nine complete months without any break had to be deemed as
regular employee and entitled to all facilities accordingly.

His next submission was that the respondent NBP instead of regularisation of
the poor employees had sacked them which was completely illegal and in
violation of law and Constitution of the country.

Referring to many judgments of the apex court and the Lahore High Court,
Tariq Nasim advocate urged the members of the FST for immediate
reinstatement of the employees with all back benefits to them. The FST
members after hearing arguments of the service law expert and counsel for
the NBP, ordered immediate reinstatement of all the 12 NBP employees with
back benefits.

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PAKISTAN: Floods cause extensive damage in

PAKISTAN: Floods cause extensive damage in
southern Punjab

ISLAMABAD - A second massive
surge of water into the River Indus over recent days
has caused extensive damage to houses and fields
while passing through the southern belt of
Pakistan's Punjab province.

At least 29 people have died, while over 452,000
were reported affected in more than 1,050
villages and small settlements across 14 flood-hit
districts of Punjab since rivers started swelling in
early July, according to a statement by the
central Emergency Relief Cell (ERC) in the capital,
Islamabad.

"Flood situation is serious in parts of the
districts Leyyah and Rajanpur located along River
Indus. The same areas were affected by previous
surges of floodwater in early July in the district
Leyyah, where we are providing emergency relief
supplies including both food and non-food items,"
Umair Hasan, coordinating the humanitarian
assistance programme of UK-based charity Oxfam said in
Islamabad.

Around 290 flood relief centres have been
established by the district relief authorities in their
respective flood-hit areas, where free food and
fodder for livestock is being provided to
flood-affected people, indicated the latest flood
situation report from the Punjab relief cell.

In Punjab, farming communities in areas close to
the Indus have been worst hit by floods in five
southern districts: Leyyah, Dera Ghazi Khan,
Rajanpur, Muzzafargarh and Rahim Yar Khan. An
estimated 150,000 people along the Indus has been left
in need of emergency supplies, according to
humanitarian activists

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Trade Policy sets $17B export target

Trade Policy sets $17B export target
------------------------------------
Seven days working for labour, long hours for women; Import of second hand
cars for overseas Pakistanis; Package for gems and jewellery

By Nadeem Malik
Islamabad: The Trade Policy 2005-06 envisages $17 billion export target, 18
percent higher than $14.4 billion achieved during the last fiscal year.
The Policy has not mentioned any import target, but the Ministry of Commerce
has incorporated a number of $21.79 billion for imports, about 5.7 percent
higher than 2004-05. The projected trade deficit for the year is $4.79
billion, a highly conservative number, compared with $6.2 billion gap during
last fiscal year.
The Policy outlined a strategy of better market access, export facilitation
and marketing to achieve higher levels of exports, as well as reducing cost
of doing business and streamlining procedural issues. Some good decisions
regarding the gems and jewellery sector have been announced. Similarly, the
crucial issue of amendment in labour laws has been announced, but details
would need to be critically analyzed.
The Policy also announced some popularly awaited steps, like import of
vehicles. Overseas Pakistanis have been allowed to import vehicles under the
gift and personal baggage schemes, vehicles upto three years old; Under the
gift scheme, besides the parents, husband, wife and children, brothers and
sisters will also be eligible; It will no longer be required that the
vehicle be registered in the name of the Pakistani national prior to its
import under the personal baggage or transfer of residence scheme; and
Overseas Pakistanis holding Pakistan origin card will also be eligible to
import vehicles under the gift, personal baggage and transfer of residence
scheme. This step is likely to open up gates for massive import of second
hand cars in Pakistan.
Commerce Minister Humayun Akhtar Khan, announcing his third trade policy,
outlined a rapid export strategy, which he hopes would narrow down the trade
gap. He, however, also emphasized the need to address the supply side
constraints, which he said limit the rate of growth of exports. In t his
regard, he also proposed a Textile Garments Skill Development Board to
address the problem of skill-gap. Humayun also claimed the credit for
showing a robust growth of 68.2 percent since the military takeover of
1999-2000. The Minister said Pakistan strived to achieve $10 billion export
target for years. However, now he said he was eyeing $20 billion mark in
fiscal year 2006.
The Policy declared the Central Asian Republics (Uzbekistan, Kazakhstan,
Kyrgyzstan and Afghanistan), Latin America (Brazil, Chile, Argentina and
Mexico), Africa (South Africa, Nigeria, Morocco, Kenya and West Africa with
Senegal as base), as priority centers for export promotion. The appointment
of local Marketing Executive and Honorary Consuls General would be
considered in these countries.
Humayun said the United States is the largest and most important export
destination for Pakistan after the European Union, with textiles as the main
export. Pakistan's exports to USA increased from $2.3 billion in 2002 to
$2.9 billion in 2004 with the share of textiles at 88 percent of total
exports. He said the export strategy for USA would focus to improve Pakistan
's image as a reliable and efficient supplier. To overcoming supply chain
management problems, a special programme focusing on trade facilitation in
the context of USA will be chalked out. At the same time, a trade lobbying
firm will be hired in the USA to enhance Pakistan's exports and market
access.
The 25-member European Union is the largest and most important export market
for Pakistan. The Policy seeks EU-specific market research and hiring of a
specialized firm to procure more export orders for textiles, as well as get
better product prices. Since export of agriculture products to EU will be
facilitated by certification of EUREPGAP; It has been decided that 50
percent subsidy on cost of certification of EUREPGAP may also be allowed in
addition to the various other certifications like ISO - 14000, ISO - 17025,
HACCP Certification, WRAP Certification and ECO Labeling. It has been
decided that 75 percent of the certification cost of the internationally
accepted laboratories, verified by the concerned Pakistan Embassies, will be
borne from the Export Development Fund (EDF), subject to a maximum of US
$2000 per certification.
Pakistan's 80 percent exports now stand excluded from the EU Generalized
System of Preferences (GSP). Humayun announced that Pakistan would now be
included in the EU's new GSP Scheme from January 1, 2006. This new scheme
would again allow all of Pakistan's exports including textiles and clothing
to enter the EU markets at concessionary rates of tariff, he said.
The Ministry of Commerce during this year will also work on developing trade
competitiveness indicators. These indicators will quantify and
internationally benchmark the cost of doing business in Pakistan, like
Financial (interest/exchange rate); Regulatory (burden imposed by
regulation); Public service provision (infrastructure, legal framework, set
up costs etc); and Business environment (law and order and social and
economic amenities).
Since internal commerce is the key to economic growth and development of
value added products, the Trade Policy has chalked out a strategy to
initiate studies to determine the state of internal commerce. It is expected
to facilitate better data and information of markets such as retail,
wholesale, construction, storage, transport and agricultural.
To promote the pharmaceutical sector, it has been decided that the
pharmaceutical exporters to a country with duly registered products, will be
provided funds for the salary of 3 medical representatives for a period of
two years ($ 500 per medical representative per month). For designated high
cost countries this support will be 30 percent higher.
To facilitate exports to Afghanistan from Balochistan, it has been decided
to open a new land custom station at Qamar-ud-Din Karez. The prevalent
system of verification of exports to Afghanistan in which the exporter had
to bring a certificate from the Embassy of Pakistan to claim duty refund is
being replaced with the verification of Pakistani exported goods to
Afghanistan on the basis of copy of import clearance documents issued by
Afghan Customs authorities across the border. The Policy has also decided
that items in the Negative List of Afghan Transit Trade will not be allowed
for re-export from Pakistan.
To facilitate exports of gems and jewellery, which earn India several
billion dollars every year, the Trade Policy has declared this sector as an
industry to provide easy access to credit and advantages in utility rates
and taxes. To offer running finance facility to jewellery exporters, it has
been decided that the private commercial banks under a collateral
arrangement would offer this facility for import of gold. The Policy also
announced measures, like increase in period from 90 days to 180 days for
export of jewellery made from imported gold, and enhanced 240 days time for
remittance of export proceeds. The valuation committee for clearance of gems
and jewellery export has been abolished to speed up the process. To
modernizing practices in mining / quarrying in FATA and Balochistan, the
government will arrange a consultant of international repute through Export
Promotion Bureau.
Another important decision relates to Pakistani Trade Marks, which actually
play a pivotal role in sustained export growth. It has been decided that
Pakistani exporters who register their products with Pakistani Trade marks
in foreign countries for export purposes will be provided subsidy equal to
50 percent of official fees of such registrations.
The Trade Policy has also decided to setup the Footwear Development Centers
by the Footwear Association, at Lahore and Karachi with financial assistance
from the Export Development Fund (EDF).A consultant will also be hired to
design measures, which can help in attracting Foreign Direct Investment
(FDI) in this sector.
To enhance the potential of services sector, which is fastest growing
component of international trade, it has been decided that the expertise
acquired by NADRA for preparation of identity cards and machine readable
passports will be actively marketed. Special studies will be conducted to
develop an overall services export strategy with special focus on legal,
accountancy, medical, architectural, construction and engineering services,
and in coordination with the State Bank, Statistics Division and other
agencies, services sector would be better organized.
The services, like Stitching, Dying, Printing , Embroidery and washing,
provided to exporters and export houses by various will be considered as
deemed exports for concessional rates of withholding tax under section
153(3B) of Income Tax Ordinance, 2001.
Since the 9/11 events international freight charges have also become a major
headache. To develop this sector, the Trade Policy has declared the freight
forwarding and logistics sector as an industry. The traders have also been
allowed to pay locally to freight forwarders, who in turn can remit the
amount in Foreign Exchange through the State Bank.
The Ministry of Commerce will enter into partnership arrangements with
reputed Universities and think tanks in the country to encourage the
creation of expertise on the World Trade Organization (WTO) and Free Trade
Agreements (FTA) on a sustainable basis. The Ministry will also award
research studies on WTO and FTA related issues to partner institutions such
as Universities, think tanks, and individual experts. The National Tariff
Commission is also being revamped to enable it to function as an effective
trade defence organization of Pakistan.
On the issue of Commercial Courts, the Policy simply mentions that two
Commercial Courts are functioning in Lahore and Karachi. It added that the
Export Promotion Bureau feels the need for a full time presiding officer and
prosecutor to handle its cases in these courts. Its request is being
processed at the Ministry of Law.
The Policy has also extended the textile garments support package till June
30, 2006, whereby the government pays six percent of the export proceeds in
the name of Research and Development (R&D). Humayun said this measure helped
protect $400 million of exports, and averted a potential loss of 500,000
jobs in the SME sector.
The Policy also took the significant decision of amendment in the labour
laws, which would be implemented after the Cabinet approval. As per the
amendments, the garment factories will be able to operate for seven days a
week and also increase the daily working hours. Women workers working long
hours will have to be provided transport. However, the Policy has not made
any reference to welfare of the intended labour, like their insurance,
medical coverage and disability allowance etc. To encourage export of
leather garments it has been decided that exporters may send 100 samples in
a year as against 50 samples allowed earlier.
Humayun also announced the decision to enhance the capacity of Karachi Expo
Centre by constructing two additional exhibition halls. These halls would be
ready by December 2005 and would provide additional space to exporters for
Expo 2006, which would be held in March 2006. In partnership with the
government of Punjab, an Expo Centre would be built in Lahore. Arrangements
to start construction have been finalized, and actual work is likely to
start shortly. This Expo Centre would be ready by December 2006.
Regarding imports into Pakistan, the Minister said the record level of
imports and trade deficit during 2004-05 originated due to higher import of
investment goods rather than consumer goods. The major factors in this
regard are the increase in oil import bill from $3.2 billion to around $3.8
billion and increase in machinery imports and industrial raw materials by 38
percent and 32 percent respectively.
Humayun said Pakistan is constantly following a policy of trade
facilitation, deregulation and tariff rationalization. In this regard, the
import of machinery in Marble & Granite; Poultry & Meat; Gems & Jewellery;
Horticulture; and Pharmaceutical with customs duty and sales tax being
zero-rated.
In line with the policy of liberalization, the Policy proposed to dispense
with the requirement of prior recommendation from the Regulatory Authority
for import of machinery, equipment, specialized vehicles etc. on import cum
export basis. Certification of the Chief Executive of a company of the
respective sector endorsing requirement of the contractor, sub-contractor
will however, be essential.
The Policy has also allowed Pakistani nationals working in international
media to import temporarily equipment and materials for their professional
requirement. Members of theatre and circus companies are also dealt with
similarly.
The import of pressure horns is banned. Similarly, the import of parts of
pressure horns has also been banned. The policy to import Psychotropic
substances is being amended to comply with the UN Convention against illicit
traffic in Narcotic Drugs and Psychotropic substances 1998, so that all
controlled substances will be importable by concerned industrial consumers
after an NOC from the Ministry of Narcotics Control. The quantity imported
by the industrial consumers will be determined by the CBR and of the
pharmaceutical units by the Ministry of Health. It has also been decided to
do away with the condition of attestation of Form-7 (batch-certificate) by
the Health Authority, required in connection with the import of
pharmaceutical raw material for determining the shelf life.
Presently, edible products specified in the Import Policy Order are
importable subject to the condition that they have at least 9 months or 75
percent is being reduced to 50 percent to facilitate importers of edible
products, particularly food chains. The import procedures for palm stearin,
waste, parings and scrap of styrene poly vinyl chloride and other plastics,
and plastic granules has also been amended.
The import of 2/3 wheeler auto vehicles are allowed subject to one-time
certification of each model by Pakistan Standards and Quality Control
Authority (PSQCA); and The imports of used fork-lifters three tons capacity
and above are being allowed. The import of used machinery, like Weighing
machines, weights, and parts of weighing machines; Fork-lift trucks powered
by an electric motor; Rolls for Rolling Mills; Calculating machines, data
recorders, postage machines, ticket-issuing machines, cash registers; Other
office machines, automatic banknote dispensers, coin-sorting, counting or
wrapping machines; pencil-sharpening machines, perforating or stapling
machines; Drawing instruments; and Mechano-therapy appliances.
ENDS.

N A D E E M M A L I K
Flat#8, Block 2-A, St#1, I-8/1
ISLAMABAD, PAKISTAN.
00-92-51-4434300
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PakistanNews@hotmail.com

Ban on Truckers Across Pak-Afghan Border

Ban on Truckers Across Pak-Afghan Border

TORKHAM- Pakistani border guards at Torkham Wednesday slapped a ban on the
entry of Afghan trucks, a step that led to long queues of heavy vehicles
parked on both sides of the road.

The restriction comes hard on the heels of a 10-day protest by Pakistani
truckers against the attitude of Afghan officials, who allegedly tease them
on their way to Kabul.

Beginning their protest from July 10, many Pakistani drivers staged a noisy
demonstration in Khyber Agency to denounce the hurdles created to their
loaded vehicles by Afghan police.

They chanted slogans against Afghan authorities and hurled stones at the
vehicles plying the road in the semi-autonomous Pakistani tribal region.

But Sher Ahmad, an Afghan police official in the border town, justified the
roadblocks placed in Sarobi to test the trucks' roadworthiness before they
reached the bumpy mountain road.

"Vehicles that manage to clear the hurdles are allowed to go ahead."

He admitted the lorries failing to climb the mound were sent back to
Torkham, because they could not ply the Lata Band Road - zigzagging through
a long range of mountains.

However, the weird arrangement has infuriated the Pakistani drivers, who
have parked nearly 2,000 trucks on both sides of the road - long lines
stretching from Ali Masjid to the Torkham border town.

Pakistani border officials implied the ban on Afghan truckers' entry had
been imposed in retaliation for unnecessary problems created for Pakistani
drivers and transporters.

"The ban went into effect from today and will remain in place as long as the
two governments reach an agreement on how to deal with the situation," said
Bakhtiar Momand, Torkham's assistant political agent (APA).

(Pajhwok Afghan News)

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CoT phase-out, a question mark

CoT phase-out, a question mark

July 15, 2005

Suspension of badla phase-out with capping of CoT investment at Rs12bn over
the previous weekend failed to please or excite the investors. Even after
this news low volume was observed across the board and despite cancellation
of badla phase-out schedule, CoT investment declined confirming the
investors' tedious reaction.

The KSE board after assessing the SECP move and market reaction decided to
suspend cap on the badla investment in the existing seven CoT eligible
scrips effectively from July 18, 2005 and announced that badla facility will
be offered in all the 27 futures in the future. However, subsequently SECP
overruled KSE board's decision through a notification.

Index down 53 points amid badla, PPL and NSS rumors

This week the market declined marginally by 0.7%, from previous Friday level
of 7589, to close at 7536. Average weekly volume in the ready market at KSE
was 163mn shares with market capitalization reaching Rs2.1tn or US$35.3bn on
the last day of the week. However, the overall leverage position increased
by Rs0.2bn from previous weekend to Rs22.8bn this Friday.

