Profit E-Magazine Issue 30

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8 Weekly Roundup 10 Readers Say 12 Losing to loose milk

18 18 Pakistan Railway: On path to recovery and rejuvenation?

26 Third Time Lucky!

30 The year in energy KK Shahid

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32

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32 Bridging healthcare gaps 36 With entrepreneurial spirit as his guiding light 40 Hospitality industry resumes its northward trajectory

Managing Editor: Babar Nizami l Joint Editor: Yousaf Nizami l Contributing Editor: Farooq Tirmizi l Business Editor: Agha Akbar Editor Reporting: Farooq Baloch l Reporters Aisha Arshad l Arshad Hussain l Usman Hanif l Syeda Masooma l Ahmed Ahmedani Director Marketing: Zahid Ali l Regional Heads of Marketing: Muddasir Alam (Khi) l ZulďŹ qar Butt (Lhr) l Mudassir Iqbal (Isl) Design & Layout: Rizwan Ahmad l Illustrator: ZEB Photographers: Zubair Mehfooz & Imran Gillani Publishing Editor: Arif Nizami Contact: proďŹ t@pakistantoday.com.pk

CONTENTS

“Promotion of quality education is imperative for sustained economic progress” Prime Minister Shahid Khaqan Abbasi

QUOTE

BRIEFING

“Pakistan Railways achieved more than the target in Q2 and expenses were under control” Minister for Railways Khawaja Saad Rafique

growth was registered in large-scale manufacturing (LSM) during the first four months of the current fiscal year compared to the corresponding period of last year. The country’s LSMI Quantum Index Numbers (QIM) was recorded at 135.95 points during July-October (2017-18) against 123.99 points during July-October (2016-17), showing growth of over 9.64 per cent, according to the latest data of Pakistan Bureau of Statistics (PBS). The highest growth of 5.90 per cent was witnessed in the indices monitored by Ministry of Industries, followed by 2.69 per cent growth in the products monitored by Provincial Bureaus of Statistics (PBOS) and 1.06 per cent growth in the indices of Oil Companies Advisory Committee (OCAC). On a year-to-year basis, the industrial growth increased by 8.77 per cent during October 2017, as compared to same month of last year, while on a monthto-month basis, the industrial growth increased by 5.59 per cent in October 2017 when compared to growth of September 2017, the PBS data revealed.

9.64pc

being reported to be raised via bonds for the remainder of financial year 2017-18 has been denied by Ministry of Finance. Official sources approached by Pakistan Today said the government had no plans of raising more funds through bonds issuance. Apropos to a news item which appeared in Gulf Today claiming Pakistan was planning to raise another international bond of $1.5 billion till the end of FY 2017-18 and avoid seeking another IMF bailout. While speaking to Gulf Today, a senior official of the Finance Division said ‘“We will be considering launching another bond if need arises in the last quarter of the ongoing financial year. We have finalised our plan for continuously pouring dollar inflows in order to meet yawning financing gap on external front.” This development comes on the heels of Pakistan’s successful bond issue of $2.5 billion via Eurobond and Sukuk in end-November, which helped shore up the country’s diminishing foreign exchange reserves and meet its financing gap on external front. To rein in current account deficit, the government imposed regulatory duties in October on various items to discourage their imports.

$1.5b

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Rs10.3b of capital expenditure has been approved by Engro Polymer for a new PVC plant and other upgradations. The major capital expenditure approved by Engro Polymer’s BOD was for a new PVC plant having 100,000 MT (taking total capacity to 295,000 MT per annum) & VCM Plant debottlenecking of 50,000 MT per annum, with target completion in Q3 of 2020, the notification read. This project will cost around Rs7.6 billion, which will be funded through the issuance of right shares of approximately Rs5.4 billion and remainder Rs2.2 billion will be funded via debt.

Other capital expenditures of Rs2.7 billion were also given go-ahead which would be funded through a mix of internal cash and debt, which includes “new product line by adding Caustic Flaker of 20,000 MT per annum. CAPEX of the project is approximately Rs 0.34 billion with target completion in Q4 of 2018”.

BRIEFING

“Timely completion of all projects under CPEC is key to the project’s success” National Assembly Speaker Ayaz Sadiq

QUOTE

$380m

loan agreements were signed between Asian Development Bank (ADB) and Economic Affairs Division (EAD). for the provision of $ 180 million for CAREC Corridor Development Investment Programme and $ 200 million for Punjab Intermediate Cities Improvement Investment Project. ADB has committed to provide $ 800 million, $ 180 million as the first tranche, for financing infrastructure projects under the Central Asia Regional Economic Cooperation (CAREC) Corridor Development Investment Programme.

are being invested in a luxurious housing project in Islamabad by a joint venture of an Egyptian and a Pakistani firm. Eighteen Islamabad is being developed by the highly regarded and innovative entrepreneurs from Egypt and Pakistan, Naguib Sawiris of Ora Developers and the Saif Group. They are launching “Eighteen, Islamabad” a 2.7 million square yards landscaped lifestyle destination minutes away from New Islamabad Airport with easy access to downtown Islamabad as well as the M1 and M2 motorways leading to Punjab and Khyber Pakhtunkhwa. The project is set in the beautiful landscape to the southwest of the city and offers a mixed residential lifestyle complex surrounded by a championship standard golf course. Eighteen includes a 5-star hotel, a modern retail and business park, medical facilities, education villages, and recreational facilities but more than this it offers residents a secure, relaxing and luxurious lifestyle which they can enjoy with their family.

$2b

increase was registered in soyabean oil imports during July-November of financial year 2017-18. Soyabean oil imports into the country during first five months of current financial year increased by 71.93 percent as compared to imports of the corresponding period of last year. During the period from July-December 2017-18 109,366 metric tons of soyabean oil worth of US$ 98.519 million imported to fulfill the domestic requirements against import of 37,845 metric tons valuing US$ 57.303 million in same period last year. Meanwhile, imports of palm oil into the country grew by 29.24 percent as about 1,196,824 metric tons of palm oil valuing US$ 885.832 million imported compared with imports of 987,623 metric tons worth of US$ 669.943 million in same period last year, according to data of Pakistan Bureau of Statistics. However, the imports of leguminous vegetables (pulses) during the period under review decreased by 25.72 percent and it was recorded at 246,615 metric tons valuing US$ 214.325 million compared to imports of 331,271 metric tons costing US$ 288.529 million in same period of last year.

