Newsletter - Publication 101

15th April 2021

Operational losses brought down to Rs680m in 2020: PIA

Pakistan International Airlines (PIA) has announced its financial results for 2020. According to PIA press release PIA had come up with a noteworthy performance, nearly breaking even on operational losses and reducing its overall losses by 33.7percent. According to the airlines’ audited financial results for the year 2020, PIA reduced its operational losses fromRs6.130 billion in 2019 to less than Rs680 million in 2020, which would have been easily covered if revenue streams had not also fallen by nearly 35.7pc. PIA achieved a revenue of Rs94.989 billion, down from Rs147 billion achieved in 2019, the main reason for which was Covid-19 restrictions affecting all of PIA routes, reducing the overall operations by nearly half. The pandemic which hit the industry in March 2020 saw nearly halting all the operations, domestic and international for months, which only started to resume partially from July onwards. However, July also saw the EASA ban imposed on PIA which hit one of the biggest routes of the UK and Europe. He said the bread winning operations of Umrah and Haj flights also impacted the revenues of PIA. The national flag carrier responded by focusing on special charter flights, repatriation and relief flights which helped it retain its foothold in the market and generate valuable revenue from alternative sources, which made the COVID and ban related bite on revenues much milder, than initially predicted. PIA also undertook a voluntary separation scheme accepted by nearly 2,000 employees which will have considerable impact on the expense in 2021.

Remittances jump 43% to $2.7b

The inflow of workers’ remittances into Pakistan hit an eight-month high at $2.72 billion in March 2021 ahead of the start of Ramazan. The robust inflows have improved the country’s capacity to make international payments, mainly for imports and foreign debt servicing, and build its foreign currency reserves. March also became the 10th month in a row when remittances sent home by overseas Pakistanis stayed above $2 billion. Inflows were 20% higher compared to February 2021, the State Bank of Pakistan (SBP) reported. Cumulatively, in the first nine months (Jul-Mar) of current fiscal year, the remittances grew 26% to $21.5 billion compared to $17 billion in the same period of previous fiscal year. Remittances are expected to increase further in April ahead of Eidul Fitr, which will fall in the middle of next month (May).

Businesses to file only one sales tax return

The Federal Board of Revenue (FBR) and all provincial revenue authorities have signed a memorandum of understanding (MoU) for a single sales tax return and single web portal. Now people associated with businesses would only have to file one sales tax return instead of many tax returns. This step would simplify the tax system and procedure. The signing of the MoU is one of the most significant components in the harmonisation of sales tax initiative undertaken by the federation and the provinces. On behalf of the FBR, the MoU was signed by the FBR chairman whereas heads of all provincial revenue authorities inked the document on behalf of their respective departments. Representatives of Khyber Pakhtunkhwa Revenue Authority and Balochistan Revenue Authority were physically present at the ceremony whereas representatives of the Sindh Revenue Board and Punjab Revenue Authority participated virtually through Zoom.

Italian Gas Company keen to invest in Pakistan

The Italian leading energy and gas company, Snam S.p.A, has shown keen interest to invest in country’s power sector, Ambassador of Italy to Pakistan Andreas Ferrarese said. The Ambassador said that the company plans to visit the country in near future and join those Italian companies which already have an investment or around $ 1.5 billion in the country’s energy sector. The Ambassador informed that Snam S.p.A is an Italian energy infrastructure company, who want to bring investment in energy sector including compressed natural gas (CNG) and Liquefied Natural Gas (LNG) to enhance the local capacity in this sector. He said that Snam have a market capitalization of €15.4 billion originally a subsidiary of Italian energy company Eni. He informed that Snam is one of Europe’s main regulated gas companies, leading Italy in gas transport and storage, while ranking third in regasification. The ambassador said that Italy was committed to extend the cooperation of a diverse potential sector to enhance the bilateral economic and cooperation between Pakistan and Italy. Andreas Ferrarese said that green economy, transfer of technology for industrial sector including textiles and agro industry, construction sector, education and health are major areas of focus to extend the bilateral cooperation. The ambassador said through green economy, Italy wanted to cooperate with Pakistan for environment protection, circular economy, resource saving and management, ecosystem protection and recovery, water conservation and natural disaster prevention.

Uzbek govt shares list of items for tariff reduction

The government of Uzbekistan has shared a request list of items with Pakistan for tariff reduction under the proposed preferential trade agreement (PTA). This was disclosed in a consultative meeting to review progress to finalise Pakistan-Uzbekistan PTA. The commerce secretary and other senior officials attended the meeting. An official announcement said the ministry of commerce is in the process of finalising Pakistan’s request list in consultation with public and private sector stakeholders. The input of private sector, concerned ministries and departments has been obtained via detailed consultations in last three months. Adviser on Commerce directed the ministry to have a final round of consultation with the private sector stakeholders, companies trading with Uzbekistan, various chambers and associations to review the ground situation before finalising Pakistan’s request lists. It was decided that seminars will be held by the Trade Development Authority of Pakistan (TDAP) in Karachi and Lahore to apprise the business community about the agreement. Moreover, sector-specific webinars will be organised by the TDAP in the next two weeks to complete the process.