Conflicting news regarding CoT phase-out and rumors of increase in NSS &
discount rates kept the investors' interest low during the week. Also, PPL
rumor of dry well in offshore Pasni Block eroded its share price by Rs31
from its previous weekend closing of Rs 223. Due to 14% decline in PPL share
price the Index lost approx. 81 points during the week. Excluding PPL, KSE
Index may have increased by 28 points last week.

However, some positive activity was observed in the auto sector on the back
of strong car sales growth of 32% in FY05. Activity was observed in FFBL
stock during the week as market is anticipating higher dividend payout with
1H2005 result announcement due on July 21, 2005.

Badla investment at KSE Rs11.8bn, below cap of Rs12bn

The weighted average badla rate continued its range-bound trend as it
hovered between 11% and 12%. Badla rate on Friday closed at 11.5% a decrease
of 103bps from 12.5% previously. The CoT reduction which was scheduled on
July 12, 2005 did not occur due to suspension of CoT phase-out. Despite of
this measure badla investment at KSE decreased marginally during the week by
Rs0.1bn, to Rs11.8bn on Friday.

Weighted average badla rate at LSE also declined during the week by 284bps
to 10.8%, on Friday. Badla investment at LSE also decreased by 10% to
Rs0.84bn on last day of the week.

Future Spreads at 13.2%, open interest Rs11.1bn

During the outgoing week Ready Future spreads have radically shrunk down,
amid low volumes, on the back of bearish trend prevailing in the market.

Weighted average annualized spreads slipped down by 309bps to 13.2% on
Friday from 16.3% on previous weekend. Average daily volume at the stock
futures counter stood at 66mn shares or Rs10.4bn against 68mn shares and
Rs10.1bn previous week. During the outgoing week futures volume was 41% of
ready market and 61% in rupee terms.

Contrary to badla investment the open interest has increased. The open
interest in July Futures was recorded at Rs11.1bn or 101mn shares last
Friday against Rs10.7bn or 93mn shares previous Friday.

JS Research during the week

JS Research started this week by reviewing the data released by the State
Bank of Pakistan on scheduled banks' assets and liabilities. During FY05 the
deposits and advances of scheduled banks have increased by 19% and 33%,
respectively due to improvement in net Domestic Assets of the banking sector
and high credit disbursement to the private sector. In our Morning Briefing
on Tuesday, we discussed the local car sales during FY05, which has
witnessed a growth of 32% due to extensive car financing schemes,
significant influx of capital into the country and increase in consumer
wealth.

Our cement sector analyst came out with update of Lucky cement expansion.
Lucky currently has the capacity to produce 5000tpd. However, after all the
expansions in pipeline its capacity will increase by a massive 16,800tpd by
the end of FY06. We maintain our 'buy' stance on the scrip. On Thursday we
gave the result preview of Fauji Fertilizer bin Qasim (FFBL) for 1H2006. Net
income is expected to depict growth of 47-58% with EPS ranging between
Rs1.34-1.44. We gave 'Hold' call on FFBL.

We ended the week by reviewing the upstream drilling activity in Pakistan
during FY05. During the year a total of 7 discoveries were made from 19
exploration wells. This means a success ratio of 1:2.7 wells or 37% (1:3.6
in the previous year). The success rate was above the historical level.
However, number of wells drilled has been on decline since the last 2-years.

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ISLAMABAD, PAKISTAN.
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PakistanNews@hotmail.com

Developments on the telecom front

Developments on the telecom front

July 19, 2005

The past few days have seen a few interesting developments in the country's
telecom sector. Firstly, PTCL issued a notice for an extraordinary general
meeting on July 15, 2005, where the agenda would be certain amendments to
the company's Articles of Association. Secondly, the Pakistan
Telecommunication Authority has finally laid down its verdict in the ongoing
mobility-related tussle between WLL and cellular operators. The decision has
been taken in the spirit of the Telecom Sector Deregulation Policy 2003.
In today's Value Seeker, we have covered these two developments and given
our outlook on PTCL.

WLL vs Mobile: Regulator stands strong

The long drawn war of words between the WLL operators and the cellular
operators finally came to an end, with the Pakistan Telecom Authority (PTA)
handing down its judgement. The PTA has made it clear that WLL operators
would have to implement single cell limited mobility, and has given 45 days
to WLL operators to do so and submit a compliance report.
WLL operators may see this as a blow to their business models, but then
again, the Policy under which they are operating had already provided for
limited mobility only. Therefore, the cellular operators' (especially those
who bid $291mn for a cellular license) stance has been vindicated without
any change in the existing regulatory environment.
Therefore, this issue has finally been laid to rest by the PTA, and
phenomenal amounts of FDI poured in by Telenor, Warid, and Etisalat has been
protected, to say the least.

PTCL: Extraordinary meeting on August 8

According to a company notification, PTCL has scheduled an EOGM on August 8,
2005 in Islamabad to amend the company's Articles of Association. This is
being done to account for the entry of a private sector management with
majority voting rights, namely Etisalat.
The important amendments revolve around Etisalat's ability to sell any of
the 1.326bn 'B' shares acquired through privatization. If, during a period
of 3 years following the share purchase agreement, Etisalat sells all or
some of these shares to another party, these will automatically be converted
to 'A' shares which have only 1 vote per share. Also, any change in
strategic control of the company will have to be approved by the President
of Pakistan for national security reasons. It is important to note here that
these clauses and issues had already been communicated to the bidders prior
to the company's privatization, therefore, shareholder approval would not
affect the way Etisalat plans out its strategy.
The company's entry into the private sector has also resulted in a change in
the number of directors on the board. This number is being reduced from 15
currently to 9 going forward.
As far as our recommendation on PTCL is concerned, we still recommend profit
taking in the stock, as it trades well above our fair value range.

M2 growth target 13.05% for FY06

According to reports in major newspapers, Monetary targets for FY06 have
been given by the State Bank of Pakistan. M2 growth is targeted at 13.05%
against a nominal GDP growth of 15%, which includes 8% inflation. Private
sector credit is targeted at Rs330bn for FY06. The revised target for FY05
was Rs350bn, against which Rs390bn were disbursed. Agricultural credit
target has been set at Rs130bn for FY06 against a target of Rs85bn set for
FY05. Actual disbursement in agricultural sector in FY05 was Rs108bn.

Mfg. sector largest borrower within private sector in FY05

Out of the Rs390bn credit extended to the private sector in FY05, Rs374bn
were extended till May 2005. The breakup shows that the manufacturing sector
has been the biggest borrower of credit (Rs153bn) followed by credit
extended for Personal or Consumer loans, which amounted to Rs80bn. This was
followed by borrowing for commerce & trade (Rs40bn), which include credit to
exporters, importers, wholesalers, and retailers. Of the Rs153bn credit
extended to the manufacturing sector, Rs92bn were extended to Textile and
Rs11bn to Cement sector. The remaining Rs50bn went to Fertilizer, Refining,
Leather, and other industries.

N A D E E M M A L I K
Flat#8, Block 2-A, St#1, I-8/1
ISLAMABAD, PAKISTAN.
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PakistanNews@hotmail.com

New NSS Rates: Implications

New NSS Rates: Implications

July 20, 2005

After some delay and rumors, the rates of National Saving Schemes (NSS) have
finally been revised yesterday. The rates on NSS are normally revised
biannually but last time that is in January, no change was made in NSS
rates.

In today's briefing, we would discuss the revision of NSS rates and its
likely impact on the stock market and banking sector as these two sectors
are significantly effected by revision in rates.

Rates up by 96-204 basis points on different schemes

As per our expectations of 100-200bps upward revision, a 96-204bps increase
in NSS rates of all schemes is made. Upward movement of discount rate
coupled with the increase in interest rates in the secondary market of PIBs
forced government to review the matter and the upward revision in NSS rates
is an effort to provide a market base rate to savers. Currently Rs961bn are
invested in saving schemes (including Prize Bonds) as of April 2005.

The rates on benchmark Defence Saving Scheme has been amended upward by 131
basis points from 8.15% to 9.46%. The modified rates on all schemes are
depicted on following table

Impact on banking sector

We do not see a negative impact on commercial banks of the revision on NSS
rates and expect that it will not adversely affect the deposit mobilization
of the banking sector. If we analyze the situation on micro level then we
come to know that almost all leading commercial banks in Pakistan have
started offering deposit rates in the range of 7-11% on their specialized
schemes which are at par or even better than the revised rates offered by
the National Saving Schemes. For example UBL is offering 10% on certificate
of deposits for a term of 8 years, similarly Faysal Bank offers 10.75% for a
term of 5 years on its scheme named Faysal Izafa. Moreover, banks have
better quality of service as compared to the saving centers. Currently
saving centers have 366 branches which are on low side as compared to the
number of branches of commercial banks.

In addition to that the institutions are not allowed to deposit their money
in saving centers which also strengthens our expectations that the banks
will not suffer from the revision in NSS rates.

It is quite possible that the continuous withdrawal from saving schemes will
start to ease-off and as a result the Government dependence on banking
sector for budgetary borrowing will decline.

Impact on Stock Market

The stock market has already discounted this raise in the rates of national
saving schemes. The current downward movement in the market is due to the
regulatory issues regarding badla financing and we do not expect pressure on
stock market due to the upward movement in NSS rates. We recommend investors
to accumulate the stocks at these levels.

Also in focus

Badla market creating confusion in the market

Due to Rs12bn restriction on badla investment and current system of badla
rationing, which is on first come first serve basis, the activity in badla
market has been decreasing in the last few days. Most of the badla borrowers
are not releasing earlier badla and demand for released badla remains high.

This is why activity in the badla market is only limited to the first few
seconds of the badla session as witnessed yesterday. On Tuesday, only
Rs2.1bn of the badla investment was released versus Rs3.9bn on Monday and
Rs7.3bn on Friday.

N A D E E M M A L I K
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PakistanNews@hotmail.com

NSS rates increased. Market remain attractive

NSS rates increased. Market remain attractive

Investment summary. The government has increased the rates of returns of
National Savings Schemes (NSS) in the range of 96-204bps, effective from
July 1, 2005. This increase is slightly lower than the general market
expectations of an increase in the range of 250-300bps. We do not expect
any major negative impact of this development on the market owing to the
fact that this increase has largely been incorporated in the market. Hubco
and KAPCO remain the top dividend plays in the market with dividend yields
significantly higher than the NSS rates. The fundamentals of the market are
still intact with strong earnings growth in the coming years. We maintain
our BUY recommendations on NBP, ACBL, FFC, FFBL, NCL, NML and POL.

NSS rates revised upwards. The government has reportedly revised the rates
of returns of NSS upwards in the range of 96-204bps. These new rates are
effective from July 1, 2005. The announcement is a little late and lower
than the general market expectations. During FY05, 3 auctions of 3, 5 and
10-year tenors PIBs were conducted, however, the bids were rejected by the
SBP keeping the cut-off yields at 4.35%, 5.35% and 7.36% respectively. In
this situation and to bring the NSS rates in line with the general interest
rates, the government decided to use secondary market yields of the PIBs as
benchmarks for various instruments of the NSS.

Impact on the market. The market has been expecting an increase of around
250-300bps in the rates of returns of NSS. The announcement is slightly
lower than the market expectations. We do not expect any significant impact
on the market owing to the following factors

· We believe that the market has largely incorporated the increase in
interest rates on the NSS.
· Apart from Pensioners' Certificates and Behbood Account, the rates of
return are lower than the rate of inflation, which effectively is unlikely
to benefit the investors in the real sense.
· Top dividend plays are still attractive as they offer dividend yields
in double-digits including Hubco and KAPCO.
· Robust earnings growth is reflecting the fundamental strength of the
market.
· Institutional investors are restricted from investing in NSS and thus
cannot divert their funds towards the NSS.· Capital market mutual funds
may increase the portion of debt instruments in their portfolios

Investment recommendations. We remain positive on the market in the longer
run owing to strong fundamentals. However, in the near term we maintain our
view that the market is likely to remain sideways owing to the liquidity
crunch in the market as a result of crisis in the market regarding the
badla phase out and its replacement with margin financing. We remain
bullish on fundamentally strong scrips in banking, fertilizer, textile, oil
and gas and telecom sectors with our top picks as NBP, ACBL, FFC, FFBL,
NCL, NML and POL and maintain our BUY recommendation on these scrips. Hubco
and KAPCO are the top dividend plays in the market and these scrips are
unlikely to be effected by the increase in the rates of NSS.

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PakistanNews@hotmail.com

London Bombers

In this CCTV image made available in London by the Metropolitan Police, the
four London bombers are seen arriving at Luton railway station Thursday
morning.

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Pakistan's 'U' turn earns billion dollars

Pakistan’s ‘U’ turn earns billion dollars

 

 

By Nadeem Malik

Islamabad: Pakistan’s strategic security allies in the war on terror, United States, United Kingdom and United Arab Emirates, have invested almost one billion dollars in Pakistan during 2004-05.

Pakistan received $1.68 billion foreign private investment during 2004-05, which includes $1.52 billion as FDI and $152.6 million as portfolio investment. Interesting, China and Saudi Arabia, perceived to be most friendly and strategic allies of Pakistan do not appear with any respectable figures on the investment tables. The real push has been provided by Pakistan’s security partners in the war on terror.

The official data released by the Board of Investment and the State Bank of Pakistan indicates that the three big Us invested $989.4 million in t he shape of direct and portfolio investment. If the investment flows from the Switzerland are also included then the four countries alone contributed over $1.1 billion in the investment boom. Chinese share in the investment is pathetically low at $0.4 million, while Saudi Arabia invested $18.2 million.

The overall figure also include $363 million of privatization proceeds, including $260 million of Pakistan Telecommunication Company Limited (PTCL) and $103 million of second installment of Habib Bank Limited. The total FDI figure has shown 60.5 percent increase in 2004-05 over 2003-04. While the trend since the 9/11 events is astoundingly positive. It started with a 50 percent increase in 2001-02, then 65 percent increase in 2002-03 and another 19 percent increase during 2003-04. The total FDI flows during the period under review increased from $484.7 million to $1.52 billion.

Pakistan’s overall macroeconomic environment has also considerably improved during this period, as the easy monetary policy followed by the State Bank of Pakistan (SBP) provided a real impetus to the growth rate. The access to consumer finance made a real difference. This, coupled with international drive against hundi or hawala system, diverted most of the fund sto the formal banking channels. The central bank played a decisive role during this period in maintaining exchange rate stability and building up large reserves. The stock-of-the-debt operation by the Paris Club creditors soon after the sad events of 9/11 also helped a lot, as the burden of debt servicing was substantially reduced. Pakistan also received decent amount in one-way budgetary grants, as a reward for its role in the fight against the terror.

Now Pakistan stands to gain, if sensible policies are pursued. There is a serious problem of inflation due to years of monetary expansion. The federal government failed to keep an eye on food prices while private sector was taking advantage of the supply side measures. Prices of all the eatables have gone up, but corporates are rich enough to feel happy. The remaining concern of most of the foreign investors relates to domestic political situation and regional security scenario, which appears to be murky due prevailing confusion about the future direction.

As far as FDI flows are concerned, the communication sector has taken the lead by attracting $517.6 million, almost 34 percent of the Foreign Direct Investment (FDI) received during last the fiscal year; Financial businesses $269.4 million or 17.7 percent; Oil and Gas Sector $217.5 million or 14.3 percent; Power $73.3 million or 4.8 percent; Trade $52.1 million or 3.4 percent; Chemical $51 million or 3.3 percent; Others 343.1 million or 22.5 percent; and Total 1524 million

Major sources of FDI flows include: UAE $367.5 million or 24.1 percent; USA $326 million or 21.4 percent; UK $181.5 million or 11.9 percent; Switzerland $137.5 million or 9 percent; Japan $45.2 million or 3 percent; Netherlands $36.7 million or 2.4 percent; and Others $429.7 million or 28.2 percent.

Most of these countries are also critically important for Pakistan, as far as the workers remittances are concerned. Pakistan received an amount of $4.17 billion as workers’ remittances during the last fiscal year, as against $3.87 billion received during 2003-04. This is the second highest amount of workers’ remittances received in the country. The highest amount of $4.23 billion was remitted by overseas Pakistanis during the fiscal year 2002-03, when American FBI started investigations in the Middle East and other nations strengthened their banking environment in the light of the recommendations made by the Financial Action Task Force (FATF) of the G-8 countries.