72pc

million in strategic financing has been raised by Bima, a microinsurance service provider which counts Pakistan among its top four markets. The investment was procured from insurance giant Allianz’s, digital investment unit. Pakistan is among Bima’s biggest markets alongside Bangladesh, Sri Lanka and Ghana and has 24 million customers across the globe in Africa, Asia and Latin America. The investment will help Bima to expand its portfolio of its current products which include accident, health and life insurance and a tele-doctor service. Bima uses a mobile-delivered insurance model in which customers can pay for insurance via deduction of prepaid airtime credit. This groundbreaking approach leverages Bima’s proprietary Mobile Insurance Platform, which integrates with mobile operators’ existing tech infrastructure.

$96.6

28.9pc rise was witnessed in profit and dividend repatriation on foreign direct investment (FDI) during July-November 2017, according to data released by State Bank of Pakistan (SBP). During July-November 2017, Pakistan received $1.146 billion net FDI, the central bank data revealed. Bulk of profit outflows were from power, financial, communications, oil and gas exploration sectors, reported an English daily. Financial entities repatriated $152.6 million in profits abroad during July-November of financial year 201718 against $145.7 million a year ago.

According to analysts, foreign entities showed unwillingness to invest more in banking sector notwithstanding the increased repatriation of profits. During the period under review, the banking sector received $75.3 million in FDI.

BRIEFING

OPINION

Readers Say I was coerced to be part of this book. Followed at airports, events etc by his team. I told him and his team that I will not pay to be part of any such book. Some interviews and pictures later, with my picture and name in the pre-publication, I was asked to buy 100 books at Rs 3500 each, upon which I refused. And hey presto I no longer made the list or the publication. All a big scam.

There is no science in this whatsoever.

Apropos: “Abracadabra – you, too, are now Pakistan’s best performing CEO” Hasnain Sheikh, CEO Innov8 Limited Ijaz Nisar .... I think the need of the hour is to regain credibility by opening up the selection criteria and appointing a 7 member board ... or PWC or similar auditor to run this effectively . Such clubs and bodies with transparency is very much needed Apropos: “Abracadabra – you, too, are now Pakistan’s best performing CEO” Humayun Bashir, Chairman National Clearing Company of Pakistan Limited Excellent piece by Syeda Masooma. I think Ijaz Nisar should take this criticism (positively) and start another series of corporate awards by keeping all the regulators on board and following all the international standards set by Fortune, Forbes, Inc. etc.

Another business opportunity! Go for it! : Apropos: “Abracadabra – you, too, are now Pakistan’s best performing CEO” Shaur ul Asar

How to ContaCt

facebook.com/Profitpk twitter.com/Profitpk linkedin.com/showcase/13251020 profit.com.pk profit@pakistantoday.com

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Everybody can smell it is envy, rather than (an actual) issue. As writer shared all opinions rather (than) facts. Not a single CEO name is given who is not on merit. Surprisingly, old incident of sharing books to Mian Mansha is being reported after 8 years. Is this journalism? It is just like ayesha gulalai messages five years ago, being shared. What a (low) quality of professional ethics of Pakistan Today and its entire team.

Apropos: “Abracadabra – you, too, are now Pakistan’s best performing CEO” Ijaz Nisar, CEO, CEO Club Pakistan

I have met him (Ijaz Nisar) a few times. He has a very rudimentary understanding of the business world and just wants to build up his network which probably makes some money for him. The book has no depth or relevant information.

Apropos: “Abracadabra – you, too, are now Pakistan’s best performing CEO” Shahzad Saleem, Chairman Nishat Chunian Group Similar pattern is also followed in IT industry of Pakistan where PASHA does exactly the same.

Apropos: “Abracadabra – you, too, are now Pakistan’s best performing CEO” Jibran Ghani Integrated Marketing Specialist Fantastic work! The same is happening in tech and "innovation" now. Maybe a story on that would be great too.

Apropos: “Abracadabra – you, too, are now Pakistan’s best performing CEO” Gulraiz Khan Lecturer, Designer, Urbanist Is the quickest way to a corporate CEO's check book through his ego? Brilliant.

Apropos: “Abracadabra – you, too, are now Pakistan’s best performing CEO” Monis Rahman, CEO Rozee.pk Reading this report I got the feeling that perhaps the conclusion had been made (Pakistan’s retail sector has gone ‘bust’) even before the research took place. And then whatever research was done was written up to suit the conclusion. To start with, the title – ‘How Pakistan’s retail sector went from boom to bust?’ Bust to me means zero. Broke. So is the retail sector in decline, even at a low ebb or is it bust, as in zero? Second, and possibly again because the conclusion was reached first and then research followed, things have been mixed up. The sub-heading states: ‘Contrary to Euromonitor’s recent research that identified Pakistan as the

world’s fastest growing retail market, Profit’s own investigation reveals that fashion retailers are increasingly facing falling revenues….’. Was Euromonitor’s research limited just to fashion retail? If not and it covered the broader retail sector, then how can it be compared to Profit’s narrow focus research of fashion retail? And from this comes my third observation – does Profit see fashion retail, and even that limited to 3 or 4 brands covered in the Report, as the vast bulk of Pakistan’s retail sector? If you take the monthly retail spending of Pakistanis, even millennials, what percentage of the total monthly spend is on fashion garments, month after month? A single digit percentage, I dare to say. Typically millennials major retail spend is on several other things. Like technology and gadgets, eating out, entertainment, personal grooming, fitness, travel.

Apropos: How Pakistan’s retail sector went from boom to bust? And what can be done now?)

Zohare Ali Shariff CEO, Asiatic Public Relations Network “On Feb. 1, 2015, a young girl lost her life from food poisoning after consuming a burger of Dilpasand in North Nazimabad, Karachi. Lo and behold, Dilpasand landed the consumer choice award the same year. “ An eye opening report by Syeda Masooma totally impressive and I think it’s public service bringing such practices to public.

Apropos: “Abracadabra – you, too, are now Pakistan’s best performing CEO” Farah S Kamal Excellent article. Insightful. Just a bit repetitive. But felt like reading something from an international level magazine. Proud to see such Pakistani writers who do thorough research.

Apropos: Aamir might not succeed in turning Veon into Pakistan’s WeChat. But what if he does?)

