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Govt bypasses approval process

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ISLAMABAD:

Pakistan’s economist and technical service groups, on Friday, boycotted a project sanctioning authority meeting over a dispute about pay structure. The government, however, still managed to acquire the approval of six schemes.

While, Planning Minister and Chairman of the Central Development Working Party (CDWP), Ahsan Iqbal supported the economist group’s demand for a salary increase, in line with other groups, he urged the members not to resort to “agitation and blackmailing”.

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Speaking to The Express Tribune, Iqbal said, “I tried to persuade them that when the minister and secretary planning support their demand, they being officers should not resort to unionism which creates repulsion in the system by giving an impression of agitation and blackmailing.”

On Thursday, the CDWP met without participation from the core members of the committee, including the chief of the Public Investment and Authorisation (PIA) section, according to the details that emerged after the meeting.

According to the Planning Ministry officials, the economist and technical groups – that form the backbone of the Planning Commission’s project processing – neither participated nor prepared the working papers. They also did not undertake the technical appraisers of the schemes approved by the CDWP.

The details suggested that the six projects that the CDWP cleared on Friday were approved apparently without fulfilling the Public Finance Management Act of 2019 requirements. “The majority of the projects that the CDWP approved on Friday landed in the Planning Commission three days ago and were not processed as per the law and the Commission’s Manual,” said the officials.

The secretary of planning, however, did not respond when asked whether the requirements of the Public Finance Management Act of 2019, particularly sections 14 and 16, were met before the CDWP meeting was called where six projects were presented and approved.

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Section 14, of the Public Finance Management Act of 2019, states that all development projects shall be prepared in conformity with procedures, processes and templates defined by the Planning Commission. It adds that, the cost and benefit analysis and risk assessment of all development project proposals, over a threshold size prescribed by the Planning Commission, shall be undertaken. This, however, was not observed.

Section 16 of the same act reads that all development project proposals shall be subject to a technical approval process. Technical approval shall only be granted to projects that comply with the standards and procedures set by the Planning Commission.

The officers of the Planning Commission boycotted the meeting after they were denied 150% executive allowance, discriminating against officers belonging to other service groups.

Due to the pen-down strike, a formal meeting agenda was not issued and the meeting notification was signed by the staff officer of the secretary planning.

The government pushed the project approval process aimed at taking loans from the Asian Development Bank (ADB) for flood rehabilitation-related projects.

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The Secretary of Finance, Hamed Yaqoob Sheikh, met with the protesting officers but the group decided to continue the pen-down strike until the notification for 150% executive allowance was issued. The threat to call 30 officers from other groups and post them to positions in the Planning Commission also did not help rein in the protesting officers. The officers plan to gather again at the front of P-Block, on Monday, November 14, 2022, at 10 am to continue their protest.

Meanwhile, the CDWP approved the ‘Improving Workforce Project’ worth Rs110 billion that also involves an ABD loan of $100 million. The body also cleared the ‘Rehabilitation of the M5 Moro to Ranipur section Project’ for Rs36.2 billion.

The CDWP chairman showed his annoyance over the National Highway Authority’s (NHA’s) decision to divert Rs32 billion in public funds to the provincial road projects without proper authorisation. The NHA, however, was of the view that the Prime Minister’s office has issued instructions to give the said funds to the provinces.

The CDWP also approved the KP-government’s ‘Irrigation Rehabilitation Project’ costing Rs15 billion. A $57 million ‘Balochistan Irrigation Rehabilitation Scheme’ was also approved for the rehabilitation of 23 storage dams, 20 flood and perennial irrigation projects, two flood management sub-schemes and 73 flood protection schemes. The ADB will provide a loan for this scheme at a 1% interest rate.

The CDWP approved the Rs48.4 billion ‘Sindh Flood Emergency and Reconstruction Project’, which also involves a $200 million ADB loan.

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Published in The Express Tribune, November 12th, 2022.

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Privatisation fails to meet objectives

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ISLAMABAD:

The success of Pakistan’s privatisation programme has remained limited to only generating $11 billion in sale proceeds, as the country could not achieve the post-privatisation objectives of improving efficiency and competition, says a new independent study.

The findings come amid the International Monetary Fund’s (IMF) push for approval of the State-Owned Enterprises (SOEs) Bill to improve efficiency and management of public sector firms. The finance ministry has requested the holding of a joint session of parliament to approve the law, after the bill was rejected by the Senate.

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In a study titled “Public Sector Enterprises (PSEs) in Post-Privatisation: Evidence from Pakistan”, authors Naseem Faraz and Dr Ghulam Samad concluded that the key objectives of the privatisation programme had remained unfulfilled. The study has been published in the Journal of Applied Economics.

“Our main finding is that the performance of firms has improved in the post-privatisation period but (it is) statistically insignificant,” said the authors. Privatisation has been carried out with the motive of reducing the fiscal burden and increasing the efficiency of the inefficient PSEs. Since 1991, the sale of PSEs has raised revenues of Rs649 billion, or $11 billion.

The $11 billion has been worked out by applying the exchange rate of the year when a privatisation transaction took place.

Pakistan is one of the developing countries where privatisation of a large number of PSEs has taken place, but the post-privatisation effect is yet to be analysed. Second, rather than focusing on one or a few sectors, the study considers all the privatised PSEs.

The study showed that the performance of a few firms improved in the post-privatisation period but it largely remained negative.