The inflow of remittances into Pakistan from the US, UK, UAE and Saudi Arabia made up the bulk of receipts during the last fiscal year, almost $2.8 billion from just these four countries.

ENDS.

 

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Pakistan Opposes India Buying Gas Directly From Iran

Pakistan Opposes India Buying Gas Directly From Iran

NEW DELHI- Pakistan has opposed India's plan to buy gas through the proposed
US$7.4 billion Iran-Pakistan-India pipeline at Rajasthan border directly
from Iran, saying Tehran cannot own the gas in Pakistani territory.

To ensure safe delivery of gas and limiting its exposure in case of
disruptions, New Delhi wanted Iran to own the gas till the delivery point at
Pakistan and India border.

However, Pakistan at the 1st Joint Working Group meeting here on July 12-13
made it clear that involvement of National Iranian Gas Export Co (NIGEC),
the gas exporting firm, in Pakistan territory will be "difficult", a senior
official said.

At the meeting, India suggested a 2,135-km route for the pipeline along the
thickly populated coastal areas in Pakistan so as to minimise the risk of
sabotage and wanted the line to be laid by either NIGEC or a consortium of
Iranian, Pakistani, Indian and international companies.

But it wanted NIGEC to hold the gas throughout the 890-km pipeline stretch
in Pakistan - from Gwadar on Iran-Pak border to Umarkot - and deliver it
directly at Barmer district border in Rajasthan so that New Delhi's
obligations remained with NIGEC alone.

The official said Pakistan wanted India and Pakistan to buy gas from NIGEC
in Iran and use the pipeline to be owned and operated by NIGEC/international
firms/Indian and Pakistani firms for transporting the gas at respective
delivery points.

Alternately, the pipeline consortium can purchase gas from NIGEC at
Assaluyah, the landfall point of gas from South Pars gas field in Persian
Gulf, and sell the same to India and Pakistan at respective delivery points.
--------

Separate Groups Likely to Develop India-Iran Pipeline: Report

ISLAMABAD- India, Pakistan and Iran are likely to set up separate
consortiums to develop the proposed 2670-km gas pipeline in their respective
territories.

Stating this, local daily 'Dawn' quoted informed sources as saying that the
Pak-India joint working group held preliminary discussions a few days ago on
the proposal and a final decision would be taken once the transaction
structure developed further.

Initially, the two countries would appoint their separate consultants to
prepare structure for the formulation of consortia and other pros and cons
of the US$4 billion pipeline project, the report said.

The pipeline would run about 1115-km in Iran, 705-km in Pakistan and 850-km
in India. As such, Pakistan's investment in the project would be around US
$1 billion to lay a 705-km pipeline from Iranian border to the Indian
border.

The sources told the paper that Pakistan's Interstate Gas Company Limited
which has been assigned the task of gas import pipelines was well placed to
raise about US$1 billion from the surplus liquidity available with the local
banking sector against government guarantees.

They said technical experts in India had no two opinions about the
importance of the pipeline and the sovereign guarantees offered by Pakistan
for its security within its boundaries under an international agreement.

During recent discussions, the Pakistani authorities were informed that
Indian officials were convinced that a gas import plan was a must for states
like Haryana, Delhi and Uttar Pradesh because transporting liquefied natural
gas from Qatar and Iran through southern cities to western part was not
economically feasible, the paper said.

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Rates of return on National Savings Schemes increased

Rates of return on National Savings Schemes increased

ISLAMABAD: The government on Tuesday announced 1 to 2.04 per cent increase
on rates of return on various instruments of National Savings Schemes. The
investment limit on Pensioners Benefit Account and Bahbood Savings
Certificates has also been upwardly revised from Rs 2 million to Rs 3
million.

The rates of return on Savings Accounts, Special Savings
Certificates/Accounts, Regular Income Certificates, Defence Savings
Certificates and Pensioners Benefit Account/Bahbood Savings Certificates
have been increased from 4 per cent to 5 per cent, 6.95 per cent to 8.60 per
cent, 6.84 per cent to 8.88 per cent, 8.15 per cent to 9.46 per cent and
10.08 per cent to 11.04 per cent respectively.

The new rates of return on National Savings Schemes (NSS) and the revised
investment limit on Pensioners Benefit Account and Bahbood Savings
Certificates would be effective from July 1, 2005, according to a press
release issued by the Central Directorate of National Savings here. The
government reviews the rate of return on NSS bi-annually in line with the
market position.

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'Wapda can start construction of Kalabagh Dam'

'Wapda can start construction of Kalabagh Dam'

September 12, 2003

By Nadeem Malik

ISLAMABAD: The Water and Power Development Authority (Wapda) will be ready
for the construction of Kalabagh Dam by June 2004, said a senior official on
Thursday.

In a detailed presentation on the development of water resources, the
official said two separate committees on technical and political matters
would try to develop consensus among provinces to start the work, facing
stiff resistance from the Frontier and Sindh.

"If we want to survive and save our future generations, we have to build
both Kalabagh and Bhasha dams by 2025," said the official. He said Wapda is
ready to start construction of Kalabagh Dam by June 2004 to be completed by
2010, and on Bhasha Dam by 2006 to be completed by 2013. The two projects
would cost $5 billion each. The official said rate of return on these two
projects was so high that Pakistan would save one billion dollars annually.

The development of new water storages was at standstill since 1976. Per
capita water availability has declined from 5650 cubic meters in 1951 to
1700cm in 1992. It dropped to 1350cm in 2002. If additional reservoirs fail
to materialise immediately, Pakistan would be an extremely water short
country by 2012, with per capita water availability of only 1000cm, which
would go down further to 885cm by 2020.

The official said on average 35.20 million acre feet water escapes below
Kotri to sea every year (April-March). During the current fiscal year,
19.7MAF water escape below Kotri was registered by September 11. Effective
exploitation could help bring under irrigated cultivation 22.5 million acres
of land, including 3.6MA in Sindh, 4.3MA in Punjab, 3MAA in NWFP and 11.6MA
in Balochistan.

Kalabagh Dam will have 7.9MAF gross storage, and 6.1MAF live storage
capacity with a height of 260 feet. The dam would produce 3600MW
electricity. The maximum conservation level of the dam has been brought down
to 915 feet (from 925 feet) to address the NWFP's concerns.

The official said effective drainage outlet of Charsada is 955ft, Pabbi
960ft, Nowshera 940ft and Swabi 1000ft. There would be no canal outlets from
dam and it would function only as seasonal carry over dam leaving no threat
to the Frontier lands. The revised design of Kalabagh Dam would submerge
only 3000 acres of Barani and 100 acres of irrigated land in the reservoir.

Wapda has promised lucrative resettlement plan to address the concerns of
the affectees. Wapda maintained that Sindh would benefit from the new
reservoirs on Indus. The canal withdrawal in Sindh increased from 35.17MAF
to 44.17MAF after construction of Tarbela, and it would increase by another
2MAF after construction of the Kalabagh Dam.

The official also proposed that water royalty of Kalabagh Dam should go to
the federal divisible pool for distribution among provinces, instead of
paying to Punjab. At present NWFP gets Rs 6 billion per annum as royalty for
Tarbela dam, and Azad Jammu and Kashmir gets for Mangla Dam. The official
said about 25 percent existing reservoir capacity was already lost due to
sedimentation, and by 2020, 40 percent would be lost. He said desilting of
dams was not a practical option. Just to desilt Tarbela, which had lost
3.03MAF capacity till 2002 out of the 11.62MAF built in 1974, 38,000 trucks
of ten-ton capacity were needed to work round the clock for a year.

The official said lining of canals in fresh ground water areas was also not
required, as the same water was being pumped for irrigation purposes. In
sandy areas, the official said, lining of canals would also be done to
control water losses that were too high in Pakistan.

The Bhasha Diamer Dam will be a roller compacted dam with a gross storage of
9.09MAF and live storage of 7.34MAF. It would be the top dam with respect to
its height of 908ft in the world. The dam would also produce 3700MW
electricity. However, to construct this dam the government would require to
raise the 40km length of the Karakurram Highway that would require two years
fro completion.

Wapda had also planned Akhori dam at a cost of $1.6 billion that would have
6MAF live capacity. The official said there were only 5 available sites for
the construction of big dams on river Indus.

He said storage capacity was only 11 percent, as against 200 percent in the
United States. A large quantity of available water was being wasted in the
sea. Similarly, hydropower was just 12 percent of the available potential.

Wapda's vision 2025 foresees development of 26MAF new water storages and
23,000MW of hydro, coal and gas power by 2025.

On the Greater Thal canal, the official said concerns expressed by certain
quarters were totally unfounded. The 30-billion rupee project was planned in
consultations with all the provinces. He said the Thal canal was
specifically included in the 1991 Water Accord, and 10 different meetings
discussed the design and study of the project before its approval by the
Indus River System Authority (IRSA) on May 7, 2002.

Punjab would use 1.873MAF water from its share, and 0.624MAF of additional
flood supply (availability depends on seasonal trends) to run this canal in
southern Punjab. It would be only during June-September period when the
canal would use its capacity of 8.5 thousand cusecs. In April and May, the
canal would get water less than capacity and no water in winter months.

The official expressed optimism that better sense would prevail for the
future of the country and all stakeholders would agree to allow construction
of new water reservoirs. He said there was need to positively influence the
influential people in the provinces to allow the work move forward.

The official said President General Pervez Musharraf and other top brass of
the army does not own land in the 2212km long Thal canal. There is a land
owned by army, but it does not belong to any general. He said the project
has 18.5 percent rate of return, and it would be completed by June 2007.

The official said that Rainee and Kachhi canal were also designed on the
same analogy. He said that Wapda got anticipatory approval for the Rainee
and Kachhi canals and the Executive Committee of the National Economic
Council had so far not approved both these projects.

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Privatization buoying investment to new highs

Privatization buoying investment to new highs

 

 

By Nadeem Malik

Islamabad: As the privatization-led inflows have boosted the total foreign investment figure to an all time high figure of $1.68 billion, Pakistan hopes to attract huge FDI for infrastructure developing in the coming years, particularly in power, oil and gas, telecom and transports sectors.

According to the senior official sources, it is for the first time that Pakistan has received such a sizable investment. Last time, it was in 1994-95 when sale proceeds of Pak Telecom’s Global Depository Receipts (GDRs) helped fetch $1.53 billion in direct and portfolio investment. This year again, sale proceeds of Pakistan Telecommunication Company Limited (PTCL), National Refinery Limited (NRL) and ongoing investment process in the cellular industry helped the investment figure boom. The foreign portfolio investment has also shown significant gains.

Official sources maintain that all the basic ingredients are there to attract major investment flows in the country for the new Greenfield projects. Macroeconomic situation has stabilized, growth rate has picked up to 8.4 percent, manufacturing sector is showing robust trends with almost 18 percent growth, sale of automobiles, home appliances is unstoppable and foreign exchange reserves and exchange rate have shown remarkable stability. The only risk factor is the domestic and regional political and security scenario, which still creates worries for the foreign, as well as domestic investors.

The recent investment boom is strongly aided by a successful privatization programme. Dr. Abdul Hafeez Shaikh, Minister for Privatization and Investment recent stated during the past two years the Privatization Commission realized proceeds worth Rs 260 billion, which was a record as compare to first ten years of the privatization process, which yielded Rs 60 billion, while during the first three years of General Musharraf's government the proceeds worth Rs 36 billion were realized. As per the given procedures, sales to foreign operators are categorized as FDI. The privatization itself is a welcome development, but it does not lead to creation of new jobs or production of additional exportable surpluses in the country. This can only be addressed through investment in the Greenfield projects.

Pakistan is facing electricity and gas shortages beginning from 2006-07 and peaking by 2009-10, if no new investment takes place in these two vital sectors. “The country is in dire need of power in the coming years. The demand and supply position of our power system worked out by the experts indicates that the power shortages in the country will begin in the year 2006, which will reach around 5,500 MW by the year 2010, if no remedial measures are taken,” an official handout of the Private Power and Infrastructure Board (PPIB) said Monday. These estimates have been made based on a low growth scenario.

The Policy for Power Generation Projects-2002 focuses on exploitation of indigenous resources including hydel, coal and gas. The Private Power and Infrastructure Board (PPIB) is putting in all efforts and playing a proactive role to develop power projects based on local fuel resources  in the country, with the help of private sector participation, the statement said.

PPIB has received 35 proposals for the construction of three new mega power projects by July 15, with specification of gas/dual fuel on international competitive bidding (ICB) basis. The first one is 400-450 MW Uch-II Power Project at Kashmore in Sindh. This project will be located near WAPDA’s existing power station at Guddu. Using low BTU gas from Uch gas field, available for 25 years, the project will be based on combined cycle technology. National Transmission and Despatch Company (NTDC) will be the power purchaser while Oil and Gas Development Company Limited (OGDCL) will supply the gas. The second one is 450 MW Power Project at Faisalabad, Punjab. This power project will be located near an existing power station of WAPDA at Faisalabad, and will use dual fuel, i.e. pipeline quality gas and oil. Faisalabad Electric Supply Company (FESCO) will be the power purchaser while Sui Northern Gas Pipeline Limited (SNGPL) will be the gas supplier. The third one is 350-400 MW Power Project, near Lahore. The project will be located at Chichoki Malian, and based on combined cycle technology, it will use pipeline quality gas/oil as fuel. Lahore Electric Supply Company (LESCO) will be the power purchasers, while SNGPL will supply gas to the project.

“A number of national and international groups of repute have shown a remarkable interest in these three ICB projects. Thirty five (35) prominent local and foreign sponsors have submitted their proposals, which include prominent companies from US, UK, China, Japan, Malaysia, UAE, Turkey and Pakistan. This is after more than a decade that prominent energy companies of the world have shown such interest in developing the power sector of Pakistan, which is because of the liberal investment policies of the present government, and extensive marketing efforts of PPIB to attract investments in the power sector of Pakistan.”

The proposals which have been received for the above projects will be evaluated by an evaluation committee and the applicants will be pre-qualified as per the set procedures given in the Pre-Qualification Documents. The recommendations will subsequently be put up to the Board of PPIB, for final approval. PPIB says these projects would entail an additional investment outlay of one billion dollar.

However, Pakistan also faces serious gas shortages in the near future due to growing demand in the industry. As a result, serious efforts are being made to import gas from Iran, Turkmenistan or Qatar. The first two options are at an advances stage for decision-making. Whichever project is taken up, it would require billions of dollar for laying of pipeline infrastructure.

In a related project, Pakistan also wants to jack up its strategic oil reserves capacity from 21-days to about 45-days over the next few years. Again, Pakistan would be hoping to attract energy giants from the Middle East and Europe in this sector.

In the telecom sector, new foreign operators have already entered the market, with aggressive expansion plans. This phenomenon is expected to continue at least over the next five years, and then the investment would shift gear from expansion mode to value-added services to stay competitive in the market.

In the transport sectors, growing sale of automobiles has created a serious traffic-hazard in all the major urban centers, necessitating modernization of urban infrastructure. Then the proposed regional transportation linkages project to connect Pakistan with the Central Asian Republics (CARs) envisages huge investment outlays in roads, railways and ports. Pakistan would also need to upgrade its airports at Lahore and Islamabad to have a competitive edge in the region, as most of the international carrier would prefer a stop-ever at these two sites, instead of other regional airports.

ENDS.

 

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Indebted Indian Farmers Committing Suicides

Seeds of ruin.

Indian farmers are neck-deep in debt. Of the 89.35 million farmer households
in the country, 43.42 million (48.6 percent) are reeling under the yoke,
says a recent survey report of the National Sample Survey Organisation
(NSSO), under the Union ministry of statistics and programme implementation.
The report was released on May 3, 2005 and discussed in Parliament the next
day. The situation is paradoxical, as the Indian economy has recorded a
growth rate of over six percent during the post-1991 liberalisation era.

The pro-liberalisation lobby considers this phenomenon insignificant as
agriculture's contribution to the gross domestic product (GDP) has fallen
drastically in recent years and stands at a mere 24 percent today. So, the
economy is largely immune to upheavals in this sector. But what cannot be
ignored is the fact that 60 percent of the country's population thrives on
agriculture.

The report implies a link between the debt-trap and farmers' suicides. It
says Andhra Pradesh (AP) has the highest percentage of indebted farm
households (82 percent or 4.9 million households) in the country. By
December 2003, when the survey was concluded, at least 3,000 AP farmers had
committed suicide. Police records show the numbers to be thrice more.
Following AP is Tamil Nadu (74.5 percent), Punjab (65.4 percent), Karnataka
(61.6 percent) and Maharashtra (54.8 percent). All these states have also
witnessed farmers' suicides in the more recent past. The amount of
outstanding loan is very high in Punjab, AP and Karnataka. A study by R M
Vidyasagar and K Suman Chandra of National Institute of Rural Development
(NIRD), Hyderabad, also suggests the link between debt and farmers'
suicides.