Sohail Alvi, sports journalist The following salient features of Annual Environment Excellence Awards (AEEA)instituted by National Forum for Environ-

ment & Health should be published by the “Profit” for sake of objectivity, neutrality, and impartiality of the feature story.

The AEEA was instituted for the first time in the year 2004 and since then this practice has been continuing on a regular basis with basic aim to properly eulogize the services of the industries and business whose operations in Pakistan strictly adhere to the National Environmental Quality Standards (NEQS) adopted in 1997.

The AEEA is awarded on basis of performance of the industries and businesses to improve environment inside and outside their main operational area premises.

The AEEA is awarded after ascertaining the exact number of employees of any applicant company properly trained to look after issues of environment related to their respective organization.

For the purpose, a Questionnaire containing 26 questions all being technical questions related to the field of environmental protection, is being used to ascertain environmental policies of the companies and industries sending their nominations for AEEA. The response of the contesting companies while answering to all the questions asked the questionnaire, often becomes too voluminous spanning t over to 150 pages as the participating organizations are bound to share with us all their documents relevant to their environment-related policies and practices.

All the nominations are thoroughly adjudged every year by a three-member jury comprising seasoned persons in the field of environmental protection.

For last three to four years, the jury members under a new system are encouraged to physically inspect industrial and business operations of the participating companies so to personally verify procedures, mechanisms, and technologies used by them to control damage caused to the environment. In this regard, a number of industrial units have been inspected in Karachi, Lahore, Islamabad, and in other towns, to physically check environmental quality standards being maintained by them.

It is not at all necessary that all the participating companies get awards after sending in their nominations. Companies facing court cases related to environment, those against whose operations public com-

plaints are lodged, tobacco manufacturing companies, and those involved in business of alcohol, are not given awards as per the policy of consistent AEEA. Apropos: “Abracadabra – you, too, are now Pakistan’s best performing CEO” M. Naeem Qureshi President NFE&H Euromonitor International reports all its figures at the final retail selling price level, or in other words the turnover/revenue. Your article has clearly highlighted how the apparel and footwear specialist retailers are not making profits. Euromonitor International does not mention or report any figures at the bottom line level. We only report all our figures as per the revenue.

Furthermore, Euromonitor International has definitions that are standardised across all our global markets. One of the key things to keep in mind are the following exclusions from our data: n Illegal or black market sales n Grey market sales n Institutional sales, which includes hospitals, universities, schools, corporates. n Duty free shops n Military and canteen sales Apropos: How Pakistan’s retail sector went from boom to bust? And what can be done now?)

Pushya Siddharth Communications Executive – India Euromonitor International Really appreciate the author for this eye opening article on the corrupt practice of ‘awards on sale’ that is going on in Pakistan and covering this uncommon topic in such detail. The most terrifying thing in this is that almost all public do believe in these awards to some extent and assume that at least someone is watching the criteria. Well it seems no one! All those who are involved in this shady business of granting awards like Top CEO, Consumer Choice and Environment and Health awards are just Con Artist, nothing else. They should rather be behind the bars to fool the whole public for their benefit.

Apropos: “Abracadabra – you, too, are now Pakistan’s best performing CEO” Khurram (Profit website)

COMMENTS

One year on: as the new management remains focused on consolidation, Engro Foods’ struggle against unbranded loose milk continues. Adding insult to injury, the recent government policies and ‘negative media coverage’ of packaged milk hurt the local foods giant more than any other player – dwindling sales, falling profits, and fierce competition by the tea whiteners adding to the pain.

By: Farooq Baloch, Usman Hanif With additional input from Aisha Arshad

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n a Wednesday evening in one of Karachi’s oldest areas, Lea Market, Samir Rajput is working the phone, trying to seal a deal with his clients before 8 p.m., the starting time of the Mandi – one of the mega city’s main wholesale markets for unbranded, loose milk. He goes through this rigmarole twice a day to settle the days’ wholesale price with retailers.

Sporting a French beard and clad in blue jeans, Rajput, who has been working with his father for the past 30 years, dips his bare hands in the steel container to ascertain the milk’s quality – the conventional ways of the market. Juxtaposed against the state-of-the-art 30 lab tests from farm to factory to check if the produce is fit for human consumption by the corporate sector – the likes of Engro Foods and Nestle Pakistan – this seems primitive.

Once Rajput approves the quality, the milk makes it to the retailers where it’s sifted with muslin to make sure the flies, insects or other similar deposits are filtered before it is poured into chillers, ready to consumers to buy and consume.

About 12 kilometers south, on the coast of Arabian sea, stands The Harbour Front, a modern triangular tower that is home to leading local and multinational corporations. On the fifth floor of this 19storey building, the new management of Engro Foods is left scratching their heads as loose milk suppliers continue to defy the company’s core strategy: educating consumers about hazards of unhygienic loose milk, and in the process, converting them to packaged milk.

With an objective to make formal sector increase its share from a dismal 6% of the market to 30% by 2030, the two largest players Engro Foods and Nestle Pakistan spent Rs17 billion in the first nine months of 2017 on marketing and distribution of their products, but that wasn’t enough to convert more consumers to branded dairy products. In other words, the advertising dollars meant to create awareness about the packaged milk and its unbranded rivals apparently fell on deaf ears and unseeing eyes.

“When we boil milk bought from the dairy, a thick cream surfaces, which does not happen with the Tetra Pak [packaged UHT] milk from the shop. Tea and other

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things made with packaged milk do not taste the same,” said Samina Durrani, a resident of North Karachi, explaining why she prefers loose milk from a nearby dairy farm.

More commonly known as Barrah, the dairy farms, which cater to consumers like Durrani, are mostly situated in Karachi’s outskirts Sohrab Goth, Bhains [Cattle] Colony and on Super Highway (M2). They operate under terrible hygiene conditions, but these farm owners have their own justifications for that.

Thriving, despite poor hygiene e need water to maintain hygiene. In Karachi even humans don’t get clean water to drink, how can we assure hygiene for cattle,” says Liaquat Mastoi, who owns a dairy farm in the Cattle Colony – home to 1,500 dairy farms, producing 4 million litres a day, easily the largest supplier of fresh milk to port city.

Despite poor hygiene, the loose milk market thrives, and keeps on growing at a significant scale. There is no public data to measure the size and growth of Karachi’s unbranded milk market, but industry sources estimate that the city consumes 5.5 million liters a day, which is almost entirely supplied by the traditional, unstructured loose milk retailers, otherwise criticized for their primitive supply chain.