Russian team to give PSM upgrade proposals

A Russian delegation agreed to submit proposals for the modernisation of Pakistan Steel Mills (PSM).The government of St Petersburg’s delegation, led by its adviser Andrey Zubal, called on Sindh Chief Minister and discussed various projects. The Russian delegation showed interest in working with the Sindh government on Public-Private Partnership (PPP) mode in various sectors including hydro-treatment facilities, waste processing and waste-to-energy. Referring to PSM, CM said the Russian government had constructed the huge project in Karachi. “Now, the mill not only needs to be overhauled but also has to be modernised to meet current steel production requirements,” he added. The visiting delegation decided to send a team to visit the mill to assess the requirements for its modernisation.

Foreign shipping firms, airlines can open PLS accounts

Shipping companies and airlines having offices or operating their ships or planes in Pakistan can now open and operate profit and loss sharing (PLS) rupee accounts, said the revised Foreign Exchange Manual of the State Bank of Pakistan (SBP) partially issued on April 5. The SBP has decided to delegate more powers to the banks for facilitation of the stakeholders aiming to promote ease of doing business by simplifying the existing instructions, removing the redundancies through revision of the foreign exchange manual related to commercial remittances. The central bank has invited views for the revision of rules and regulations related to commercial remittances. However, it has already revised half of the manual. “The agents of foreign shipping companies and airlines may retain freight or passage collections in PLS accounts held in their own names,” said the SBP. Considering the market dynamics and keeping pace with changing business environment, the SBP is in the process of revising the manual in consultation with relevant stakeholders in a phased manner. In this regard, 11 chapters (out of 22) of the Foreign Exchange Manual have already been revised. “Cargo Consolidators or Forwarders who registered with regulating authorities may accept freight in rupees without the prior approval of the State Bank only in respect of Pakistani exports cargo on freight,” said the SBP. The freight and passage collected in Pakistan can be remitted abroad after adjustment of amount spent for local disbursements and taxes payable. Remittance of passage collections or use thereof for local disbursement is permissible only after the relative journeys have actually been undertaken, said the SBP.

Pakistan, China mull bilateral framework under CPEC

Pakistan and China are expected to sign a bilateral framework agreement on industrial cooperation under the China-Pakistan Economic Corridor (CPEC) even though Islamabad has declined negotiated divestment of Pakistan Steel Mills (PSM) to Chinese firms. Informed sources said a Chinese delegation has been engaging with Pakistan authorities for a government-to-government (G2G) deal on the country’s largest industrial complex which shut-down operations in June 2015. Authorities explained to the Chinese side that G2G arrangement on PSM was not possible under the country’s privatisation law and the entity was now on top of the divestment list and at an advance stage. Sources said the Framework Agreement on Industrial Cooperation was earlier expected to be signed during the Joint Cooperation Committee of the meeting tentatively scheduled in the last week of March. An official statement said Federal Minister for Privatisation, CPEC Authority Chairman, Chinese Ambassador in Islamabad and Federal Secretaries for Finance and Privatisation Commission attended the meeting. According to Finance Minister CPEC was of “utmost importance for Pakistan” as it would enhance industrial production, upgrade energy and communication infrastructure and improve connectivity with the region. CPEC would generate abundant employment and investment opportunities in Pakistan and beyond, he added. The Chinese ambassador, who led the delegation, also agreed that CPEC was “of immense importance for the Chinese companies” and will expand and strengthen economic cooperation for achieving common objectives and guarantee a prosperous future for both the nations. The finance minister “stressed the need for the early completion of projects falling under the umbrella of CPEC” and noted that “time was of essence in meeting project deadlines so that the economic benefits could reach to the people of both the countries and contribute towards overall economic growth and development”.

Trade deficit balloons to $2.968 billion in March

Pakistan’s trade deficit has ballooned by 97.6 per cent in March, growing to $2.968 billion from $1.502bn over the corresponding month of last year, Ministry of Commerce data showed. On a month-on-month basis, the trade deficit grew by 17.77pc. The trade gap has been widening since Dec 2020. In February, it swelled by 23.93pc to $2.52bn as against $2.03bn over the corresponding month of last year. Commerce Adviser took to twitter to justify the rise in the import bill. He said the imports grew to $5,313 million in March which is mainly due to increased imports of petroleum, wheat, soybean, machinery, raw material & chemicals, mobiles, fertilisers, tyres and antibiotics and vaccines. The trade deficit in the nine months swelled to $21.241bn from $17.352bn over the corresponding months of last year, reflecting an increase of 22.4pc. The surge in trade deficit is mainly led by higher growth in imports with lower growth in exports in March 2021. Commerce Adviser says rising imports of petroleum, vaccines, raw materials, mobile phones main contributors. Between July and March FY21, the import bill increased by 14.68pc to $39.91bn this year as against $34.799bn over the corresponding months of last year. This growth has come from increase in import of raw material as well as import of wheat, sugar and cotton, the commerce adviser said. The continuous decline in imports in the last two years had provided some breathing space to the government in managing external accounts despite a downward trend in exports. However, rebounding imports are likely to create pressures on the external side. The rise in imports in the coming months will place the incumbent government in real trouble on the external side. However, the growth in remittances at the movement will be sufficient to finance the import bill. Unofficially, it is believed that the current account deficit in FY21 will remain in the range of $4bn to $6bn by end of June.