But some other economists disagree. Agriculture economist M S Sriram of
Indian Institute of Management (Ahmedabad) argues: "Higher indebtedness in
these states can possibly be attributed to a larger requirement of working
capital. Why should we see indebtedness as something negative? It is also
very much a part of the wealthy states. For instance, Punjab's agriculture
is capital intensive and guzzles up a lot of working capital."

What makes the debt-trap more dangerous is the heavy dependence on
professional moneylenders, who charge annual interest rates as high as 60
percent. The NSSO survey says they comprise the second most important source
of loans for farmers (26 percent), after banks (36 percent). Despite their
100-year-old existence and grassroots reach, cooperative institutions are a
poor third source (only 19.6 percent). In case of an agrarian crisis,
farmers have little access to institutional credit due to their inability to
repay and have the only option of approaching moneylenders, explains the
NIRD study. Repeated crop failure and the inability to repay moneylenders
leads them to suicide. In AP, 57 of every 100 indebted households owe money
to moneylenders.

Rajiv Kumar, chief economist, Confederation of Indian Industry, points at
another malaise: "Indian farmers suffer from a poor credit delivery system.
Since they deal with high-risk farming, proper insurance mechanism is
essential; only ensuring credit isn't enough." Eminent economist A
Vaidyanathan concurs: "In India, credit delivery is driven by supply, not
demand, which forces farmers to enter the debt-trap."

An interesting finding of NSSO's survey is that many of the country's
poorest states have a considerably better debt record: Bihar (33 percent),
Uttar Pradesh (40 percent), Orissa (48 percent) and Jharkhand (20.9
percent). "A majority of the farmers in these states are involved in
survival farming and hence have lesser access to credit. This makes them
look debt-free," explains Peeyush Bajpayi of New Delhi-based research firm
Indicus Analytics.

The same could be the reason for the people belonging to scheduled castes
and scheduled tribes having lower debtburden compared to those from other
backward castes and other castes. "The statistics don't indicate the extent
of their poverty, which is much more severe. Only because they are not
plugged into the credit loop, they are invisible," says Kumar. The size of
land is also directly proportional to indebtedness. For indebted farmers
owning over 10 hectares (ha) land, the debt load is of Rs 76,232; it lessens
gradually to Rs 6,121 for those owning less than 0.01 ha.

"This high indebtedness is due to reduced agricultural investment in the
post-reform era," says Kumar. Addressing this concern at the World Social
Forum, 2004, development economist Utsa Patnaik pointed out: "Rural
development expenditures, which averaged 14.5 percent of GDP during 1985-90,
were reduced to eight percent of GDP by the early 1990s as part of the
deflationary policies advised by the Bretton Woods institutions [World Bank
and International Monetary Fund]. Since 1998, rural development funds have
been reduced further, averaging less than six percent of GDP. In real terms,
there has been an average annual reduction of about Rs 30,000 crore in
development expenditures during the last five years."

Development economists also say the states that have been successful in
agriculture were earlier habituated to free power, cheaper inputs and high
yielding variety seeds. But with the investment in agriculture declining,
the cost of production went up, shrinking profit margins. For example, in AP
the power tariff was increased five times between 1998 and 2003. According
to New Delhi-based agriculture economist Rahul Sharma, the cost of
production has gone up by 300 percent since the 1990s. Private marketing of
costly 'wonder' (read genetically modified) seeds and other agricultural
inputs also lure farmers into the trap of input traders.

The survey highlights the fact that farmers dependent on crop cultivation
are more vulnerable than those involved in other types of farming
activities. Of every 100 indebted households, 56.9 percent are involved in
cultivation, mainly of staple crops. In contrast, those engaged in animal
husbandry and poultry are relatively much better off (3.2 percent of
indebted households). Farmers involved in horticulture and plantation
activities also comprise a mere 4.1 percent of the indebted households

Food and trade analyst Devinder Sharma draws serious conclusions from these
facts. Because of decreasing domestic support, farmers in developing
countries will shift to the seemingly more profitable horticulture and
plantation crops, while developed countries will continue growing food grain
crops with domestic subsidy arrangements. This will again lead to the phase
of "ship-to-mouth" existence for developing countries, which will be forced
to buy food grains from developed nations.

Though the NSSO survey has not been analysed by economists in detail, the
initial conclusions indicate that Indian farmers are one of the biggest
causalities of the free economy. The worst is yet to come.

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00-92-51-4434300
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PakistanNews@hotmail.com

E&P: Jul-May FY05 production trend

E&P: Jul-May FY05 production trend

July 18, 2005

During the first 11-months (Jul-May) of FY05 upstream sector oil and gas
production has increased by 11.7%, to 658kboe, compared to 589kboe
production during similar period of FY05. Increase in production was
witnessed for all of the products during the period.

The domestic oil production during Jul-May FY05 remained at 66.5kbpd, which
was 6.8% higher than oil production for same period fo FY04. A record 35.4%
increase in OGDCL oil production, which has 56.4% share in the local oil
produced, was the predominant factor behind this growth.

Due to peak demand in the winter season and lack of any significant plant
maintenance shutdowns, the domestic gas production was observed at 3.7bcfd a
growth of 12.3% versus FY05. Due to optimum production from existing as well
as incremental supply from new fielsds, domestic gas supply has increased at
a CAGR of 13% during the last 3-years. However, this growth trend has
started normalizing as despite no major shutdowns domestic gas production
has only increased 5.5% during first 5-months of 2HFY05 versus 1HFY05.

OGDCL: Double-digit growth in oil & gas production

Due to an additional 6kbpd oil production from recently commissioned Chanda
& Bobi fields, OGDCL's Jul-May FY05 oil production has increased by 35.4%,
to 37.5kbpd as compared to the similar period of last year. OGDCL's gas
production during Jul-May FY05 remained 899mmcfd, versus 761mmcfd during
Jul-May FY04, a rise of 18.1%.

OGDCL's two main gas producing fields - Qadirpur and Uch - continued to
operate at their optimum level in order to meet higher gas demand. OGDCL
plans to carry out capacity expansion in these two fields in the coming few
years. This will further raise company's gas production in the future.

PPL: No major change in production

PPL's gas production during Jul-May FY05, increased by a minor 1%, to
871mmcfd, due to full production from Sawan gas field. Gas production from
company's main Sui field witnessed decline of 5.2%, to 663mmcfd, during the
first 11 months of FY05 mainly due to 12-days equivalent gas production loss
in 3QFY05 after attacks on purification plant.

Oil production during Jul-May FY05 decreased by 5%, to 1.6kbpd. However,
this will not have any major impact on company's earnings as oil only
accounts for 1% of company's total production.

POL: Recovery in production being observed

During Jul-May FY05, POL's oil production decreased by a 2%, to 5.5kbpd.
While production has been on decline for the whole 11-months, there has been
some recovery in company's production during recent months.

Company's gas production for the first 11 month of FY05 has however,
increased 4%, to 30mmcfd, due to additional production from Manzalai and
Pariwali fields.

Government to impose 30% duty on cement exports

As per news report, it is likely that the government may impose 30% export
duty to reduce cement exports and enhance supply in the local market. The
government may also import cement to meet the local demand supply gap.
According to the news report, the cement manufacturers have not yet reduced
prices to June 9 level of Rs259.

POL makes discovery in Balkassar field

POL's development well in Balkassar field has been found successful and has
been tested for oil. The production level from this well is not yet known.
At the moment oil production from Balkassar field is at 325bpd, has 5%
weightage in POL's oil production, as per the latest numbers.

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IFC offers $7m to Crescent Bank

IFC offers $7m to Crescent Bank

By Nadeem Malik

ISLAMABAD: The International Finance Corporation (IFC) will provide $7
million to Crescent Bank to finance the leasing of equipment to micro, small
and medium enterprises in agribusiness, services, construction,
transportation and textile sectors.

The loan facility is part of IFC's strategy to strengthen financial
institutions serving the small enterprise sectors in Pakistan, said a
statement of the IFC, the private sector arm of the World Bank Group. These
businesses are key drivers of economic growth in the country yet remain
underserved by the formal financial sector.

Crescent Standard Investment Bank Limited came into existence through the
consolidation and merger of six existing Crescent Group non-bank financial
institutions. It has a diversified range of business activities in the areas
of leasing, investment finance, housing finance, and asset management
services.

IFC said it is supporting an institution that is helping in addressing the
needs of low-income entrepreneurs in urban and semi-urban areas. "IFC is
keen to help Pakistan's financial sector develop alternative sources of
funding and expand into lending to new business sectors. We are pleased to
be working with Crescent Standard Investment Bank to provide funding with
longer maturities for its lending to micro and small businesses," said Jyrki
Koskelo, IFC director for global financial markets.

Smaller-scale enterprises are essential to economic growth, and in Pakistan
the leasing sector has significant potential to help develop such
businesses. "We are pleased that IFC has provided us with funding on a
long-term basis and in a very timely fashion. This transaction will not only
provide us with long-term resources but will also enable us to leverage our
ability to raise funds at competitive rates. It enhances our capacity to
serve the needs of the lower-income micro, small, and medium entrepreneurs,"
said Mahmood Ahmed, chief executive officer of Crescent Standard Investment
Bank Limited.

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Trade gallops on speedway

Trade gallops on speedway

Nadeem Malik

ISLAMABAD: Exports from Pakistan have shown 17 percent growth to total $14.4
billion, outperformed by $20.6 billion of imports, showing 32.3 percent
increase during last fiscal year.

Total exports, imports and the resultant trade deficit of $6.2 billion have
all been much higher than originally anticipated. Total size of the
international trade also touched a record $35 billion level for the first
time. However, Pakistan still needs to double-up efforts to get a higher
share in the world exports to be at par with its major competitors.

Pakistan is highly dependent on textile sector performance to earn a decent
amount through exports, which are constrained in few markets of the world.
The end of the textile quota from January 2005 appears to have done well for
Pakistan, as exports increased from $1.13 billion in December 2004 to $1.54
billion in June 2005. It shows reasonable growth trend, however, quantum
jump in imports tarnished the trade balance. Rising bill of petroleum, food
imports and machinery have all contributed in an unsustainably high trade
deficit.

The textile and apparel industries are central to Pakistan's exports,
accounting for 70 percent of the total, 1.4 million workers (approximately
two out of five) and a quarter of the country's GDP, according to a latest
UN report on textile and clothing. Apparel manufacturing is the single
largest source of industrial employment in the country, employing mainly men
(90 percent) as sewers, with women working in trimming and packing.

Pakistan specializes in men's woven and knitwear (trousers and shirts),
utilizing locally produced cotton. While this provides a degree of upstream
integration, reliance on indigenous cotton inputs hampers the industry's
ability to compete in man-made fabrics. A large number of products ranging
from cotton yarn to ready-made garments are under quota restraints,
implemented by a private sector Quota Supervisory Council and product group
committees.

Pakistan's labour costs are among the world's lowest, but quality and
productivity are also generally low. The principal markets are the United
States and the EU. Pakistan's lack of product diversity and innovation could
prove a liability post-ATC (Agreement on Textile and Clothing that ended on
December 31, 2004). The government claims Pakistan has already taken a
number of steps to strengthen its competitive position. A broad policy
framework Textile Vision 2005 aims at making Pakistan a more viable,
stronger and much more competitive textile industry, especially at the value
added stages. For this over $2 billion have been invested over the last
three years for restructuring of the textile industry as a whole. Emphasis
is being laid on increasing the share of the downstream industry in the
overall textile exports of the country, meaning greater value addition and
taking advantage of the high "Integrated Textile Indigenisation Index".

The UN report maintains that the integrated factory-mode production has
greater chances in [the] mass market for clothing which demands consistent
quality across huge volumes of [a] single item of clothing. Furthermore,
increasing the share of manmade fibre (MMF) based products in the downstream
industry is being stressed. Pakistan is in the process of expanding the raw
material base for the MMF sector by encouraging the production of polyester
staple fibre (PSF) and other man-made fibres within the country. The aim is
indigenisation.

"In order to be fully competitive, Pakistan must offer greater product
diversity, including expanding into the more profitable women's wear sector.
Other measures that would promote Pakistan's apparel export industry,
including the development of regional trading blocs, more aggressive
marketing, and liberalizing its import regime."

According to the official data for the month of June 2005, exports increased
substantially to $1.541 billion from $1.249 billion during June 2004
registering an increase of 23.4 percent. The exports during July-June
2004-2005 stood at $14.41 billion as against $12.31 billion during July-June
2003-2004 registering an increase of 17 percent.

Imports during June 2005 increased to $2.24 billion from $1.86 billion
during June 2004 indicating an increase of 20.4. Pakistan's imports during
July-June 2004-2005 increased to $20.62 billion from $15.59 billion in
July-June 2003-2004 registering an increase of 32.3 percent.

Trade deficit increased to $699 million during June 2005 from $613 million
in June 2004. During July-June 2004-2005 trade deficit increased to $6.213
billion as against $3.278 billion in July-June 2003-2004.

Exports as percentage of imports increased to 68.8 per cent during June 2005
from 67.1 during June 2004. However, exports as percentage of imports
fractionally decreased to 69.9 per cent during July-June 2004-2005 from 70
per cent during July-June 2003-2004.

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Fiat to Set up Manufacturing Plant in Pakistan

Fiat to Set up Auto Parts Manufacturing Plant in Pakistan

KARACHI- The Fiat company on July 13 said it would expand business in
Pakistan owing to the conducive investment environment.

A delegation of Fiat company headed by its Senior Vice President Ivan
Giorgio Frasca called on Prime Minister Shaukat Aziz in Rome, and assured
him that the company, which already has 43 per cent share in Al-Ghazi
Tractors, wanted to expand this business.

He said Fiat wanted to set up a factory in Pakistan to manufacture parts,
and was ready to assist in technological field in the auto industry.

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PAKISTAN: Bottom of the class - Education

PAKISTAN: Bottom of the class - new Asian
education report

ISLAMABAD (IRIN) - Pakistan ranks last
out of 14 countries in the Asia-Pacific region in
terms of education, according to a new regional
report compiled by a network of development
organisations working in the education sector.

The Asia Pacific Report Card on Education for
All, entitled, 'Must Do better' has been published
by the Asian South Pacific Bureau of Adult
Education (ASPBAE), a network of 200 bodies involved in
formal and non-formal adult education. It has
been compiled jointly with the Global Campaign for
Education, a coalition of developmental
organisations in over 100 countries.
The paper examines and analyses the commitment of
government in developing countries with respect
to various aspects of basic education.

"Bottom ranking paints a pessimistic picture but
at the same time it shows where we are weak and
need to put [in] effort. This report serves as a
wake-up call for our leaders as well as citizens
alike, to make education for all a reality,"
commented Tracey Wagner-Rizvi who works in the
Pakistani capital, Islamabad with the country's leading
child rights body, the Society for the Protection
of the Rights of the Child (SPARC).

The countries of Asia-Pacific region have been
graded and ranked to depict their commitment to
basic education based on their performance in five
main subjects: basic education, state action on
free education, inputs and resources, gender
equality and overall equity.

Pakistan's leader, President General Pervez
Musharraf's performance has been summed up as 'Back to
Basics'. Isalamabad has been criticised for
spending the lion's share of its GDP on the military
at the expense of the education and health
systems.

"Pervez spends less per pupil than most of his
South Asian neighbours and charges user fees in
full. Such low spending delivers very poor results:
two out of three Pakistani adults are illiterate,
while four out of ten children are missing
primary schools," the report states.

Thailand holds the top position in the region,
with an 'A' grade, while Malaysia comes second with
a similar grade. Sri Lanka is awarded a 'B' grade
in third position. The Philippines and China both
hold grade 'C' in fourth and fifth positions
respectively.

Vietnam scores a 'D' grade in sixth position,
while Bangladesh, Cambodia, India and Indonesia are
all ranked at grade 'E.' Nepal, Papua New Guinea,
the Solomon Islands and Pakistan occupy the
bottom four positions with 'F' grade.

"At the moment, a lot of money is being put into
the education sector through donors and local
resources. There has to be a committed effort and
also accountability, if we're to achieve the
'Education for All' targets of [Millennium Development
Goals] MDGs," said Rizvi.