The above estimate is about two years old, while the market is said to have expanded significantly since. The overall consumer expenditure in the country grew by 8% between 2015 and 2016, according to a report by Euromonitor. And fresh milk constitutes 6 to 7% of the consumer basket, a set of common goods and services purchased by households on a daily basis every month.

A field survey of populated neighborhoods like North Karachi, Gulshan e Iqbal, Gulistan e Jauhar, Orangi Town, and Korangi indicates an increase in the business of loose or unbranded milk as several new shops have opened up in these areas. Take for example Bhittai Colony Sector B, off the busy Korangi Crossing bus stop. At least 10 new milk shops alone have opened up here within a range of only 150 meters in the last one-and-a-half years.

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What went wrong at Engro Foods hough it is the biggest brand from formal sector in Karachi, Engro’s signature UHT milk Olper’s has a less than 5% share in the city because of a drop in volumes in the last 18 months, according to market analysts. The company is losing consumers back to the undocumented sector not only in Karachi but also in other parts of the country, multiple sources confirmed to Profit – though it was evident from the company’s financial data.

Just before its acquisition in 2016 by the Dutch dairy giant Frieslandcampina, Engro Foods had reported its highest-ever quarterly earnings. However, the company is in hot waters since the takeover, reporting losses in two of the last four quarters for which data is available.

In the first nine months of 2017, Engro’s net profit dropped by 85% to Rs385.7 million, a far cry from Rs2.6 billion of the corresponding period of last year. On the other hand, sales for the period decreased by a fifth to Rs27 billion. Little wonder then, what used to be one of investors’ most beloved stocks lost almost 60% of its value last year – Engro Foods share was trading at Rs80.3 on the last trading session of the year, down from Rs191.7, its price on January 2, 2017.

To add insult to injury, the government policies over the past couple of years, and ‘negative perception’ that stem from media coverage of a Supreme Court case and Punjab Food Authority’s campaign against packaged milk, and tea whitener factor turned out to be too much to handle for Engro Foods’ new management, putting its leadership to test.

In this report, Profit takes a look at what went wrong at Engro Foods, how the new management plans to fix it and whether it can do it anytime soon.

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The struggle against loose milk rom day one, Engro Foods has remained focussed on tapping into the loose milk market, and the new management doesn’t seem to have changed that strategy either.

“Our long term objective is to drive the conversion from loose milk,” the company said in an email to Profit. Reaffirming its pol-

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‘JUXTAPOSED AGAINST THE STATE-OF-THE-ART 30 LAB TESTS FROM FARM TO FACTORY TO CHECK IF THE PRODUCE IS FIT FOR HUMAN CONSUMPTION BY THE CORPORATE SECTOR – THE LIKES OF ENGRO FOODS AND NESTLE PAKISTAN – THIS SEEMS PRIMITIVE’ icy stance, it said, “Engro Foods is focusing on various initiatives centered on rebranding the image of packaged milk as well as educating consumers about the hygiene and quality standards prevalent within the packaged industry relative to adulterated, unhygienic loose milk.” However, in its little over 10years in the business, the company’s struggle against loose milk is now even more pronounced than the competition from formal sector, where it was a clear leader with 56% share in the UHT (Tetra Pak) segment as recently as 2016.

Take Mabrook for example, a pilot project the company launched in late 2013 to take the bull by the horns. The company took the battle to home turf of its unbranded rival by entering the retail market itself through franchise model. Cream or high fat content being the selling point of unbranded milk, Mabrook was launched with the slogan ‘balai bhar doodh’ (high fat milk). Engro Foods’ bet was to hygienically dispense pasteurised milk and create the feel of loose milk to lure consumers away from traditional milk sellers. It had even set aside a whopping Rs460 million for marketing, promotion and subsidies (to the franchisees), but the idea didn’t click and the company had to wind up that project in a year – having spent half the budget by then.

According to both the company and analysts, the model was unviable economically since even successful franchises were complaining about low return on investment and high operational costs. Though Engro was the most aggressive about conversion from loose milk, the whole formal sector has put hygiene at the front of their marketing campaigns. For example, Nestle Pakistan ran a big marketing campaign on television under the ‘Safe Milk’ banner, without hardly making a difference to the overall equation.

It took formal sector almost 10 years to nearly double their share from a paltry 3.5% in 2006 to 6% in 2016. Since then it has at best remained stagnant, and by some accounts seen a drop. In the same period, the market size increased from 33 billion liters to 54 billion liters a year or 11.3% share of the GDP

as per Economic Survey of Pakistan 20152016.

A 2006 paper penned by Engro Foods founding CEO, Sarfaraz Rehman, had estimated that the packaged milk industry would reach 40% of the total milk market by 2015.

But far from meeting the forecast, the branded milk industry’s share has not even reached a tenth of the market – a clear indication that the informal sector fully cashed in on this market expansion.

Engro hit the hardest arket analysts, industry experts and even executives from dairy sector Profit spoke to agree that the industry has lost some share back to the loose milk suppliers during last one-and-a-half years, the focus period for this report. This was primarily because of regressive government policies and negative perception among the people.

In 2016, Pakistan Council of Scientific and Industrial Research (PCSIR) conducted lab tests of 16 UHT milk brands and found that only six of them were fit for consumption. It was later submitted to Supreme Court – hearing a petition by Barrister Zafarullah Khan against quality of milk sold in the country. But the damage was done by the manner of media’s coverage of the case, resulting loss in consumer confidence in the packaged milk, and a drop in the industry’s volumes.

It dealt a fresh blow to the sector, already reeling from being moved to tax-exempt from zero-rating regime only recently.

The change in tax policy meant the industry could no more claim refunds on value-added tax paid on inputs. That is the sales tax paid by dairy companies on import of raw material like powdered milk had to become part of the cost. At present the government owes dairy sector about Rs15 billion in refund claims, of which Engro Foods’ share is around Rs2 billion (as of Sept 30, 2017). Making already a bad situation worse, the government imposed another 25% duty on import of skimmed powdered milk, raising input costs by 8%.

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If removing the sector from zero-rating wasn’t enough, the national exchequer served notices to the producers of tea whiteners asking them to pay taxes on these products for the entire period since their launch because they were not tax exempt anymore. For example, Fauji Foods received a sales tax order, dated May 26, from Inland Revenue for payment of Rs974 million for sales tax along with default surcharge and penalty of Rs225 million due to alleged non-payment of sales tax on “Chai Mix, Dairy Rozana and Dostea (tea whitener)” – on the grounds that zero rating or exemption is available to dairy products only, not the tea whitener.