Islamabad, Kabul give three-month extension to transit trade agreement

A protocol was signed here on 1st April 1 to give a three-month extension to Afghanistan-Pakistan Transit Trade Agreement (APTTA) 2010 to continue the facility for the landlocked country. Both countries have already exchanged drafts for the revision of the APTTA, which is yet to be finalised. Both sides expressed satisfaction over the extension of the agreement and decided that technical teams from the two countries would conclude the revised agreement soon. Adviser to the Prime Minister on Commerce and Investment and Afghan Minister of Industry and Commerce signed the protocol on behalf of their respective countries. The signing ceremony was held via video link simultaneously in Kabul and Islamabad. Commerce Secretary of Pakistan was present on the occasion. Representatives of both embassies in the two capitals also attended the signing ceremony. According to an official announcement, Commerce Adviser said that trade and economic relations with Afghanistan and Central Asian Republics (CARs) would make Pakistan a hub for trade, transit and transshipment.

Chinese company to carry out marketing for Rashakai SEZ

The China Road and Bridge Corporation (CRBC) would carry out the marketing campaign for the Rashakai Special Economic Zone under China Pakistan Economic Corridor (CPEC) expressing interest to work with the Board of Investment in this regard. In a meeting with Minister for Planning Development and Special Initiatives, the CRBC Vice President Sun Yaoguo along with a delegation said that external marketing of the SEZ to local and foreign investors was crucial for its full operationalization. The meeting reviewed the Rashakai Special Economic Zone (SEZ) and CRBC’s mega-project Karachi Coastal Comprehensive Development Zone. The vice president of CRBC stated that the development work of Rashakai SEZ was being carried out at a fast pace and to that end the necessary resources had already been mobilized. He assured the minister that the timelines for the projects would be strictly observed. The minister said that the industrial cooperation was the need of CPEC and the government was keen to see early completion of the project and the ministry of energy had already expedited the work on supply of electricity and gas to the SEZ.

Sanmar signs US$33.46 million six vessel contracts with Pakistan port authority

Sanmar Shipyards has signed six vessel contracts together totalling US$33.46 million with the Port Qasim Authority (PQA) in Pakistan for four high-performance state-of-the-art tugboats and two pilot boats. The tugs are scheduled to be delivered in 12 months and the pilot boats in 10. Three of the 32m x 13m x 5.6m high-powered LNG compatible tugs will have an impressive 75 tonnes of bollard pull (BP) ahead and astern, while the fourth will have an even greater BP of 85 tonnes. The first two tugs in the series, called Thor of Scapa and Odin of Scapa by their new owners, were delivered to the Orkney Islands Council in the UK last year. They are being used for ship-handling, towing, escort and emergency response duties and have been purposely designed with a shallower draught than most other tugs of similar size to ensure greater operational flexibility even with the depth limitations in some of the piers within Scapa Flow. The contracts with PQA for the ultra-modern tugs and two 20m pilot boats capable of 20 knots, were signed at a ceremony at the Ministry of Maritime office

Pakistan gets promising response to LNG tender

With the fall in global demand for liquefied natural gas (LNG), Pakistan has received an encouraging response to a tender seeking eight LNG cargoes from April to June 2021. Earlier this year, the LNG price had jumped to the highest level and even suppliers refused to deliver the committed volumes. However, a new wave of the Covid-19 pandemic has now hit the entire world and restrictions have pushed LNG demand down. This has resulted in a good response from the suppliers. Pakistan LNG Limited (PLL) received bids in the range of $6.7 to $6.925 per mmbtu for eight LNG cargoes to meet the growing gas demand in the April-June period. Owing to the increase in demand for electricity in the summer season, the power sector will be a major consumer of LNG. More than a dozen suppliers submitted bids in response to the LNG tender for eight spot cargoes for delivery between April and June. PLL had made some changes to the bidding process as it called for submitting bids based on fixed dollar rates instead of the previous practice of linking with the Brent price. PLL received a total of 42 bids for the spot LNG cargoes. Eni has offered to deliver one shipment on April 30, another on May 26-27 and another on June 18, 2021 at a rate of $6.7 per mmbtu. QP Trading has offered to deliver two LNG cargoes at the rate of $6.825 per mmbtu on May 11-12 and another at the rate of $6.925 per mmbtu on May 16-17, 2021.Votal Bahrain LNG will deliver cargo on May 31, 2021 at a rate of $6.7832 per mmbtu.