[ENDS]

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1300-2000cc cars lead the rally with 41% growth

1300-2000cc cars lead the rally with 41% growth

July 13, 2005

Whatever picture the poverty estimates may paint, the car sales figures, at
least, suggest that Pakistanis' thirst for bigger and better cars remains
unquenched. According to the figures released by Pakistan Automotive
Manufacturers Association (PAMA), the 1300-2000cc category cars registered
the greatest increase in sales with a 41% YoY jump in units sold. Total car
sales rose by 32% to 127k cars in FY05 against FY04. Readers would do well
to bear in mind that these are only locally assembled cars we're talking
about. If imports were to be added in, we believe the growth in the
so-called 'big car' segment would be even more pronounced.
Aggressive promotion by consumer bankers, availability of sufficient
liquidity in the banking system and a rise in speculative activity have
fueled this exceptional growth. Today's Value Seeker analyzes the locally
assembled cars' sales performance during FY05. The outlook for FY06 and
recommendations on the auto scrips follow.

The move towards luxury

Cars with engine capacities of 1300cc and above now constitute 42% of total
car sales as against 39% during FY04. In contrast, the 800cc category's
piece in the pie shrank from 35% to 31%. The share of 1000cc cars improved
marginally from 26% to 27%.
In the 1300cc and above segment, which recorded a 41% growth, the market
share of Toyota Corolla plummeted from 53% to 43%. This move towards luxury
was mainly capitalized upon by Honda whose market share improved from 35% to
45% in the higher-end cars. The sales for Honda Civic rocketed by 103% while
that of City by 61%.
The 1000cc category recorded a growth of 37%. Suzuki Alto remained the star
with a growth of 60% (its own market share in the category improving from
29% to 34%). Similarly, Suzuki Cultus also showed above-industry growth of
45%.
The 800cc segment's unit sales rose by merely 18% against the industry's
growth of 32%. Daihatsu Cuore's market share in the segment advanced from
19% to 22% with that of Suzuki Mehran declining from 81% to 78%.

Market shares: Honda taking a leap

The market share of Honda for locally assembled cars improved from 14% to
19% as a direct result of the jump in City and Civic sales mentioned above.
The total market share of Indus Motors fell from 28% to 25% (see graph).

Outlook

The outlook for auto sales remains robust for the current financial year as
well. Even though the leasing rates have started to edge up due to rising
interest rates, the demand-supply gap still remains large enough for auto
assemblers to post impressive sales performance in FY06. We expect locally
assembled car sales to range between 148k-155k for FY06, which will be a
healthy growth of 17-22%

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Car sales increase by 32% in FY05

Car sales increase by 32% in FY05

July 12, 2005

Local car sales ended the fiscal year FY05 on an excellent note. In today's
briefing, we have analyzed the performance of car assemblers during FY05.

Car sales jumped by 32% in FY05

As per the figures released by Pakistan Automotive Manufactures Association
(PAMA), total car sales during FY05 stood at 127,309 units, representing a
mammoth growth of 32% over FY04 sales of 96,674 units. Production of cars
depicted 28% increase and reached 126,403 units during FY05 as against
98,461 units during FY05. On a MoM basis, car sales during June 2005 soared
by 6.5% to 13,668 units.

Extensive car financing schemes, significant influx of capital into the
country and increase in consumer wealth due to economic turnaround were the
propellers of this upsurge in sales magnitude.

Company wise performance

Indus Motor's FY05 sales soared by 20% to 34,983 units compared to 29,113
units during FY04. Indus' market share in 1300cc and above segment decline
to 43% from 54% during FY04. In the 800cc segment, Indus' brand Cuore
captured 22% market share as against 19% during the preceding fiscal. During
FY05, the company sold 23,002 and 8,592 units of Corolla and Cuore,
registering a respective increase of 13% and 34%.

Pak Suzuki's sales during FY05 stood at 75,720 units compared to 57,559
units previously. This represents a growth of 32%. Sales of Alto, Cultus and
Baleno portrayed robust growth at 60%, 45% and 45% respectively. Sales of
most popular brand Mehran surged by 14% and reached 31,165 units. However,
Mehran lost market share from 81% to 78% in 800cc segment.

Dewan Farooque Motors sold 15,999 units, up by 33% in comparison with sales
of 12,031 units during FY04. With a capacity of producing 10k units per
annum on single shift basis, the company operated on a swing shift (16k
units per annum) due to rising auto demand. Santro's sales during the year
remained flat at 7,009 units as against 6,922 units during FY04. Shehzore
was the main contributor with sales depicting a massive 91% increase to
8,012 units as against 4,203 units previously. Market share of Shehzore in
Pick-Up segment also improved from 28% in FY04 to 32% in FY05.

Honda Atlas' sales during FY05 posted 80% upsurge and reached 24,066 units
compared to 13,368 units previously. Sale of Civic at 12,352 units portrayed
103% increase, while City's sales surged by 61% to 11,714 units. The ratio
of Civic to City has changed from 51: 49 in FY04 to 46: 54 during FY05.

Units FY05 FY04 % D
Indus Motor 34,983 29,113 20%
Pak Suzuki 75,720 57,559 32%
Dewan Farooque Motors 15,999 12,031 33%
Honda Atlas Cars 24,066 13,368 80%

Outlook: 'Market-weight'

We expect local car sales to maintain the growth momentum going forward.
With car assemblers enhancing their production capacities, we expect car
sales to touch 150k, up 18% in FY06. In FY06 Budget, government announced
duty reduction on CBU import in the range of 5%-25% on 1,600cc and above
cars. The impact of duty reduction will not be significant on local car
assemblers as duty structure on popular 1,300cc and below segment has
remained unchanged. However, the share of imported cars will increase as
local car assemblers have also started importing cars and will try to
benefit from that also. Our stance on the sector is 'Market-weight' with
Indus Motors our pick of the sector.

Import duty on oil exploration equipment

According to news report, the association of local oil and gas exploration
and production companies (EPCA) has rejected 5% duty levied by government on
machinery import and demanded an immediate withdrawal to attract investment
in the sector. The news report has also quoted some companies which have
withdrawn their exploration plans due to this reason.

Machinery is only a minor portion of the total exploration and development
cost and hence this 5% duty would not materially affect the investment
decision of the exploration company. The upstream oil and gas sector keeps
on attracting some of the leading global E&P companies, due to the highly
attractive exploration policy of the government.

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Pakistan State Oil ? Lime Waiting in Line

Pakistan State Oil ? Lime Waiting in Line

Investment Summary. Pakistan State Oil (PSO), the lime waiting in line for
the privatization mallet, is expected to post PAT of PRs5838mn implying an
EPS of PRs34.04, representing an increase of 39% in both the above aspects
compared to corresponding period FY04. The significant increase is
primarily attributed to a 30% increase in Gross Revenues on Y-o-Y basis
from PRs195mn in FY04 to PRs254mn in FY05. Rising gross revenues are a
direct result of increasing international oil prices, significant inventory
gains and an overall 10% increase in consumption of Petroleum and Oil
Lubricant (POL) products. However, PSO's volume share is expected to
increase by 11.7% on Y-o-Y basis reaching a figure of 9,687m tonnes in FY05
from a figure of 8,667m tonnes in FY04. The Oil Marketing Sector (OMC)
sector seems to portray a positive outlook in the future and we maintain
our HOLD recommendation for the scrip hovering around the current mark of
PRs386.20, representing a premium of 4.1% to our target price of PRs370.87,
since the scrip is expected to pick up significant activity at the
privatization front shortly.

4QFY05 Expectations. PSO's financials are expected to depict a significant
leap in their bottom and top-lines. 4QFY05 did not witness any momentous
inventory gains, unlike the case of earlier quarters of FY05, it was more
of a play of consumption of POL products, depicting high gross revenues of
PRs71mn, implying a high bottom-line of PRs1.5mn and an EPS of PRs8.94
representing an increase of 17%, 26%, 29% compared to corresponding period
FY04 figures of PRs60.8mn, PRs1.192mn, PRs6.96 respectively.

Market Leader. PSO still stands out to be the market leader and our
expectations are that major contributors to its sales revenue for FY05
would include Furnace Oil, HSD and Mogas representing a product mix of
18.02%, 56.74% and 13.08% respectively. Moreover, PSO's market share has
been increasing over the last few financial years and has been subsequently
eating away profits of its competitors. PSO's expected market share for
FY05 have been diversified at 58% in Jet Fuel, 44% in MS, 74% in KERO, 60%
in HSD, 73% in LDO, 71% in FO, 8% in ASPHALT, 11% in JBO, 35% in MTT, 7% in
SBP and 34% in LUBES.

Privatization Play. PSO's privatization front is expected to pick up
activity. We are of the opinion that the process is likely to be completed
by 1QFY06 due to the aggressive attitude of the Privatization Commission;
however, it was scheduled by PC to be conducted by 3QFY05. As discussed in
our earlier report regarding PSO, we expect the reference price to hover
around the US$8.5-US$11 mark.

Recommendation. The OMC sector portrays strong foundations with
expectations of rising earnings. Moreover, the scrip is currently trading
at a premium of 4.1% to our target price of PRs370.88. In the final
analysis, we recommend HOLD on the scrip since the lime is also expected to
witness significant activity once the privatization process starts which is
expected shortly.

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Upstream drilling activity in FY05

Upstream drilling activity in FY05

July 15, 2005

For another year the upstream oil and gas E&P companies, listed at Karachi
Stock Exchange, are expected to announce exceptional earnings' growth during
FY05. This high rate of growth is due to record high oil prices, regulatory
incentives (PPL to benefit from gradual price increase for Sui & Kandhkot
gas fields) and major increase in sector leader's, OGDCL, production
numbers.

However, to sustain this growth trend, in the medium to long term, these
companies have to keep on making discoveries, which requires drilling of
more wells. Given below is the drilling and discovery trend during FY05.

7 discoveries in FY05, success rate at 1:2.7

For another year in row, the success rate was above the historical average
despite rising exploration drilling density of country. During the year a
total of 7 discoveries were made in Pakistan from 19 exploration wells which
were drilled during the year. This means a success ratio of 1:2.7 wells (1
discovery out of 2.7 wells drilled or 37%) compared to average success rate
of 1:3.6 of the country.

Our working is based on wells that were spud (start of drilling) from July 1
to June 30, FY05. Some of these wells are still under drilling and it may
take some time before the final success rate is calculated. Out of the 19
exploration wells which were spud during FY05, the outcome of 12 wells has
been finalized, which means a success ratio of 1:1.7.

OGDCL makes only 1 discovery

Despite being the largest single player in the upstream industry, OGDCL rate
of discoveries has remained below par. During the year OGDCL spud 8
exploration wells of which only one (Chak 63 Southeast-1) was successful.
The outcome of 4 wells is still being awaited and it is possible that the
company's success ratio may improve once outcome of these well is
ascertained. Of the remaining 6 discoveries, 2 were by OPI and one by BP
(Fateh Shah North-1), Rally (Dewan-1), Mari (Mari SML-1) and Hycarbex
(Haseeb-1) each. The outcome of PPL's single offshore well (Pasni X-2) is
still being awaited.

Rate of drilling on decline: 47 wells drilled

During FY05 a total of 47 exploration and development wells were drilled
which is lower than the last year no. of 53 wells. Before that, in FY03, 77
wells were drilled in the country. The rate of drilling has been on decline
for the last 2-years despite government's efforts to attract further
investment in the sector. Government's goal to increase rate of drilling to
100 wells per annum looks unrealistic for the time being.

Increasing interest in high risk NWFP & offshore region

The low risk Lower Indus Basin and medium risk Punjab and East Balochistan
regions have already been extensively explored. Going forward companies have
to venture into more risky areas. A number of firms have acquired licenses
in the high risk NWFP province after OGDCL's Chanda and MOL's Tal Block
discoveries. Success in offshore region has remained elusive but some firms
are still willing to go for it.

Drilling activity FY01 FY02 FY03 FY04 FY05 Total
Exploration wells 17 15 32 29 19 620
Development wells 31 30 45 24 28 806
Total 48 45 77 53 47 1,426
Discoveries 1 7 7 11 7 172
Success rate 1:17.0 1:2.1 1:4.6 1:2.6 1:2.7 1:3.6

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PAKISTAN: Heavy rains threaten squatter

PAKISTAN: Heavy rains threaten squatter
settlements

LAHORE- Ten-year-old Iqra and
her younger sister, Rida, stood quietly beside a
large pile of mud and rubble in one of Lahore's 130
shantytown settlements, locally known as 'katchi
abadis'. Moments earlier their simple mud-brick
home had literally collapsed in front of them
following a sudden cloudburst, burying what few
possessions they had under a giant slab of still
shifting clay.

"My doll is under there," six-year-old Rida,
cried. "It's the only one I have."

But the family is fortunate no one was killed in
this particular roof collapse. Iqra and Rida's
father Younis, a day labourer, believes he will be
able to recover what lies buried in the ruins of
their home - perhaps even Rida's lost doll.

In other areas of this populous eastern Pakistani
city, at least seven people lost their lives in
similar roof collapses after torrential
rainstorms. With few alternatives, Younis and his family
must now go to live with his brother which will
mean 12 people sharing three small rooms for months
or perhaps even years.

Such incidents are not uncommon in the low-income
'katchi abadis' because in Pakistan an estimated
35 percent of the population lives in such
communities. In Lahore alone between 2 and 3 million
people live in these squatter settlements. Over the
past 3 years, under a 1985 law, ownership rights
to the land on which they live were granted by
the Punjab government to 25,000 residents of 95
abadis.

Others, however, were less fortunate. Thousands
of people were evicted from their homes in 2001
and 2003 because they were on land owned by the
country's national railway. Three years on, many of
those evicted remain without shelter, adding to a
homeless population of at least 50,000 in the
city.

According to Lahore district Nazim (mayor) Mian
Amer Mehmood, the remaining katchi abadi dwellers
also have land rights under the 1985 law. This
would include those who had not been granted
housing rights because they lived mainly in settlements
that did not exist in 1985 and were therefore
seemingly not covered by the law. Other components
of the same law including the provision of basic
amenities to the shanty towns, including
sanitation, power, gas, sewage lines and drinking water,
remain unenforced. Only a tiny minority of katchi
abadi dwellers enjoy access to basic utilities.

"Such basic facilities do not exist in at least
70 percent of the katchi abadis in the country," a
spokesman at the Karachi-based Urban Resource
Centre explained.

With further rains threatening, the question of
the safety of houses has intensified. Early in
2005, Punjab chief minister Chaudhry Pervaiz Ellahi
had pledged that the government would help repair
unsafe structures, identifying hundreds of
dangerously dilapidated buildings throughout the city.
The promise of repair work has yet to be
realised. Most people continue to live in houses built
from mud, straw, wood and unbaked bricks which are
particularly vulnerable to collapse especially
during heavy rains.

"It is a primary responsibility of the state to
provide reasonable shelter to its citizens," I.A.
Rehman, the director of the Human Rights
Commission of Pakistan (HRCP), told IRIN. "Just one day
of rain has exposed the claims that housing
conditions have been improved."

According to the HCRP, safe housing must be
accepted as a basic right, despite the fact that
recent rains have turned almost all 'katchi abadis'
and also many other areas of the city, into giant
piles of mud and pools of stagnant water where
mosquitoes breed. Inadequate sewerage systems, where
they exist, overflow and often contaminate local
drinking-water supplies.

An epidemic of cholera has affected thousands in
the lower income areas of Lahore over the past
two weeks and caused at least 10 deaths, mainly of
small children. The outbreak is blamed by
residents of the affected areas, by doctors treating
them at emergency medical camps and by the media, on
contaminated drinking water. The local health
authorities have denied that this is the case.

"The tests on the water samples are not
conclusive," Mian Amer Mehmood said when asked by IRIN.

Even beyond the shantytowns, few residents of the
city need scientific evidence that civic
facilities, particularly during the monsoon season, do
not meet even the most basic standards. Over the
past week the streets of the city have filled with
water, gutters have cascaded their content onto
roads and mains supplied drinking water tested by
consumers has been found repeatedly to contain
bacteria or rusty sediments.

The problems are most acute for those with
families like Younis. Alongside his wife, he earns just
a few dollars a day and must now scrape together
enough money to rebuild his home. Somehow he must
once again attempt to raise a structure without
using cement or baked bricks because they are
materials priced well beyond his reach.