Industry sources say all companies received that notice including Engro. Fauji Foods says it has filed an appeal with Inland Revenue, and since it expected a favorable outcome, it didn’t create any provision for that. The other players expressed similar views, maintaining the order doesn’t make sense and instead of paying up, they would rather challenge it. The flip side is, if tax on tea whiteners for the last 10 years is to be paid, Engro Foods may have to dish out around Rs10 billion.

These policies combined with negative reporting sent the overall industry volumes scurrying down 40% during the last 18 months, according to an official familiar with the matter. Again the company hit the hardest was Engro Foods.

A glance at the financial statements of Engro Foods, Fauji Foods and Nestle Pakistan shows that Engro Foods was the only listed company that saw a decline in its volume during the period under review.

Since the change in management, the company has stopped giving analysts briefings and investor presentations about its business, but sources familiar with the matter told Profit that Olper’s volumes were down 15% to 1.2 million liters in the last fiscal year against 1.4 million liters in the corresponding period. Tarang, the tea whitener, received some serious hammering, going down from 970,000 liters to 400,000 liters, a drop of more than 50%.

“Engro got the hit by virtue of being the largest player in UHT segment,” said an industry expert on conditions of anonymity, with multiple sources endorsing his view.

More than 90% of the company’s revenue come from UHT segment. According to an analyst, Tarang was 50% of all UHT sales followed by Olper’s (40%) and Omang (7-

‘IN THE FIRST NINE MONTHS OF 2017, ENGRO’S NET PROFIT DROPPED BY 85% TO RS385.7 MILLION, A FAR CRY FROM RS2.6 BILLION OF THE CORRESPONDING PERIOD LAST YEAR. ON THE OTHER HAND, SALES FOR THE PERIOD DECREASED BY A FIFTH TO RS27 BILLION’ 8%) at the end of 2016. Since its two main products, Olper’s and Tarang, got clobbered, Engro found itself pushed against the ropes.

Despite MilkPak running neck to neck with Olper’s, Nestle didn’t suffer to the same extent because UHT accounts for less than a fifth of its revenues, and it is not dependent on it as such.

Expansion, not a priority he company is in consolidation phase. So putting the house in order seems to be the priority, not expansion,” said an analyst, adding, since it has become an MNC, this is usually how they operate – settling down first and then expanding.

Other sources are getting similar impressions from some of the company’s recent moves. “FrieslandCampina has even reduced collection centres,” said the expert, adding the company might be relying more on powdered milk as it became cheaper than locally procured milk because of a notable drop in international prices. According to industry insiders, both Engro Foods and Nestle mostly procure milk from local farmers and rely on imported milk powder only in summers to make up for the seasonal shortfall.

“When a new company comes, the market grows but the new player also eats into someone’s share and it is usually the largest player that gets hit,” the analyst said. For example, he said there are many brands that have set up dairy farms and catering to their surrounding areas. Jahangir Tarin dairy, which is located near Sadiqabad on the border of Sindh and Punjab is one example, for it is catering to four to five cities in close vicinity.

Overall dairy sector growth declined due to negative perception created in the media about packaged milk and efforts by Punjab Food Authority on certain labeling requirements related to tea whiteners, Fauji Foods said in a report. Talking about the PFA episode, CEO of a dairy company said as per

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PCSIR’s findings, heavy metals were found in UHT samples. These heavy metals were actually iron and zinc which are naturally present in the milk and were well within the limits as per international standards, but media coverage failed to highlight that. Later on even SC agreed to it, he said.

Analysts and experts we spoke to say the PFA episode became too much to handle for Engro Foods. Tarang suffered the most because of PFA’s campaign which targeted tea whiteners, said the expert. However, he added Tarang also ran into some quality issues for the first time since its launch and the timing was cruel. “There were complaints about the liquid whitener getting spoiled quite often,” he said.

Besides, media coverage, increase in duties also dented the segment. All tea whiteners use skimmed powdered milk.

Therefore, the import duties hit them hard as prices increased, resulting in consumers to switch to cheaper brands or loose milk, said an analyst. Dominated by Tarang for almost a decade, the tea whitener segment has seen increased competition after two big brands, Dostea of Fauji Foods and CupShup of Dalda Foods, entered the market recently and Nestle also aggressively marketed EveryDay. Though all brands were affected, being top of the totem pole, Tarang suffered the most.

Misconceptions about the UHT auji Foods report says, the industry is recovering from the negative media campaign against packaged milk and tea whitener and is expected to grow in the period ahead.

“There are misconceptions about UHT technology in Pakistan. Majority of Europe is on UHT,” CEO of a dairy company said, giving examples of France, Spain and Germany where UHT is 96% (in the first two), and 60% in the third because it offers convenience. “Even in India, packaged industry

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has 40% share,” said he.

Experts are of the opinion that eventually the entire milk market will be converted to packaged industry as is the case everywhere in the world. Media speculation and rumours about the quality of UHT milk will die down, they say, but the real threat that still persists is the market for loose milk. In such an environment, regressive policies only hurt industry’s efforts for conversion.

“The imposition of regulatory duty and the change in sales tax regime on dairy products has increased cost pressures on the processed industry. The impact of these changes has not been fully passed onto the consumer, putting pressure on the company’s margins,” said Engro Foods responding to a question – the company’s gross margin declined from 25.4% to 17.1% during the nine-months ending September 2017.

The company says the undocumented and untaxed loose milk sector has created an uneven playing field for the processed industry – Engro Foods and Nestle Pakistan collectively paid Rs6 billion in corporate tax for 2016 as opposed to none paid by undocumented sector. “Current Company efforts are targeted towards driving loose milk conversion to fuel category growth while employing other tactical measures to gain market share,” it said.

The company admitted its sales were affected by the widening gap with loose milk and a widening pricing differential between loose and processed milk has also hurt conversion in the recent past.

The higher price differential with loose milk meant that price sensitive consumers switched back to the latter – loose milk was selling at Rs80 per kilogram and Olper’s at Rs95 per liter two years ago; currently the rates are Rs85 and Rs130.

The documented sector has to pass on the impact of increased costs to consumers because they can’t compromise on quality.

