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UNCLAS SECTION 01 OF 03 ISLAMABAD 002895 
 
SENSITIVE 
SIPDIS 
 
REF: ISLAMABAD 2767 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN EAGR EINV ENRG PREL PK
SUBJ: BI-WEEKLY REPORT ON ECONOMIC ISSUES, 02 DECEMBER, 2009 
 
- - - - - - 
TOP STORIES 
- - - - - - 
 
 
¶1. (SBU) GOP Grants the Oil and Gas regulatory Authority (OGRA) Full 
Autonomy to Set Oil Prices Starting December 1.  According to the 
Daily Times this decision stems from a recommendation agreed with 
the International Monetary Fund to give complete autonomy to 
regulatory authorities in the energy sector.  With this change, OGRA 
will reportedly no longer need to consult with the Ministry of 
Petroleum and the Finance Ministry before setting oil prices, which 
are now to be set on a monthly basis, and will be more reflective of 
international prices. 
(Comment:  In the past, the GOP's efforts to try and raise domestic 
fuel prices have been met with stiff resistance from local 
politicians trying to keep their constituents happy.  Even efforts 
for more frequent adjustments have been frequently announced and 
then not fully implemented.  If finally implemented, this step will 
reduce political interference in setting oil prices.  The recent 
increase in world oil prices lends more urgency for the GOP to 
follow through on this decision.) 
 
¶2. (SBU) Decline in Foreign Investment.  On November 19, Business 
Recorder reported that foreign direct investment (FDI) declined by 
53 percent during the first four months of the current fiscal year. 
According to the State Bank of Pakistan (SBP), FDI totaled $621.8 
million from July-October of this year compared to $1.33 billion 
during the same period in FY09. 
(Comment:  According to our contacts in the banking sector, domestic 
shocks including power shortages, the deteriorating security 
situation, and growing political instability caused this significant 
capital flight.  Foreign portfolio investment, however, surged by 
266 percent during the same period, due primarily to Pakistan's low 
stock valuations compared to other regional players and which offers 
attractive investment opportunity to investors.) 
 
¶3. (SBU) Local Refineries Facing Increasing Liquidity Problems.  On 
November 23, Business Recorder reported that Pakistan's five 
refineries were "on the verge of a financial collapse," having fully 
exhausted their cash reserves and having reached their borrowing 
limits.  According to the article, these cash flow problems are 
inhibiting their ability to secure crude oil supplies for 
processing.  Refineries reported large losses from 2008-2009 and so 
 
ISLAMABAD 00002895  002 OF 003 
 
 
far this year due to fluctuations in the price of petroleum products 
and crude oil. 
(Comment:  Contacts working in local refineries indicated that these 
financial problems are significantly affecting their operational 
efficiencies.  If the government does not address the problem, 
refining operations may eventually no longer be commercially 
viable.) 
 
¶4. (SBU) State Bank of Pakistan (SBP) Cuts Policy rate to 12.5 
percent.  On November 23, Business Recorder reported that the State 
Bank of Pakistan cut the policy rate by 50 basis points.  According 
to the Central Bank, the overall level of risk and uncertainty in 
the economy has increased considerably, due to the present security 
situation, and the GOP's growing budgetary problems.  Theoretically, 
the drop in the SBP's policy rate will help boost the local economy 
and increase investor confidence. 
(Comment: The reduction in the policy rate has been one of the 
business community's longstanding demands, pointing to the high 
costs of doing business in Pakistan as a major impediment to 
investing locally.  This decrease in the policy rate should help to 
partially address this concern.) 
 
¶5. (SBU) Businessmen and Industrialists Oppose Increase in Power and 
Gas Tariffs.  On November 18, the Daily Times reported that the GOP 
is contemplating increasing the power tariff by 12 percent and the 
natural gas tariff by 26 percent.  If passed, this change will take 
effect in January 2010.  In the article, Zahid Maqbool, president of 
the Islamabad Chamber of Commerce and Industry, criticized the GOP's 
"unilateral approach to decision making," while highlighting the 
fact that any increase in utility tariffs would significantly stifle 
local industry. 
(Comment:  Local businesses have indicated that they are already in 
financial hot water due to multiple factors including security 
concerns, power outages, high interest rates, and dwindling exports. 
 Increases to the power tariff would certainly add fuel to that 
fire; however failure to raise the rates will inevitably aggravate 
utility companies' existing cash flow problems.) 
 
¶6. (SBU) Trademark Office Plans to Increase Filing and Registration 
Fees.  On November 17, Dawn reported that the Karachi-based 
Trademark office is proposing a plan to increase trademark filing 
fees from $11 to $34 and registration fees from $34 to $107.  This 
increase would help pay for the complete automation of the trademark 
registration process while cutting the trademark application process 
 
ISLAMABAD 00002895  003 OF 003 
 
 
down to three months.  Representatives from the local Chamber of 
Commerce are fully supportive of the improvement, which would enable 
businessmen to access their trademark information online. 
 
------------ 
STOCK MARKET 
------------ 
 
¶7. (SBU) The Karachi Stock Exchange (KSE)-100 Index ended the week 
of November 26 at 9,206.21, 0.48 percent up from the previous week's 
close on November 19.  Overall market capitalization decreased 
slightly from $31.99 to $31.81 billion, with net foreign portfolio 
investment inflow of $1.3 million.  Political uncertainty and 
heightened security concerns kept investors wary.  The State Bank's 
rate cut failed to move the market, as the majority of investors 
anticipated the move.  Fertilizer, banking, and oil marketing 
companies outperformed in the market. 
(Comment:  KSE and brokerage firm contacts repeated that, despite 
minor economic improvements, "political and security" concerns 
continued to affect the market.) 
 
PATTERSON