Yet once their dwelling is rebuilt, most probably
after this year's rains are over, they can only
hope that it doesn't pour down again to destroy
their home. At least 100 people in the Punjab this
year have already lost their lives, their dreams,
and their possessions under thick layers of mud,
earth and brick.
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Afghans repatriate from North Waziristan

PAKISTAN: More than 30,000 Afghans repatriate
from North Waziristan

BANNU- More than 30,000 Afghan
refugees have been assisted to repatriate over the
past three weeks from North Waziristan agency in
Pakistan's western tribal belt following
Islamabad's decision to close the camp they were living
in on 30 June for security reasons.

A large number of refugees still continue to show
up at the registration centre of the office of
the United Nations High Commissioner for Refugees
(UNHCR). This was set up in the adjacent tribal
agency of Kurram to register those who wished to
qualify for the agency's repatriation assistance.

"All the services being provided in the refugee
camps in North Waziristan by the UNHCR have been
stopped," Jack Redden, a spokesman for UNHCR said
in Islamabad.

Pakistani authorities want phased closure of all
refugee camps inside the western tribal belt, an
area composed of seven districts bordering
Afghanistan. The camps were established more than two
decades ago. In May 2005, Pakistani authorities
said they would close more than a dozen refugee
camps housing over 38,000 Afghans, out of a total of
58,000 in the tribal North Waziristan agency, by
the end of June.

UNHCR did not oppose the decision, primarily
because the area has seen continued clashes between
Pakistani security forces and militants that have
made it impossible to properly assist the
refugees there, a press statement from the refugee
agency, said.

According to UNHCR, over 5,300 Afghan families
responded when the agency launched a special
four-day drive to register Afghans in North Waziristan
wishing to avail themselves of the offer of
assistance to return home. More than 27,000
individuals were processed in Bannu, 250 km southwest of
Islamabad, according to UNHCR, at a special centre
there.

"The number of camp residents who opted for
repatriation was fairly large and couldn't all be
processed. So, the remaining families are being
served at the Alizai centre in the adjacent Kurram
tribal agency," Redden said.

Most of the Afghan refugees moved to North
Waziristan agency in the early 1980s, escaping the war
between local Mujahideen and Soviet forces. Some
are now well established, running shops and other
businesses in the area. There will be special
arrangements to assist those with vehicles, goods
for sale or other bulky loads to cross into
Afghanistan.

Many who spoke to IRIN said they were not
enthusiastic about going back to Afghanistan but felt
that it was now too difficult to make a new start
in another part of Pakistan. Since 2003 Afghan
refugee camps in Pakistan have been closing as the
repatriation operation that began in March 2002
has progressed.

In 2003, UNHCR closed an unofficial camp on the
border between Pakistan's southern Balochistan
province and Afghanistan where some 20,000 Afghans
had been effectively stranded since late 2001. By
2004, with hundreds of thousands of Afghans
repatriating, more than a dozen "new" camps,
established in Pakistan's western border areas to shelter
Afghans fleeing the 2001 war that ousted the hard
line Taliban, were also closed.

From those camps, around 82,000 out of a total of
190,000 Afghans availed themselves of the refugee
agency's special package for repatriation, while
others opted for relocation. At around same time
in June 2004, another 30,000 Afghans from the
restive South Waziristan tribal agency were also
asked by Pakistani authorities to move out within 72
days.

According to a recent official census of Afghans
living in Pakistan, over 330,000 Afghans were
living in the tribal areas, either in camps or as
part of the wider community.

Under the voluntary repatriation assistance
programme, the UN refugee agency has helped some 2.4
million Afghans return to their homeland over the
past three years. This constitutes the largest
repatriation operation in the agency's 57-year
history.

[ENDS]

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Germany's Metro to Set up Hypermarkets in Pakistan

Germany's Metro Group to Set up Hypermarkets in Pakistan

ISLAMABAD- Metro Group, a leading German retail company, has pledged to set
up a chain of 'Hyper Markets' in different cities of Pakistan that would
ensure quality consumer products at affordable prices.

This was stated by Dr Hans-Joachim Koeber, Chairman of the Metro Group, who
called on Prime Minister Shaukat Aziz in Berlin on July 12.

Dr Koeber, who hosted a dinner for Prime Minister Aziz on July 11 night,
also informed the Prime Minister that his Group was already discussing a
proposal for setting up Hyper Markets in Lahore, Karachi and Islamabad.

He said that the basic concept of setting up Hyper Markets by Metro Group
was to ensure that the role of middleman is eliminated so that quality
consumer goods are available to the common people at reasonable prices.

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Inflation Doubling up

FY05 inflation of 9.28%: Doubling up over FY04

July 14, 2005

CPI inflation figures for June 2005, and subsequently the complete FY05 were
released yesterday after a lengthy period of anticipation. The government
declared 9.28% CPI inflation for FY05, which is slightly more than double
the level of FY04 inflation, which stood at 4.57%. In today's report, we
have provided an overview of the reasons for this level of inflation,
outlook for the future, and our outlook on interest rates going forward.

9.28% inflation is 8-year high: Food, fuel, & house rent the culprits

This 8-year high inflation (highest after FY97) can be attributed to a
number of reasons. First and foremost, rising food prices, which together
with beverages and tobacco account for 40.3% of the weight in the CPI.
Supply constraints in several important food items, namely wheat and flour,
sugar, etc. aggravated CPI inflation to a great extent.
Then, there was the scourge of rising international oil prices. Government
resolve to protect consumers fully from this global phenomenon finally
wilted in the face of continuously rising oil prices in December 2004. The
heads of 'fuel & lighting' and 'transport & communication' have a 14.6%
weight in CPI, but the indirect impact of rising fuel prices on prices of
food and other commodities causes further damage.
The third culprit has been 'house rent', which is sort of a dark horse in
the inflation race with a 23.4% weight. The real estate boom, coupled with
rising prices of building materials contributed to a significant portion of
FY05 inflation.
For FY06, we maintain our inflation forecast of 9.0-9.5%, while the
government has set a target of 8%.

Interest rates: Waiting for long-term yields to rise

SBP's resolve to tackle inflation as much as possible using short-term
interest rates has been quite visible with T-bill yields rising far enough
to be within touching distance of PIB yields. The situation is such that the
gap between secondary market yields of 3-month T-bills and 10-year PIBs is
now a mere 150bps. In the words of arguably the world's foremost authority
on interest rates, Alan Greenspan, a fall in bond yields while short-term
interest rates are rising is a 'conundrum'. This is with reference to the US
bond market, however, we see a similar situation in Pakistan's market.
In the US market, this is attributable more so to corporates saving more
instead of investing, and in Pakistan this is attributable to an absence of
any new PIB issues. Therefore, given the nature of Pakistan's yield curve,
the SBP may look to consolidate short-term yields at current levels and we
are bound to see a rise in bond yields. This could be one of the reasons
that the 10-year PIB yield kicked up over 9% yesterday. We expect 10-year
PIB yields (once new supply starts coming in) to move up and settle
somewhere close to 10% in the medium term.

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Inflation at 9.3 percent

Inflation at 9.3 percent

Nadeem Malik

ISLAMABAD: Inflation in Pakistan during the last 12-months increased at a
rate of 9.28 percent, highest level since the military takeover.

According to the official data the rate of inflation, measured by the
Consumer Price Index (CPI) during 2004-05 increased by 9.28 percent, as
compared to 4.57 percent during the preceding year. However, inflation in
the food prices was much rampant with 12.49 percent increase.

The country is under severe price pressure for some time due to upsurge in
food prices, coupled with supply shocks of essential items. Rising monetary
expansion and fuel prices also contributed to the inflationary pressures.

The private sector credit has shown Rs 390.3 billion off-take till June 25,
2005. The easy monetary policy was basically pursued by the central bank to
kick-start the growth momentum in the sluggish economy after the 9/11
events. This worked well. Growth rate has steadily picked up since then to
8.4 percent last year. However, the government was unable to maintain
adequate food supplies in the market to keep prices under control. Now all
the eatables are short in supply and expensive.

The growing credit also helped the Large Scale Manufacturing Sector (LSM) to
grow by more than 15 percent till April 2005. However, more recently rising
interest rates have created a threat of credit quality. A recent report of
the international donors have also warned that ballooning up of the private
sector credit and speculative trend in stocks poses a credit quality
problem.

The government has also increased prices of major petroleum products and gas
from July 1, allowing Rs 1.5-3.8/litre (5.5-9.2 percent) increase in POL
prices and 5.81 percent in gas charges. As a result fertilizer and transport
charges have also increased. The impact of the rising prices on the poor is
the worst. The low income segments spend most of their incomes to buy food
and pay rents. These two categories are beyond the reach of the poor now.

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Daimler Chrysler to Set up Truck Plant in Pakistan

Daimler Chrysler to Set up Truck Plant in Pakistan

KARACHI: Prime Minister Shaukat Aziz said Daimler Chrysler was interested in
establishing a truck assembling plant in Pakistan.

President of Daimler Chrysler, the manufacturer of Mercedes, held a meeting
with the prime minister.

A communique issued here said he was talking to reporters on board his
special plane while travelling from Frankfurt to Berlin.

The prime minister said during a meeting with Eirch Jonscher, the president
of Daimler Chrysler, that the company has agreed to establish a bus and
truck assembly plant in Pakistan.

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MERCOSUR TO NEGOTIATE PTA WITH PAKISTAN

MERCOSUR AGREES TO NEGOTIATE PTA WITH PAKISTAN

One of the outcome of the President General Pervez Musharraf visit to Latin
American countries is that the MERCOSUR members have agreed to accede to
Pakistan's request for Preferential Trade Agreement with Pakistan. One of
the initiatives taken during President's visit was to request negotiation
with MERCOSUR (A trading zone among Argentina, Brazil, Paraguay and Uruguay)
for a bilateral trade agreement. Bolivia, Chile, Colombia, Ecuador, Peru and
Venezuela have associate member status. Subsequently, the Minister of State
for Commerce along with Secretary Commerce visited Paraguay on 19th April,
2005, which then held the Chairmanship of the MERCOSUR, and met with the
Vice Minister of Foreign Affairs and officials of Paraguayan Ministry for
Trade to follow up on the President's visit and reiterate the request for
MERCOSUR to enter into a trade agreement with Pakistan.

MERCOSUR, is an important grouping of South American
countries representing a combined market of 210 million people with a GDP of
US $ one trillion and imports of more than US$ 65 billion. Pakistan's
exports to the region however are only US$ 27 million.

MERCOSUR members deliberated the request of Pakistan in
their recently held Summit. The Chairman of MERCOSUR has now communicated
their willingness to start negotiations for a Preferential Trade Agreement
with Pakistan based on the decision taken during the summit of MERCOSUR. The
Government of Pakistan initiative has been very successful given the fact
that MERCOSUR is already over stretched in their negotiations and has
declined such requests from other countries.

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Phase out of Carryover Transactions suspended

Phase out of Carryover Transactions suspended

The Securities & Exchange Commission of Pakistan (SECP) has issued a
directive to the stock exchanges stating that the ongoing carryover or badla
financing phase-out has been suspended and the Carryover Transactions (COT)
investment is capped at Friday's level at approx. Rs12bn. Daily Dawn has
reported that the SECP directive to the stock exchanges stated that this
step has been taken on the request of the stock exchanges and small
investors. Reportedly, SECP observed the fact that margin financing has not
been developed to the desired level. Therefore, it has been decided to
suspend COT phase-out and to cap the total COT financing at Rs12bn until
further order to facilitate a smooth transition from COT financing to
alternative modes of financing, including margin financing.

To provide short-term breathing space to the market
As per SECP's revised COT phase-out schedule, badla transactions were to be
reduced by 8.25% on a weekly basis and be completely eliminated by
end-August 2005. This was leading to a significant financing gap in the
market. Prior to the start of the COT phase-out process in early June 2005,
the total badla value was at approx. Rs21bn. Taking a look at the historical
numbers, during Jan - June 2005 the COT value touched a high at approx.
Rs40bn and roughly speaking, the average COT value has been around Rs30bn.

Present quantum of margin financing is low
Thus the reduction in COT value to the present Rs12bn level depicts a major
reduction. On the other hand, the alternative to badla i.e. margin financing
has so far been inadequate to cover for this reduction. Market sources
indicate that the present quantum of margin financing availed by brokers is
well below Rs1bn. From a historical perspective, the dependence of Pakistan'
s stock market on leveraged investments has been high. Compared to regional
markets, the level of speculation in Pakistan's stock exchanges has said to
be higher with only a fraction of the overall trades actually taken up as
deliveries.

Accessibility of margin financing
Taking a look at the present situation of margin financing, the banks and
broker community seem to have different perspectives. A number of banks have
stated that they made sizeable allocations to provide margin financing.
Nonetheless, the utilization and actual amount received by the brokers and
investors is low. This could be attributable to a number of reasons. The
foremost is that the legal and documentation requirements for margin
financing are quite comprehensive and extensive. This is in sharp contrast
to badla financing, which had least documentation requirements. Moreover,
the banks and the brokers seem to disagree on the interest rate being
charged for margin financing.

Impact on market
In the short-term the market has reacted slightly positively to the SECP
move to suspend the COT phase-out. Nonetheless, the direction going forward
depends critically on the steps that are taken henceforth to solve the
financing gap. Steps need to be taken to ensure that margin financing is
accessible to the investor and brokerage community at large. Moreover, it is
the immediate need that alternative leveraging mechanisms are explored.
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Schering-Plough Kicks Off Operations in Pakistan

Schering-Plough Kicks Off Marketing, Sales Operations in Pakistan

Schering-Plough Pakistan, a country operation of US-based Schering-Plough
Corporation, announced that the company has opened marketing and sales
operations based in Islamabad, from July 1, 2005, said a press release here
on July 7.

Fred Hassan, chairman and chief executive officer, Schering-Plough said,
"Our announcement is part of a long-term strategy to build strength in Asia
Pacific and a commitment by our company to invest in this region."

He said the new operation in Pakistan would assume responsibility for
PEG-INTRON (peginterferon alfa-2b) and CLARINASE (loratadine and
pseudoepherdrine).

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SECP extends Badla financing in stock trade

SECP extends Badla financing in stock trade

By Nadeem Malik

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has
extended the Carry-over Transaction (CoT), known as Badla financing, in the
stock trade till further order.

"In pursuant to the requests from the stock exchanges and various other
stakeholders and based on the fact that margin financing has not been
developed to the desired level, it has been decided to suspend the CoT phase
out and cap the total financing at Rs 12 billion till further orders to
facilitate smoother transaction from CoT financing to alternate modes of
financing," says a letter of the SECP to the three stock exchanges of the
country. The CoT financing will be available for seven scrip namely PTCL,
ODGC, PSO, NBP, POL, DGKC and HUBCO.

The markets have already factored in the possibility of extension last week,
when rumours hit the Karachi Stock Exchange (KSE) with certainty. The CoT
extension hope drives the market, a report of the JS Research wrote last
week. "Undoubtedly, over the week, expectations of ease in CoT phase out
schedule, global oil prices and news on PSO privatisation, boosted market
sentiments. As a result the market closed on a positive note, up by 1.7
percent." During the week, the market also faced news regarding the
separation of ready and future markets. However, no concrete announcement in
this regard has yet been made.

The KSE 100 Index gained 124 points during the week, up 1.7 percent, from
previous Friday's closing at 7464 points. Market capitalization was recorded
at Rs 2.1 trillion ($35.4bn) on Friday, an increase of Rs 38.6 billion over
the week. Average daily ready volume was on the lower side at 183.2 million
shares against 199.2 million shares in the previous week. The overall
leveraged position increased from 201.6 million or Rs 21.7 billion previous
weekend to 205.8 million shares and Rs 22.7 billion last weekend.

The JS Research maintains that speculators and punters remained positive
regarding ease in scheduled CoT phase out thus boosting positive rally in
the market. The weighted average badla rate at KSE substantially decreased
by 238 basis points (bps) to 12.5 percent on Friday. Badla investment, at Rs
11.9 billion also declined by 6.2 percent due to CoT phase out formula. The
SECP has capped it at the same levels. Badla rate at LSE was recorded at
13.6 percent on Friday, from 17 percent at the end of previous week. LSE
badla investment stood at 9.7 million shares or Rs 0.93 billion at the
weekend.

The SECP also directed the stock exchanges to take appropriate steps for
further strengthening the risk management measures, and 'particularly
reconsider the risk management measures relating to CoT, which were
withdrawn earlier in anticipation of the phase out. The exchanges were also
advised to continue making concerted efforts for the transfer of CoT funds
into alternative modes of financing, including margin financing.

At the KSE, ready future spreads remained on the higher side in the outgoing
week. On Friday, annualised weighted average ready future spreads were
marginally up by 179 bps from previous Friday, to 16.3 percent. Average
daily future volume was recorded at 68.3 million shares. Future market
turnover was around 37 percent of ready market turnover, in terms of shares.