The unbranded milk suppliers on the other hand have various ways to deal with any

‘EXPERTS ARE OF THE OPINION THAT EVENTUALLY THE ENTIRE MILK MARKET WILL BE CONVERTED TO PACKAGED INDUSTRY AS IS THE CASE EVERYWHERE IN THE WORLD. MEDIA SPECULATION AND RUMOURS ABOUT THE QUALITY OF UHT MILK WILL DIE DOWN’ rise in input costs.

According to a survey by Profit, to retailers a liter of milk with 4% fat level costs Rs60, and with 7% fat level Rs80. This doesn’t include the labor and transportation expenses that further jack up overall costs of procurement. As a result, they resort to different methods to maximize their profits.

For example, water is mixed in the milk to increase its quantity, corn flour is added to thicken the consistency, and ice – 8 litres for every 40 litres of milk – and caustic soda are used to increase the shelf life of this highly perishable commodity.

“Often one liter costs us more than 80 rupees. If we don’t do these things, how will we be able to sustain the business,” a loose milk retailer told our correspondent.

In a dairy convention at the Karachi Press Club in 2016, dairy farmers protested against the formal sector and demanded price regulation. They even questioned the corporate sector for selling “branded milk powder with chemicals that could cause health concerns”, without specifying, which chemicals were added. Even if coincidently, their calls were answered after UHT producers were taken on by the PFA. The formal sector demands, however, may not achieve similar results.

A delegation of Pakistan Dairy Association, an association of branded dairy milk producers, called on Prime Minister Shahid Khaqan Abbasi in Islamabad last December and made some recommendations. These include, introduction of minimum pasteurization law at the federal level, harmonizing foods standards at national level, reinstate-

‘SINCE ITS TWO MAIN PRODUCTS, OLPER’S AND TARANG, GOT CLOBBERED, ENGRO FOUND ITSELF PUSHED AGAINST THE ROPES. DESPITE MILKPAK RUNNING NECK TO NECK WITH OLPER’S, NESTLE DIDN’T SUFFER TO THE SAME EXTENT BECAUSE UHT ACCOUNTS FOR LESS THAN A FIFTH OF ITS REVENUES’ 16

ment of zero-rating regime, and removal of regulatory duty on skimmed milk powder.

Profit’s queries to the government were not responded to till the filing of this report, but an FBR official confirmed that the incumbent is in no mood to make any changes in the current tax regime.

Engro remains optimistic hat said, Engro Foods is still optimistic about achieving higher conversion rates. “It is possible to achieve this target and even beyond, given a level playing field coupled with efforts from all the players in the organized dairy sector,” said the company responding to a question if the formal sector can still reach 30% of the market by 2030. “We believe that the implementation of the minimum pasteurization law is under consideration by the government. This is an initiative that has clear and immediate impact on the health of the future generations,” said the company spokesman.

Responding to another question, the company said it would increase its product range. “RFC has a wide and diverse product portfolio and the company will introduce those best fit for the Pakistani market.”

The company refused to comment on the statistics about Tarang and Olper’s that we shared with them, nor did it specify a timeline for completion of the consolidation phase. “We see a huge opportunity in the Pakistani dairy market. Friesland has a long term view on Pakistan, which is why they have made a significant investment in Engro Foods,” it said.

Though optimistic about its long-term growth prospects, Engro Foods said the key objective is to drive conversion from loose milk to safe packaged milk as well as increase the product range offered to consumers. However, one of the analysts surveyed by Profit said, if their margins didn’t improve and things were not fixed he sees them reporting a loss of Rs0.15 per share in the last quarter of 2017.

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By Syeda Masooma, Abbas Naqvi, Farooq Tirmizi t is easy to take something for granted if it has been around longer than even your great-grandfather could remember. In hindsight, perhaps we should not be surprised at the four decades of stunning neglect and mismanagement that Pakistan Railways has been subjected to, even though any fairminded analysis would tell you that that the modern Pakistani economy would not exist without the railway. Perhaps we should even be grateful that the rot did not set in sooner.

Pakistanis have gotten used to thinking of the railway as a basket case. Trains arriving on time are considered a shock and almost nobody even blinks at the billions of rupees in bailouts (in addition to regular subsidies) that are paid out to the railway every year. But over the last four years, very quietly, the country appears to have been going through something of a railway renaissance, driven in part by slightly better management, and in part due to increased investments in infrastructure that form part of the China-Pakistan Economic Corridor (CPEC).

Of all the CPEC investments being considered, the projects designed to upgrade and perhaps even expand the country’s crumbling railway infrastructure may be the most consequential (in the positive direction). The railway can shrink distances in a manner that no major road or highway can, and with that shrinking of distances comes enormous economic possibility, particularly for some of Pakistan’s smaller cities.

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Colonial beginnings he story of the railway in what is now Pakistan is inextricably linked to the British presence in South Asia. More specifically, the notion of laying railroad tracks in present-day Pakistan was first floated during the tenure of General Sir Charles Napier, the first British governor of Sindh (then spelt Scinde), in 1847. Being a military man, Napier’s vision of the railway imagined turning Karachi into a port of strategic importance for the British that would also allow them to move troops quickly up towards Punjab and what is now Khyber-Pakhtunkhwa, where the British were beginning their Great Game of Central Asia against the Russians.

However, it was not until 1855 – when Sir Henry Bartle Frere (yes, the same one after whom Frere Hall in Karachi is named) became Commissioner of Sindh – that work began in earnest on setting up a railway in this part of South Asia.

The Scinde Railway Company was granted a charter by the British Parliament in July 1855, and construction began on the Karachi to Kotri section of the railway April 1858. On May 13, 1861, the first train left the Karachi railway station for Kotri, a journey of 174 kilometres.

The plan was always to connect the grain-growing areas of Punjab and Upper Sindh and develop Karachi into a major port for exporting that grain to the rest of the British Empire. The Scinde Company ran the railway from Karachi to Kotri. From Kotri to Multan, passengers and cargo would be moved to steamboats navigating

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‘IN 2013, WE SENT 182 UP-COUNTRY FREIGHT TRAINS FROM KARACHI IN A WHOLE YEAR – WHICH MEANT ONE TRAIN EVERY TWO TO THREE DAYS. THIS NUMBER HAS NOW SWELLED UP TO 3,500 IN 2017. AT THE PREVIOUS FISCAL YEAR’S END (JUNE 30, 2017), PAKISTAN RAILWAYS’ REVENUE HAS MORE THAN DOUBLED, GOING UP TO OVER RS40 BILLION FROM RS18 BILLION IN FISCAL 2013. ONLY EIGHT LOCOMOTIVES WERE RUNNING FREIGHT TRAINS IN MID-2013; NOW THERE ARE 102 OPERATIONAL FREIGHT LOCOMOTIVES’ Khawaja Saad Rafique, Federal Minister for Railway (2013 to date)

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the Indus and Chenab rivers, a route run by a company called the Indus Flotilla. From Multan, another train would take both passengers and cargo on to Lahore and Delhi.