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“In particular, the privatised PSEs in energy, cement and chemical sectors do not show positive gains in the post-privatisation period. However, the telecom and textile sectors have experienced a positive change in the performance of the privatised PSEs.” “Similarly, the results also showed that the efficiency of firms did not increase significantly.”

The authors said that according to their assessment through the Key Informant Interviews, the malfunctioning of regulatory environment led to the market failure that eventually resulted in market exploitation.

Regulations and regulators are captured by the market, bureaucrats, judiciary and politicians. An effective regulatory environment does not exist to force the privatised entities to have higher efficiency and develop a competitive environment.

Government intervention in the regulatory sphere is dominant. Every regulatory authority has a board member from the government. This practice is clearly not aligned with the privatisation regulations.

The government intervention (secretary sitting as a board member) creates conflict of interest by having ownership and management together.

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The privatised banking and energy companies have failed to bring in the benefits of sell-off, according to the study. The process of privatisation and rewards distribution favoured mainly the buyers, while the government faced risk and cost.

According to the authors, the privatised companies earned a higher average rate of return on assets compared to their fully government-owned counterparts, as measured by the total net profits-to-sales ratio.

The higher returns on assets suggest a favourable effect of privatisation. On the contrary, the profitability or productivity measure (net profits-to-sales ratio) was relatively higher for the privatised firms but it was statistically insignificant compared to the period when the firms were fully government owned.

“The privatised firms experience a mild increase in productivity compared to their pre-privatisation period. This difference in performance is not statistically significant.”

Privatisation also did not enhance the efficiency of the privatised firms in terms of increase in sales. It suggested that the efficiency improvement was merely coming through the reduction in cost of production.

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The study identified weak regulators as a reason for the failure to achieve the privatisation objectives.

“Unfortunately, the regulator Pakistan Telecommunication Authority (PTA) did not influence PTCL and other related entities to work in a regulated market environment.”

The role of the PTA is limited to overseeing the determination of market prices. PTCL’s privatisation was not a fair deal. It lost $800 million and also did not improve the market in terms of competition.

“The government sold 26% shares to Etisalat and also transferred the management, which is against the rule, which requires 51% shares,” emphasised the authors.

The government had agreed that Etisalat would pay $2.6 billion by making upfront payment of $1.4 billion and the remaining $1.2 billion in nine installments of $33 million each. For the deal, the government received only $1.8 billion and the remaining $800 million was never paid.

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“The monopoly of the telecom sector persisted despite the privatisation and drove away billions of dollars.”

The privatisation of KESC, now KE, also did not achieve the objectives. Though the main reason of the privatisation was to get rid of the loss-making enterprise, unfortunately the government is paying more after privatisation, according to the study.

Published in The Express Tribune, November 24th, 2022.

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Tractor maker faces legal action over fraud

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KARACHI:

The Federal Tax Ombudsman (FTO) has ordered legal action against a tractor manufacturing company as the Federal Board of Revenue (FBR) reported a fraud of more than Rs10 billion.

According to FBR sources, the tractor company has allegedly committed a fraud of over Rs10 billion under the previous government’s initiative to provide tractors at a lower cost to the farmers.

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As part of the subsidy scheme, the government gave billions of rupees to the deserving and underprivileged farmers for the purchase of tractors.

Sources said that the tractor manufacturer had claimed sales tax refunds on fake documents and flying invoices. The FBR then referred the case to the FTO.

They added that the FBR recommended the application of the Benami Transactions Act while taking legal action against the tractor manufacturer.

“The respondent company misused pay orders of the complainant by issuing bogus and fake sales tax invoices to other persons for obtaining fraudulent adjustment and refund,” a notification of the FTO office read.

The FBR has initiated legal proceedings against the owners and dealers of the tractor manufacturing company for the recovery of money obtained through fraudulent means.

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The Directorate General of Intelligence and Investigation, Inland Revenue has been tasked with investigating the fraud and tax evasion case.

Published in The Express Tribune, November 24th, 2022.

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G7 looking at Russian oil price cap of $65-70

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BRUSSELS:

The Group of Seven nations (G7) are looking at a price cap on Russian sea-borne oil in the range of $65-70 per barrel, a European Union (EU) diplomat said on Wednesday.

Views in the EU are split, with some pushing for a much lower price cap and other arguing for a higher one. The G7, including the United States, as well as the whole of the EU and Australia, are slated to implement the price cap on sea-borne exports of Russian oil on December 5.

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“The G7 apparently is looking at a $65-70 per barrel bandwidth,” the EU diplomat said.

“Poland, Lithuania and Estonia consider this too high because they want the price set at the cost of production, while Cyprus, Greece and Malta find it too low, because of the risk of more deflagging of their vessels, which might mean the G7 has found a good middle-ground,” the diplomat said.

Some 70%-85% of Russia’s crude exports are carried by tankers rather than pipelines.

The idea of the price cap is to prohibit shipping, insurance and re-insurance companies from handling cargos of Russian crude around the globe, unless it is sold for no more than the maximum price set by the G7 and its allies.

Because the world’s key shipping and insurance firms are based in G7 countries, the price cap would make it very difficult for Moscow to sell its oil – its biggest export item accounting for some 10% of world supply – for a higher price.

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At the same time, because production costs are estimated at around $20 per barrel, the cap would still make it profitable for Russia to sell its oil and in this way prevent a supply shortage on the global market.

Brent crude front-month future oil prices initially fell to $86.54 from $87.30 on the news.

Published in The Express Tribune, November 24th, 2022.

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