Stock futures in Pakistan, currently are only traded on Karachi Stock
Exchange. According to the Invest Capital it has been the high possibility
of manipulation in badla, which has caused various stock market crises.

However, this mantle of destruction was taken over with consummate ease by
yet another leveraging tool, i.e. stock futures.

The March settlement crisis caused the exchanges and regulatory authorities
to shift to overdrive to try and resolve the situation. This resulted in a
more stringent set of regulations for stock futures and higher requirements
for deposits against exposures in the stock futures market. The SECP,
earlier, had announced complete phase out of badla by August 26, 2005, but
it has been extended now.

The March-crash of the market left $12 billion market capitalization loss,
with Karachi Stock Exchange 100-Share Index (KSE-100) shedding almost 26
percent weight in two weeks. The KSE-100 Index touched its all time high of
10303.13 on March 15, and closed at 7596.87 on April 1, 2005, with market
capitalization declining to $35.4 billion from $47.4 billion, an erosion of
$12 billion.

There are only four scrips that hold 51.75 percent weightage in the KSE
100-Share Index, including 25.66 percent of Oil and Gas Development
Corporation Limited (OGDCL), 14.18 percent of Pakistan Telecommunication
Company Limited (PTCL), 8.26 percent of Pakistan Petroleum Limited (PPL) and
3.65 percent of Pakistan State Oil (PSO). In absolute terms, a one-rupee
change in OGDCL price causes the index to shuffle by 18 points; a one rupee
change in PTCL changes the Index by 15 points; A Rs 1 change in PPL share
price moves the recomposed Index by 3 points; and One rupee change in PSO
share price moves KSE-100 Index by 1 point, keeping the share prices of
other scrips constant.

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Politics mars human development: WB report

Politics mars human development: WB report

By Nadeem Malik

ISLAMABAD: The World Bank says reforms in the energy sector, as well as
civil service reforms have been delayed due to political factors, while
tensions at the provincial and local levels could affect human development
goals.

"Political factors were the major reason why outcomes were less than
satisfactory in certain sectors, such as power, civil service reforms, and
oil and gas," the bank says in a report on Poverty Reduction Support Credit
(PRSC). It added that the tensions in Balochistan and in the tribal areas
along the border with Afghanistan continue to pose a challenge and, if they
escalate, could negatively impact growth and investment in the future.

Pakistan has just completed first phase of a series of three one-tranche
$300 million soft-term loans facility of the bank. The next one is due
shortly. In the latest project-related document, the bank says delays in
implementation; insufficient institutional capacity, and adverse exogenous
shocks remain the biggest risks to the reform programme. With respect to
exogenous shocks, increased international oil price will act as a drag on
growth, and have increased the oil import bill in the first three quarters
of 2004-05 by 31 per cent over the same period in the previous year.

Depending on the government's policy choices, in particular the extent to
which it chooses not to collect PDL, it poses threats to the maintenance of
macro-economic stability and/or consumes revenues that could be used towards
PRSP expenditures. Inflation has also increased over the past year, due in
part to the rapid growth of M2 over the past two years and more recently due
to the increase in fuel prices. There is also a need to remain vigilant
regarding the impact of rapidly expanding credit on banking sector
non-performing loans.

"Growth could also fall short of the ambitious targets set out in the
Poverty Reduction and Strategy Paper (PRSP), due to security concerns that
limit investments, or adverse weather conditions that negatively impact
agricultural production."

The bank maintains that the government needs to do more with regard to the
local governments that have the main responsibility for service delivery. In
addition, continuing political tensions between the provincial and local
governments could negatively affect the achievement of the human development
targets.

"The upcoming local government elections this year will have an important on
the political relations between the provincial and local governments, and on
the functionality of local governments." Pakistan lags behind nearly all
South Asian countries in education and health indicators.

Because in Pakistan the responsibility for improving service delivery in
education, health, and water and sanitation rest primarily with provincial
and local governments, and the PRSC programme focuses on those critical
policy and institutional reforms that are in the domain of the federal
government. Sub-national operations, such as the Punjab Education DPCs and
the NWFP and Sindh DPCs support improvements in the delivery of these
services by provincial governments.

The PRSC programme does support a public expenditure framework that
prioritises not only increased expenditures on key infrastructure for
growth, but also a significant increase in education and health
expenditures. The PRSC also supports key steps in improving governance.
"Indeed, delivery of key services by sub-national governments is critical
for attaining several of the Millennium Development Goals (MDGs)."

The report also highlights certain politically difficult decisions, which a
coalition government could not implement, like implementation of a
regionally differentiated tariff regime. The bank lending will continue to
emphasise support for high impact governance reforms, such as those in tax
administration and financial management, and for key infrastructure.

The bank termed performance of the power sector less than satisfactory. The
power sector action plan aimed at improving the financial viability of the
sector through better governance, reduced costs, rationalised tariffs, and
more targeted and transparent subsidies proceeded over the past year with
mixed success. "Less progress has been achieved in the key areas of the
Plan - on corporate governance, revenue enhancement, cost minimisation,
corporatisation, private sector participation and capacity building - in
large part due to the delay in the notification of the tariffs for the
unbundled entities."

However, in the telecom sector, the bank termed the achievements highly
satisfactory. Pakistan has made rapid strides in deregulating the fixed line
market, and in increasing competition in the mobile segment.

On the issue of procurement, which is generally believed the most corruption
prone area of the governance, the report gives Pakistan less than
satisfactory score. "Procurement reform had been on the agenda of the
government for close to a decade, but with little substantive progress." The
government has notified new rules in June 2004 under the Pakistan
Procurement Regulatory Authority (PPRA) law.

These rules apply to all procurement of goods carried out by the federal
government line departments, as well as those of state-owned enterprises and
semi-autonomous organizations. "Progress has slowed however, since the
notification of these rules. Some key pending follow-up measures include the
notification of supporting implementing regulations (these have been
drafted, but are awaiting approval by the PPRA board); the development of a
monitoring and reporting mechanism; and the creation of second tier appeals
procedure, which would allow aggrieved bidders recourse to a body other than
the implementation agency for the redressal of their grievances."

On the issue of the civil service reform, the bank notes that the government
has delayed the implementation. "Progress in civil service restructuring has
been slow. While a broad civil service reform strategy was formulated, and a
Civil Service Reform Unit (CSRU) created (in November 2003) to manage and
oversee the reform process, there has been little concrete follow-up action
on the plan to create an elite National Executive Service, or on the
creation of a district service to further devolution. Progress on pay and
pensions' reform has also been limited. A Pay and Pensions Committee was
constituted in 2004 to examine compensation reforms for civil servants to
create better incentives for recruitment and retention, to remove a number
of distortions and inequities in the pensions system, as well as to reduce
the un-funded financial liability to the government. The bank provided
technical assistance to the Committee, which presented its recommendations
to the government in May 2005. However, a preliminary assessment of the
measures announced in the 2005/06 budget suggests that the government
decided against adopting the main reforms recommended by the Committee."

The bank observed that the government has recognized that the poverty
alleviation effectiveness of the safety nets programmes will remain well
below its potential, as long as the key determinants of poverty-including
poor health, high fertility and lack of education-are not systematically
addressed. To this end, the government is in the process of developing
pilots for conditional cash transfer (CCT) interventions to improve the
utilization of TB DOTS services, as well as to improve primary school
enrolments of children in poor families.

The bank says Pakistan's overall macroeconomic and growth performance have
been strong, and reforms in a number of areas, such as privatisation, tax
administration reforms, and telecommunications deregulation have progressed
well. In other areas, notably power sector, and in civil service reforms,
progress has been much slower, and these are among the focal areas of the
dialogue under PRSC II. On macroeconomic situation, the growth rate in
2002/03 GDP growth at factor cost was 5.1 per cent, which increased to 6.4
per cent by 2003/04, and 8.4 per cent in 2004/05. The fiscal deficit
(excluding grants) decreased from 3.7 per cent of GDP in 2002/03 to 2.4 per
cent by 2003/04, and 3.2 per cent for 2004/05. One area of concern is
inflation, which, fuelled by a combination of rising food prices, and a
strong growth in private sector credit over the past year, increased to 9.3
per cent (year-on-year) for the period July-May of 2004-05, and will surpass
the revised target of 7 per cent for the year.

The International Finance Corporation (IFC), a private lending arm of the
bank, is expanding its presence and engagement in Pakistan. As a result of
Pakistan's improved creditworthiness, IBRD financing is now increasingly
possible and will provide Pakistan with alternative financing options to
meet Pakistan's considerable infrastructure needs, the report says. The bank
has already indicated about $1.5 billion per annum funding for Pakistan
through a mix of concessional and commercial loans.

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Govt to spend at least 4.5 percent of GDP on poverty

Govt to spend at least 4.5 percent of GDP on poverty

ISLAMABAD: Minister of State for Finance and Revenue Omar Ayub Khan has said
under the new legislation, the government is now bound to allocate at least
4.5% of GDP for poverty alleviation and social sector spending.

"Under the Fiscal Responsibility and Debt Limitation Act, 2003 unanimously
passed by the National Assembly the poverty alleviation and social sector
spending would not be less than 4.5 percent of the Gross Domestic Product
(GDP), Omar Ayub said while speaking in a live PTV programme The News Night.

He said, the new legislation would greatly help reduce poverty and improve
social services like health and education through the sustained economic
growth, as the country's GDP is currently at over $ 90 billion as against
around $ 60 billion a few years back. The Minister of State said, the
linking of poverty alleviation and social sector spending with the GDP
growth is one of the hallmarks of new law, as the country is likely to
achieve 7% growth this year as against the previous year's 6.4% growth.

Similarly, he said, under the new law the government will bring the revenue
deficit to zero level by the year 2008, adding, the current revenue deficit
is around Rs. 144 billion. Omar Ayub said, the total public debt would not
exceed 60% of the GDP during the years until 2013 and thereafter public debt
would be maintained at below 60% of GDP. The minister of state said by the
year 2013 the country's public debt would be reduced from current 68.8
percent to 60 percent of the GDP.

Under the strategy, the annual reduction in the public debt will be made at
the rate of 2.5 percent of the GDP, he said. He pointed out that such laws
existed only in a few developed countries. "We should be proud of this
achievement," he said, lauding the efforts of Prime Minister Shaukat Aziz
who took the initiative for the legislation aimed at reducing the debt
burden of the country. Omar Ayub said the legislation was brought about
despite opposition from the International Monetary Fund (IMF) and some other
international financial institutions.

He said, the new law will help maintain fiscal discipline and accountability
at all levels and help reduce the country's public debt. The Minister of
State said under the new law the government will have to present before the
National Assembly medium term fiscal projections, fiscal statements, debt
statements etc. adding, any revision in the spending will have to be
approved by the parliament. To a question, he said, the opposition parties
have also welcomed the new legislation as it would make Pakistan a fiscal
responsible country.

Minister of State for Finance Omer Ayub Khan said the revenue collections in
the financial year 1998 were Rs. 308 billion which increased to Rs. 590
billion in the last fiscal. "Tax-base and revenue generation are increasing
and improving," he remarked. He said that tax rates in previous budgets were
reduced and Universal Self Assessment Schemes were introduced while the
discriminatory powers of Income Tax Officers were also eliminated. Omar Ayub
said the government has been gradually reducing the tax rates, adding, the
limit of the sales tax has also been reduced which has also benefited a
large number of tax payers.

He said the national economy is increasing while the ratio of tax collection
is also increasing. He expressed the hope that government would meet its
revenue collection target for the current financial year. Replying to a
question, he said the poverty is also showing a downward trend and is
decreasing. The consolidated survey report on poverty will come in May this
year, he added. He attributed the downward trend to the enhanced spending on
social sector. Omar Ayub said this year 15 million cotton bales have been
produced, which have benefited the cotton growers. Due to this increase in
the cotton production the income of the cotton growers has increased, he
said, adding, their purchasing power has increased due to bumper crop. He
hoped that the target of 2 million tonnes of wheat will be met this year.

He added that for reducing poverty and poverty related projects in fifteen
heads including health, education, infrastructures the spending have been
increased for the benefit of the people and socio-economic development of
the country. For the skill development of the youth and for providing them
job opportunities, the government would impart vocational training in four
or five technical fields. He added that in construction sector the
activities have increased and there is great demand for the construction
workers, resulting in the increase in their incomes. Replying to another
question, he said that government has already constituted Pay and Pension
Committee to review the salaries of the government employees. Omar Ayub
said, the foreign debt has been reduced to US $ 35 billion from the previous
US $ 42 billion.

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Nestle to Invest $371 Million in Pakistan

Nestle to Invest $371 Million in Pakistan

Nestle Pakistan, a subsidiary of Nestle S.A. Switzerland, has planned to
invest US$371 million up to the year 2014 under a long-term investment plan.

The company will invest $209 million for a five-year period under a
short-term plan, Nestle Pakistan Managing Director Roland Decorvet told a
press conference.

Giving the breakdown of investment, he said $70 million would be invested in
increasing capacity of milk powder production by 40,000 tons per year and
UHT milk production unit boosted by 300,000 tons a year at Kabirwala factory
in Multan.

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Cement Update: 20% Y-o-Y increase in despatches

Cement Update: 20% Y-o-Y increase in cement despatches

Investment Summary. Total cement dispatches have shown 20% growth to
16.35mn tons during the period FY05 over 13.634mn tons of last year. M-o-M
dispatches increased by 2.19% to 1.50mn tons for the month of June. Cement
exports for June showed a decrease of 49.5k tons (29% M-o-M decrease).
Dispatches for June 2005 were recorded at 1.50mn tons that is 11% higher
over 1.36mn tons in June 2004. Cement exports for June 2005 showed a
decrease of 10.3k tons (7.86% Y-o-Y decrease). In the outgoing month,
declining growth in M-o-M dispatches is because of recent hike in cement
price, that impedes the dispatches for the month (June). We maintain our
neutral stance on the cement sector.

Cement exports rise in June led by Bestway. Cement exports of 1.564mn tons
(i.e. 40% increase) have been made during the FY05 mainly to Afghanistan
and Iraq. For June the total exports were 122k tons, while 171k tons were
exported in May. However, M-o-M comparison shows there have been lower
exports for the month of June (29% decrease) than May. We expect dispatches
to increase considerably in FY06 as budget has announced higher PSDP
allocation and the reduction in CED has not taken place. Exports for June
2005 were 122k tons 7.86% lower than exports of June 2004. Bestway Cement
gained the leading cement company as it had made the largest export for the
month of June with 26k tons, beating Pioneer Cement, which exported 22k
tons.

18.15% local dispatches increase. Local cement dispatches have shown 18.15%
growth during FY05 over the last year. DG Khan Cement, Pakistan's biggest
cement plant, continues to lead with local dispatches to 1.536mn tons
followed by 1.325mn tons for Maple Leaf and 1.143mn tons for Lucky Cement
during FY05. Northern cement manufacturers have led dispatches with
11.481mn tons as compared to 3.306mn tons for the southern zone. On M-o-M
basis the northern zone's total dispatches have increased by 6% in June to
1.07mn tons.

Capacity utilization. In June 2005, cement plants operated at 94% rated
capacity compared to 87% utilization for the FY04. Cement plants in the
northern zone utilized 97% capacity, and capacity utilization for the
plants in south has been around 82% for FY 2005.A.C.Rohri remains the sole
exporter in southern zone for FY05.

Industry Outlook. Outlook for the cement sector remains strong with total
dispatches for FY06 expected to be around 18.5mn tons as compared to 16.3mn
tons in FY05 which is very much in line with our expectation registering an
improvement of around 10%. The demand has come from the housing sector,
government's infrastructure works, and from Afghanistan and the Middle
East. The last quarter was expected to experience higher growth as the
non-seasonal rains have now ended but the dispatches are not in line with
expectations because of budgetary measures and hike in cement prices owing
to the temporary shut downs of plants for maintenance purpose which
resulted in short fall in cement supply. Construction activities will
remain on a fast track as witnessed by the growth in building, housing
expansion and higher allocation for PSDP (PRs272bn) in the FY06 budget. We
maintain our neutral stance on the cement sector with local demand growth
expected and threat on export dispatches from Iran and India that the
industry could face in future.