The line from Multan to Lahore and Amritsar was owned by the Punjab Railway Company, which was also established in 1855 and also began operations shortly after the Scinde Railway Company in 1861.

Why not build a railway track all the way to Lahore, you might ask? Because Karachi is towards the west bank of the Indus River and Lahore is to the east, which means that no matter what route you take up or down the country, at some point, the railway line would have to cross the river.

Bridges until the 1860s were typically made of either wood or stone, but those materials have their limits as far as holding their strength over a wide river is concerned.

And, by the time it reaches Punjab, the Indus is a very wide river. The technology for building a bridge over a river that wide had simply not been invented yet.

Yet it was about to get assistance from an entrepreneur on the other side of the world who was struggling with a similar problem of how to build a bridge across a wide river. In the early 1860s, Andrew Carnegie wanted to build a bridge across the Mississippi River in the United States at St Louis, which would allow for ease of travel from the eastern part of the US to the western part. His engineers kept insisting that the Mississippi was too wide by the time it reaches St Louis for a bridge to be built.

One of his engineers sarcastically said that it might be possible if the whole bridge were made of steel.

‘ONE RAILWAY LOCOMOTIVE OF 3,000 HORSEPOWER CAN PULL UP TO 70 FREIGHT WAGONS. EACH WAGON HAS A 22-TON CAPACITY, WHICH MEANS THAT EACH WAGON CARRIES THE LOAD OF THREE TRUCKS. IN SHORT, ONE LOCOMOTIVE CAN PULL A LOAD EQUIVALENT TO 210 TRUCKS’ Ishaq Khakwani, Former Pakistan Railways engineer & former Minister of State for Railways under the Musharraf administration, and current central vice-president of the PTI Up until that point, steel had only been made in very small quantities, typically for weaponry. Carnegie seized on the idea of mass-producing enough steel to make a whole bridge out of it, pioneering the concept of a mass steel mill and the use of steel in large building structures in one go. The Eads Bridge in St Louis was completed in 1874, and proved that wide rivers could be bridged by using the right materials.

Once the technology of using steel in bridges became widely accepted, it made its way to South Asia, where the British built steel bridges at Attock (which helped create a Lahore to Peshawar railway) and the Lansdowne Bridge that connects Kotri and Sukkur, and was built in 1889 (which helped complete the Karachi to Lahore route). When it was made, the Lansdowne was the longest rigid girder bridge in the world.

Meanwhile, the success of the Scinde and Punjab lines triggered a rail-building frenzy, a trend that was also gripping most of the industrializing powers of the world at the time, including the United States. The Indus Valley State Railway, for instance, was created in 1871 to provide the missing rail link between Kotri and Multan, completed after the Lansdowne Bridge was finished in 1889. The Punjab Northern State Railway started operations in 1876, with the aim of connecting Lahore to Peshawar, which was made possible after the construction of the Attock Bridge in 1883. The SindPishin Railway connected Karachi to Quetta.

All of these company and many others that operated in what is now Pakistan – along with the Delhi Railway – were merged in 1885 to form the North Western State Railway (NWR), the name of the company that remained in effect until Partition.

The effect of these railways cannot be underestimated on the economy of Pakistan.

Prior to the construction of the railway, the best way to get from Karachi to Lahore was to take a series of river boats. The journey from Multan to Karachi alone would take around 40 days, and the journey from Lahore to Karachi could take upwards of two months. The idea of trading grain over extended distances made no sense because it would simply cost too much. And so farmers were restricted to producing only as much as they could consume themselves and sell to maybe a few nearby towns.

After the construction of the railway, the journey time was cut down to less than 24 hours and it completely transformed the realm of possibility for agriculture in what is now Pakistan. It is not a coincidence that the Indus River irrigation system, the largest contiguous system in the world, was built after the railways were built. It would make no sense to try to get farmers to produce more than subsistence levels of grain unless they could reach a market that could feasibly afford their products.

It was not until 1886 that the British were able to start building the Punjab Canal Colonies, which were a series of large, previously sparsely inhabited areas in Punjab, that were brought under cultivation through the use of canals that diverted water from the province’s five rivers. Those canals allowed for previously landless and poor farmers to settle in newly cultivable regions, and the railways helped them sell their surplus crop to the rest of the British Empire.

The British would begin building similar infrastructure for Sindh and Balochistan in 1923, with the construction of the Sukkur Barrage.

With the completion of these large rail and irrigation projects, the volume of commerce between Punjab and Sindh, in particu-

lar, exploded. On the eve of the First World War in 1914, Karachi had gone from being a small town on the coast of the Arabian Sea to becoming the largest grain port in the British Empire, and Punjab had become its principal bread basket. The port may have made Karachi into a major city, but the port would have been useless without the railway link to the rest of the country.

Contrary to popular perception in Pakistan (also known as the myths and lies our parents and grandparents told us), none of the predecessor companies of the North Western State Railway, nor NWR itself were seen as particularly shining examples of effective corporate management. The system was better managed than it is now, to be sure, but the quality of both trains and stations, as well as the punctuality of trains, was inferior to those of train lines that operate in what is now India.

The early postindependence era he quasi-competent management of the British era largely continued into the first few decades after independence. The newly renamed Pakistan Railways continued to make improvements upon its infrastructure through the early to mid-1950s, and even expanded some lines (though not by much). Nearly all of the current infrastructure, however, is the same lines in the same locations and routes that the British built and left over 70 years ago (and even the British were mostly done building by the 1920s).

