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UNCLAS SECTION 01 OF 04 ISLAMABAD 003042 
 
SENSITIVE 
SIPDIS 
 
REF: ISLAMABAD 2895 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN EAGR EINV ENRG PREL PK
SUBJ: BI-WEEKLY REPORT ON ECONOMIC ISSUES, 16 DECEMBER, 2009 
 
- - - - - - 
TOP STORIES 
- - - - - - 
 
¶1. (SBU) Asian Development Bank (ADB) okays eight rental power 
plants (RPPs).  On December 10, Business Recorder reported that the 
ADB had recently completed its assessment of the fourteen signed RPP 
projects.  Of the fourteen, the ADB cleared only eight rental power 
projects (RPPs) with a total capacity of 1,156MW which had reached a 
stage of contract fulfillment where they could not be discontinued 
without legal ramifications. Their estimated commissioning dates are 
from January to June 2010.  The ADB's final report is due for public 
release on January 8, following a detailed presentation on 
preliminary findings to the GOP on December 22. 
(Comment:  The ADB audit, conducted jointly with the Ministry of 
Finance, refrained from criticizing the RPP contracting process but 
concluded that eight RPPs would be sufficient to fill the short-term 
power generation gap.) 
 
¶2. (SBU) The Federal Board of Revenue (FBR) pursuing efforts to 
collect back taxes.  On December 1, Business Recorder reported that 
the FBR has set January 31 as the official deadline for officials 
from the FBR Inland Revenue and Enforcement Division to recover 
these arrears from registered firms, business units and corporate 
entities.  It is currently working on devising an "Arrears Recovery 
Plan" to include the creation of an "Arrears Monitoring System" with 
the aim of facilitating this process. 
(Comment:  Tax collection represents one of the major IMF targets 
that the GOP failed to meet during the most recent IMF review.  This 
initiative represents a willingness to address the problem, whether 
or not the GOP has the will and capacity to follow through remains 
to be seen.) 
 
¶3. (SBU) Foreign remittances rise by 29 percent.  On December 11, 
Business Day reported that during the first five months 
(July-November) of the current fiscal year, remittances increased 
year-on-year by over 29 percent to $3.8 billion.  The highest 
inflows during this period were from UAE, United States, and Saudi 
Arabia. 
(Comment:  Remittances via the formal sector continue to increase 
and reach record numbers.  Several initiatives taken by the State 
Bank of Pakistan (SBP) to increase regulation and oversight of money 
lenders, as well as improving the efficiency of banks in processing 
remittances, seem to be working.) 
 
ISLAMABAD 00003042  002 OF 004 
 
 
 
¶4. (SBU) Pressure group occupies North West Frontier Province (NWFP) 
gas wells.  On December 13, Dawn reported that a pressure group led 
by former Member of the National Assembly, Shah Abdul Aziz, occupied 
two new gas wells on recently discovered fields in the Karak 
district from December 11-13 interrupting supply and forcing top 
provincial officials to mediate their terms of withdrawal.  Armed 
men from the Khattak Ittihad, a group composed of local residents, 
occupied wells recently drilled by Hungarian oil company MOL in 
western Karak.  The group lifted its occupation only after an 
agreement that NWFP Chief Minister Amir Haider Hoti would mediate 
the dispute.  In a December 14 meeting, Hoti agreed that the 
provincial government would pay to extend gas distribution lines to 
several isolated villages in western Karak near the gas fields and 
MOL agree to provide free gas to villages within 3 miles of each of 
the wellheads. 
 
------------- 
STOCK MARKET 
------------- 
 
¶5. (SBU) Karachi Stock Exchange (KSE)-100 Index ended the week of 
December 11 at 9,037.30, which represents a 0.3 percent increase 
from the previous week's close.  Overall market capitalization 
decreased slightly from $31.20 billion to $31.10 billion. 
(Comment:  Despite reports by Moody's that the economy is 
stabilizing and the external liquidity situation improving, the 
deteriorating security environment and structural problems in the 
power sector continue to put pressure on the economy; however, 
reports of increased oil and gas production from the Manzalai fields 
in Sindh and a 20 percent increase in remittances in November buoyed 
investor confidence.) 
 
 
-------------- 
ENERGY & POWER 
-------------- 
 
¶6. (SBU) Renewable energy power projects: SBP introduces financing 
facility.  On December 1, the SBP introduced a financing facility 
for renewable energy power projects of up to 10 Mw with preference 
given to projects in underdeveloped parts of the country.  According 
to a local circular, sponsors of power projects will be able to use 
the financing facility through banks for the purchase of new, 
 
ISLAMABAD 00003042  003 OF 004 
 
 
imported and locally manufactured, plant machinery and equipment. 
However, financing will only be available to prospective sponsors 
who have met the Alternative Energy Development Board (AEDB) and the 
GOP's Renewable Energy Policy requirements. 
(Comment: Many banks are not funding energy related projects, 
stating that their loan portfolios are already too heavily weighted 
to power projects.  This new facility may help to inject some much 
needed liquidity into the sector.) 
 
¶7. (SBU) Public transportation workers stage strike in Karachi. 
Business Recorder reported on December 10 that the Karachi Transport 
Ittehad (KTI), a local union for transport workers, had called for a 
strike to voice their discontent with the recent increase in local 
fuel prices.  According to the report, 70 percent of bus operators 
stayed off the roads forcing commuters to rely on cabs and 
rickshaws.  Irshad Bukhari, President of the KTI, indicated that the 
association planned to call another strike during the first week of 
January, adding that the strike's end date would be contingent on 
the Oil and Gas Regulatory Authority's (OGRA) willingness to reduce 
oil prices. 
 
 
-------- 
TEXTILES 
-------- 
 
¶8. (SBU) Shortage of cotton yarn sparks minor demonstration.  On 
December 7, Dawn reported that factory owners and employees held a 
demonstration in Faisalabad to protest the recent hike in the price 
and limited availability of cotton yarn on the local market. 
According to Ikhlaq Ahmad, Chairman of the All Pakistan Cotton Power 
Looms Association, the price of cotton yarn and polyester cotton 
yarn has increased by 30 to 40 percent over the last five months. 
He added that the excessive export of quality cotton yarn to 
neighboring countries such as China and Bangladesh was further 
exacerbating the problem.  To date 50,000 power looms have had to 
shut down and 40,000 have had to draw down their operations due to 
their inability to acquire yarn on the domestic market. 
(Comment: On the one hand, Pakistan's willingness to allow market 
signals in yarn is a positive development. On the other hand, the 
value-added textile industry is squeezed by rising input and energy 
costs.   These could negatively affect the textile industry's 
ability to honor contracts with international buyers.  Since the 
textile industry contributes over 60 percent of the country's total 
 
ISLAMABAD 00003042  004 OF 004 
 
 
exports, the situation does not bode well for Pakistan's balance of 
payments and foreign exchange reserves.) 
 
--------------- 
TRANSPORTATION 
--------------- 
 
¶9. (SBU) National Highway Authority (NHA) awards Chinese firm $118 
million motorway crossing contract.  According to Business Recorder, 
the China Water and Electric Company would be responsible for 
undertaking the 36 mile Faisalabad-Gojra stretch of the 
Faisalabad-Multan motorway project, consisting of four interchanges, 
nine flyovers and nine bridges.  The construction is expected to 
take approximately 3 years.  The Asian Development Bank will 
shoulder 85 percent of the $118 million project costs, with the GOP 
covering the remaining 15 percent of the expenses. 
 
 
PATTERSON