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REMITTANCES A POWERFUL TOOL TO REDUCE POVERTY

REMITTANCES A POWERFUL TOOL TO REDUCE POVERTY IF
EFFECTIVELY HARNESSED,
ANALYSTS SAY

WASHINGTON, June 30, 2005 â?"The poverty-reducing
impact of remittances sent home
by international migrant workers could be
enhanced by policy changes in boththe migrantsâ?T
countries of originâ?"mostly developing countriesâ?"and
their new
home countries. That is the unifying conclusion
emerging from Remittances:
Development Impact and Future Prospects, a volume
of conference papers
published this week by the World Bank.

The papers by 22 scholars and experts were first
presented at a conference on
remittances, in October 2003, co-sponsored by the
World Bankâ?Ts financial sector
vice-presidency and the United Kingdomâ?Ts
Department for International
Development. They explore several aspects of
remittances, including maximizing
their development impact, strengthening the
formal financial infrastructure for
sending them, and increasing transparency for
informal transmitting methods.

â?oWith representation from major multilateral
and bilateral institutions, the
2003 international remittances conference added
impetus to mounting global
interest in the growing remittance flows to
developing countries,� said Samuel
Maimbo, a World Bank financial sector specialist
who co-edited the book with
economist Dilip Ratha, also with the Bank.

The apparent growth in remittance flows, from an
estimated $73 billion in 1999
to over $125 billion in 2004, has prompted keen
interest among development
analysts. But even if the annual flow of
remittances (notoriously difficult to
measure with certainty) now outpaces official aid
to poor countries, the bookâ?Ts
editors draw a clear distinction between the two
flows.

â?oRemittances must be seen as a complement to
external assistance, not a
substitute,� said co-author Ratha.
â?oRemittances are private flows between
individualsâ?" usually low-income individualsâ?"
for their private use. They are
different in character from development aid.�

Still, their estimated volume suggests that they
are the second-largest source
of finance for development-related activities
after foreign direct investment
(FDI). Even this estimate likely understates
their full scale, as it does not
include informal remitting channels.

But unlike FDI flows, most of which go to a few
big emerging markets,
remittances are more evenly distributed among
developing countries. Indeed,
they are especially important for low-income
countries, says Ratha.

Remittances: stable and distributed among all
countries, including poor and
failing

Remittance flows also tend to be more stable than
other capital flowsâ?"including
official aid. Evidence suggests that remittances
increase at difficult timesâ?"
during an economic downturn or after a natural
disaster in the migrantsâ?T home
countriesâ?"when other private capital flows tend
to decrease. For many island
countries in the Caribbean and Pacific,
remittances have joined aid and tourism
as primary sources of income.

Remittances are also important for people in
failed states, Devesh Kapur of
Harvard University reports in another chapter. In
Haiti, remittances
represented about 17 percent of GDP in 2001,
while in some areas of Somalia,
they accounted for up to 40 percent of GDP in the
late 1990s.

A chapter by Richard H. Adams Jr. and John Page
of the World Bank suggests that
international remittance receipts help alleviate
poverty and improve welfare in
developing countries, with a 10-percent increase
in emigration prompting a
1.9-percent drop in the proportion of people in
the home country living on
under $1 a day. Remittances invested by
recipients in countries with sound
economic policies, or used to finance much-needed
consumption, can spread
across the economy through the multiplier effect.

But some countries, notably in Africa, have not
benefited much from repatriated
migrant income. Page, the Bankâ?Ts Chief
Economist for Sub-Saharan Africa, notes
that â?oemigration from African countries is
large, but civil strife in the
region sends migrants across borders to other
impoverished African countries
rather than to rich countries.�

Remittances have human costs too. Migrants who
may have made great sacrificesâ?"
often including separation from familyâ?"and
incurred risks to find work in
another country. There are costs to the home
countries if the emigrating
workers are highly skilled, or if their departure
creates labor shortages in
sectors that can negatively affect other sectors
of the economy.

Also, if remittances are large, a country could
face an appreciation of the
real exchange rate due to a disproportionate
influx of capital which renders
exports less competitive. On the other hand,
remittance receipts can also help
pay for imports and service external debt.

Transaction costs onerous, authors say

Despite the welfare benefits of remittances,
weaknesses in the financial sector
and government administration impose transaction
costs on migrant workers. The
average cost of transferring remittances is about
10 percentâ?"and in some cases
exceeds 20 percent, much higher than charges for
bank transfers among
industrial countries. Currency conversion fees
typically add another three
percent.

Drawing on findings in many papers, the editors
argue that changes in the
formal financial infrastructure to increase
competition among remittance
service providers, and expand migrantsâ?T access
to banking, would ease the
transaction costs of remittances. This would
deliver greater benefit to
recipient families and the developing economies
in which they live.

Despite growth in remittances and increased
recognition of their value for
development, few sending and receiving
governments have proactive
remittance-related policies. But many are
adjusting their financial and
migration regulatory frameworks to increase
remittance flows, promote transfers
via formal channels and encourage use of
remittances for investment purposes.

Many of the bookâ?Ts authors outline options for
reform to enhance the
development impact of remittances. In
remittance-source countries, it calls for
policies to facilitate migrantsâ?T access to
banks, revisions to tax regimes, and
an easing of foreign exchange restrictions.

In remittance-recipient countries, the reforms
proposed by different authors
include expanding access to banking services by
recipients; reducing regulatory
restrictions on money transfers; instituting
appropriate tax and investment
incentive regimes; other benefits associated with
foreign exchange payments or
transactions; support for migrant association
projects and training for
migrants and recipients in accessing financial
systems.

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Spending on vital social sectors falls

Spending on vital social sectors falls

By Nadeem Malik

ISLAMABAD: Despite claims and rhetoric, spending on critical sectors like
education, health and population planning has declined in relation to GDP
during July-March period.

The official data under the Poverty Reduction and Strategy Paper (PRSP)
released by the Ministry of Finance indicates some increases in absolute
figures, but when compared with the GDP size (a standard yardstick to
measure various economic indicators), there has been decline in real terms.

Spending on education declined from 1.2 per cent of GDP to 1.14 per cent,
health from 0.31 per cent to 0.29 per cent and population welfare from 0.05
to 0.04 per cent of GDP. The amount spent on food subsidies also dropped.

The government has identified about 17 different sectors, which are
considered critical for the social sector development of the country. A
total of Rs 278 billion spending was planned during 2004-05, which was
explained in a policy document called PRSP. A high level meeting presided
over by Dr Salman Shah, Advisor to Prime Minister on Finance and Economic
Affairs, also decided to update this document, with a specific focus on job
creation.

Almost one-third of the population lives below the poverty line, while the
rate of unemployment is close to 7.8 per cent. The government has recently
claimed improved employment situation in the country, but only showing
higher number of employed persons in the category of 'unpaid family
workers.'

The official labour force survey 2003-04, released earlier this year, shows
cumulative job creation since 2001-02 at 2.9 million, the category of unpaid
family workers has bolstered the headline figure by 1.97 million. Adjusted
for this category, only 0.9 million new jobs were officially created between
FY02 and FY04.

The government has shown increase in the unpaid family helpers from 8.11
million in 2001-02 to 10.08 million in 2003-04. "Even though there is
evidence of a rising pace of job creation this year, as domestic fixed asset
investment gathers momentum, the government has been under increasing
political pressure to pull a rabbit from its hat," a report of the ABN-Amro
Bank maintained.

The data shows actual spending during first nine months at Rs 192.5 billion,
about 69.23 per cent of the full year target. Utilization of the education
budget is about 72 per cent, while health and population welfare lags behind
at merely 50 per cent plus levels.

The report, however, claims that some health sector indicators have shown
improvement during the period under review. The TT immunization coverage for
pregnant has improved, including: TT-1 coverage during January-March
improved by 3 percentage points to 39 per cent; and TT2+ coverage improved
by 4 percentage points to 42 per cent over the same period in FY04. "The
coverage is low and need ample increase.

There is substantial improvement in immunization coverage in FATA, AJK and
slightly in Punjab, Sindh and NWFP, while immunization coverage in
Balochistan, FANA, ICT and CDA has deteriorated during the third half of
FY05 relative to same period in FY04.

Data on judiciary shows, the proportion of disposed cases in Lahore High
Court declined over the years from 60 per cent in 2002 to 54 per cent in
2004. However, number of cases disposed in session and civil cases show
slight increase during this period. The subordinate judiciary in Balochistan
shows an increase in the number of instituted cases but a decrease in number
of disposed of cases in absolute as well as percentage terms.

The district courts of NWFP province shows percentage of disposed cases
increased to 72 per cent in 2004, from 66 per cent in 2002. In the Peshawar
High court, the percentage of disposed of cases declined to 54 per cent in
2004, from 64 per cent in 2002.

The report has also included data of the social and living standards survey
(PSLM 2004-05). It shows gross enrolment at primary level has increased by
14 percentage points to 86 per cent in 2004-05 over 2000-01. Net enrolment
at primary level increased to 52 per cent in 2004-05 as compared to 42 per
cent in FY01. Literacy rate (aged 10 years and older) improved by 8
percentage points to 53 per cent in 2004-05 compared to 2000-01. Both male
and female literacy levels have improved, but the female literacy level is
25 percentage points lower than male literacy level.

However, the adult literacy (population 15 years and older) improved to 50
per cent in 2004-05, compared to 43 per cent in 2000-01. Adult literacy
increased by 6 percentage points in both urban and rural areas.

The proportion of children aged 12-23 months immunized has increased to 77
per cent in 2004-05 compared to 53 per cent in 2000-01. This indicator has
shown improvement in rural areas, as there has been an improvement of 26
percentage points to 72 per cent in 2004-05 over 2000-01, according to the
report.

The report has also mentioned the rising growth rate in Pakistan, coupled
with rising prices. The Consumer Price Index (CPI) inflation averaged 9.3
per cent during July-April FY05, against thee original target of 5 per cent
during FY05.

"Rising demand, shortage of essential food items like wheat, pulses, meat
and sugar, rising house rents and high oil prices put pressure on general
price level in the first 10 months of FY05," the report observed.

Indicating recent measures of controlling monetary expansion, the report
said non-core components of CPI inflation will have to be addressed more
through administrative rather than monetary policy measures.

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Fertilizer sector and gas price increase

Fertilizer sector and gas price increase

July 05, 2005

With the start of FY06, government has yet again increased the gas prices
for fertilizer and other industrial sectors in view of rising international
oil prices. Fuel gas price for fertilizer companies has been increased by
5.81% whereas feed gas price has been increased by 12.5% (according to
Fertilizer Policy 2001). The combined impact of both price increases
according to our estimates would be of around Rs12-14/bag for Fauji
Fertilizer and Engro whereas for Fauji Bin Qasim the impact would be of
around Rs3/bag since its feed gas prices are fixed at Rs36.77/mmbtu.
Following table shows the old and new feed & fuel gas prices

Impact Of Price
Increase
Feed gas for Feed gas
Fuel gas
FFC & Engro for FFBL
for all
Old price (Rs/mmbtu) 72.94 36.77
197.11
New Price (Rs/mmbtu) 82.05 36.77
208.56
% change 12.50% 0%
5.81%

The revised rates for gas are effective from July 1, 2005.

Urea prices increased by Rs 9/bag

With the rise in gas prices, fertilizer companies wasted no time in
increasing the price of urea, which was increased by Rs9 effective from July
2, 2005. However they have shown some restraint in raising the prices and
have not passed on the entire impact of rise in cost.
We think that this could possibly have been done in order to avoid any
resistance from the government and farmers as the urea prices have already
been increased by Rs 25/bag (5.6%) since the start of the calendar year.
Furthermore, since the dealers are holding high inventory of urea due to
speculative buying, a higher increase would have benefited them. Nonetheless
we feel that fertilizer companies are likely to make a further Rs7-10/bag
increase in urea prices later on in the year

Urea demand looks promising

Urea demand for the first five months of the current year (Jan-May) has
grown by over 43% to 1.89mn tons as compared to 1.31mn tons in Jan-May 2004.
This abnormal growth rate however has primarily been fueled by speculative
buying by dealers in anticipation of higher prices in future.
In addition, some dealers have also been involved in illegally sending urea
to Afghanistan which has also contributed to high offtake of urea. However
we feel that the growth in urea will subside in future and will settle to
around 5-7% for the full year. Increase in urea prices will not have any
adverse impact on urea demand as both the agriculture credit and government
support prices for crops are on the higher side.
On the supply side, the government has already imported around 250k tons of
urea in order to meet the demand for Kharif season. A furhter import of 250k
tons will be made in the near future for meeting the demand of the Rabi
season. This tight demand and supply situation is likely to continue in 2006
as no major expansions are planned. However the situation might ease
somewhat in 2007 when the expansions of FFC and FFBL will come online and
also Pak Arab Fertilizer, now acquired by Fatima group is expected to
commence production by that time.

Recommendation

Within the fertilizer, we currently like FFC, and recommend 'Buy' for FFC.
For Engro and FFBL, we recommend 'Hold' at current price levels.

FY05 Cement sales at 16.35mn tons

Total cement sales in FY05 (July-June) were up by 19.7% from 13.7mn in FY04
tons to 16.4mn tons. Out of the 16.4mn tons, local demand accounted for
14.8mn tons against 12.5mn tons in FY04 whereas exports of 1.6mn tons were
made against 1.2mn tons in FY04. This translates into a growth of 17.9% for
local demand whereas a 40% growth for exports.
We expect cement demand to be around 18.3-18.5mn tons for FY06 depicting a
growth of around 12-13% y-o-y. We will come out with a further analysis of
the cement sales figures in the near future, with our forecasts for the
sector and individual companies.

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Cement sales in FY05 & future forecast

Cement sales in FY05 & future forecast

July 05, 2005

According to newspaper reports, cement dispatches for the fiscal year 2005
stood at 16.35mn tons. This is the highest number of dispatches made by the
cement industry in its history that too despite year end shortages witnessed
due to closure of some plants.

In today's briefing, we would give our comments on the latest full year
dispatches figures, growth in sales witnessed over the years and our future
outlook for cement dispatches.

Sales of 16.35mn in FY05, YoY growth of 19.65%

As per the latest cement dispatches' data, total cement dispatches for FY05
stood at 16.35mn tons compared to 13.66mn tons in FY04. This depicted a
healthy growth of 19.65%. Local sales stood at 14.79mn tons compared to
12.54mn tons last year, portraying an 18% increase, whereas, exports at
1.57mn showed a massive increase of 40%. Capacity utilization for the full
year FY05 also remained impressively high standing at 91.3%. This is the
highest capacity utilization by the industry compared to last 3 years'
utilizations at 81%, 70% and 63%.

Interesting, if we look at the previous years' growth figures we can see
that, over the years, massive growth in exports has been the main reason for
high demand growth in the local industry. However, this time around local
sales have also shown significant growth. This is mainly due to upbeat local
cement demand on the back of increased construction activity throughout the
country and increased allocation of PSDP.

Last 4-year CAGR stood at 13.3%

If we see the cement dispatches figures for the last few years (from FY01
onwards) we would see that cement industry sales have grew at a CAGR of
13.3%. Local sales have posted at a CAGR of 10.5%, whereas, exports, which
were non existent in FY01, have touched 1.5mn tons in FY05. The following
table provides the growth trend of cement dispatches over the last 4 years;

Dispatches/ton (in millions) FY01 FY02 FY03 FY04 FY05 CAGR %D
Local 9.93 9.83 10.98 12.54 14.79 10.5%
Export - 0.11 0.43 1.12 1.57
Total 9.93 9.94 11.41 13.66 16.35 13.3%

YoY growth
Local -1.0% 11.7% 14.3% 17.9%
Export NM 303.6% 159.9% 39.9%
Total 0.1% 14.8% 19.7% 19.7%

Outlook for dispatches

Going forward, we expect this exceptional growth trend in dispatches seen in
the last few years to continue for another year at least. This is due to
increasing construction activity in the private sector and record PSDP
allocation of Rs272bn by the government in the Budget FY06.

For FY06, as no major expansion is coming online, excluding some minor
de-bottlenecking, we may witness another year of record capacity
utilization. For the full year FY06, we expect dispatches to increase by
13-19% to 18.5-19.5mn tons, whereas, beyond that we expect them to grow by
10% annually for the next few years.

Also in focus

Badla phase-out continues, another reduction today

Since start of badla phase-out, from June 7, badla volume in 7 eligible
scrips has declined by 38-58% versus official target of 33% (a reduction of
8.25% for each of the last four weeks). However, badla position of
individual members is not available and there may be few how still need to
reduce their badla position.

NIT holding by National Bank

According to a newspaper National Bank holds 432mn NIT units under letter of
comfort (LoC) by government. Out of these 432mn units, 365mn units are shown
in the books of bank under investment head and only these units impact the
valuation. Remaining units are the part of pension fund of the bank.

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