This was, however, the era before motorways, and even though the N-5 highway had been completed by 1952, it was not yet a major thoroughfare for cross country travel. So rail continued to be the most important way to transport both goods and

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‘IN TRUTH, SINCE THE NLC WAS FORMED, IT HAS BEEN WORKING ON AND USING TRUCKS FOR FREIGHT, WHICH HAS MADE RAILWAY SUFFER. FREIGHT IS THE WAY THAT RAILWAYS EARN. SO, WHEN NLC WAS FORMED, FREIGHT MOVED FROM RAIL TO TRUCKS AND IT GAVE PAKISTAN RAILWAYS A MAJOR BLOW’ Ghulam Ahmad Bilour, Twice Federal Railway Minister, & Awami National Party (ANP) member of the National Assembly from Peshawar people across Pakistan, and the men (and nearly all of them were men) who ran the Railway lived like kings in palatial mansions on prime land in major urban centers.

However, even in this era, the growth in transportation was already leaking away from the railways. For instance, the total volume of cargo transported by Pakistan Railways grew by 31.4% between 1950 and 1965 (a 1.8% annual average). That number sounds impressive, but considering the fact that the total (inflation-adjusted) size of the Pakistani economy grew by 85% during that time (a 4.3% annual average), it seems logical to assume that a substantial portion of the growth in cargo transportation – more than half, based on our estimates – was being handled by road.

Some of this was inevitable, of course.

Rail cannot handle everything, and as more and more smaller towns in Pakistan were connected to the road network, businesses and people there would rely on those highways for their transportation needs. But the key driver for the declining market share of railway – even in this supposed golden age of post-independence Pakistan Railways – was the fact that there was negligible investment in expanding the existing infrastructure.

One of the most glaring omissions?

The fact that there are long stretches of the Main Line One (from the Afghan border at Torkham to Karachi), which simply have only one track, including the entire track north of Lahore. That means that only one train can safely run north of Lahore, which significantly slows down speeds, especially on the Lahore to Peshawar stretch.

Rail in Pakistan remained stuck where the British stopped building it in 1920, but the economy was growing at a furious pace in the 1960s, leaving people with no choice but to use the more expensive – and usually

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slower – mode of transportation: road. Here is a little tidbit that gets left out of most Pakistan Studies textbooks: the administration of President Ayub Khan was almost completely useless when it comes to improving Pakistan’s transportation infrastructure during its tenure.

Yet, for all their flaws in planning for the future, at least the first generation of Pakistani managers did not allow the railway to fall into active disrepair. Indeed, the timing of the collapse of Pakistan Railways appears to coincide roughly with when that first generation of officers – the last of whom interacted with the British builders of the railways, and thus perhaps the last to have been imbued with a sense of romance about trains – began to retire. (Disclosure: the maternal grandfather of one of the authors of this article, Tirmizi, served in Pakistan Railways until 1966.)

The slow-moving decline: 1970-2013 hile the total number of passengers carried by Pakistan Railways kept rising well into the late 1970s, the signs of decline on the cargo side of the business were already beginning to show in the later 1960s, when growth in cargo effectively went to zero. Cargo traffic on Pakistan Railways actually started declining in 1970, and effectively kept going down until 2013, the worst year on record for rail carrier. The total volume of cargo carried by Pakistan Railways in 2013 was 95% less than the total volume carried in 1950.

The reason cargo matters is because that is how any rail carrier can make money.

“All over the world, the railway makes its dough from freight,” said Railways Minister Saad Rafique, in an interview with Profit.

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Passenger traffic tends to be unprofitable across most of the world and is often viewed by governments as a necessary piece of transportation infrastructure to provide citizens with affordable long-distance travel, and often seen as something that is worth subsidising. “The railway is a mixture of both a commercial organisation and a public service obligation,” said Javed Anwar Bubak, the CEO of Pakistan Railways.

One additional reason: passenger trains have to compete with buses, which can offer lower fares, albeit a more uncomfortable ride, but freight trains – despite lacking any subsidies – are much cheaper than trucks, especially over long distances.

To get some idea as to what the cost differential can be between transportation by trucks versus rail, consider the following numbers. “One railway locomotive of 3,000 horsepower can pull up to 70 freight wagons. Each wagon has a 22-ton capacity, which means that each wagon carries the load of three trucks. In short, one locomotive can pull a load equivalent to 210 trucks,” said Ishaq Khakwani, a former Pakistan Railways engineer and former minister of state for railways under the Musharraf administration, and current central vicepresident of the Pakistan Tehreek-e-Insaf (PTI).

So how much fuel does a train use versus a truck? Surely, a lot more, right? Not so. The United States Department of Transportation calculates that the average efficient truck (and most Pakistani trucks are far from fuel efficient) is able to travel 25.1 kilometres per litre of fuel. The average locomotive, hauling those 70 wagons? It will travel 85.9 kilometres on one litre of fuel. In terms of fuel costs alone, shipping cargo by truck costs approximately 719 times more than shipping cargo by train. There is, quite

‘THIS IS A COMPLEX, MULTI-DISCIPLINED DEPARTMENT AND THE ONLY PERSON WHO SHOULD RUN IT IS SOMEONE WHO HAS WORKED FOR THEIR ENTIRE LIVES IN THIS DEPARTMENT, NOT OFFICERS FROM OTHER GROUPS’ Javed Anwar Bubak, CEO, Pakistan Railways simply, no comparison.

While the lack of infrastructure investment helps at least partially explain why there was no growth in the cargo business, it does not explain where there was a precipitous decline that continued virtually unchecked until about four years ago. Ghulam Ahmad Bilour, who has served for eight years in two non-consecutive terms as the federal railway minister, most recently from 2008 to 2013, thinks the answer lies in the creation of a military-backed transportation company.

“The main problem with the railway dates back to the creation of the NLC [National Logistics Cell, in 1978]. In truth, since the NLC was formed, it has been working on and using trucks for freight, which has made railway suffer. Freight is the way that railways earn. So, when NLC was formed, freight moved from rail to

trucks and it gave Pakistan Railways a major blow,” said Bilour, who is an Awami National Party (ANP) member of the National Assembly from Peshawar.

But the NLC being an alternative to the railway is an insufficient explanation.

After all, an NLC truck is still more expensive than a rail carriage. The only reason it would make sense for businesses to move their cargo shipping needs to the trucks would be if the railway was not available, or not reliable, or both.

On that front, it appears that chronic underinvestment in infrastructure stretched not just to building new infrastructure, but maintaining old parts of it as well. This lack of maintenance shows up in the stunning decline in the number of freight wagons and locomotives owned by Pakistan Railways.

The total number of freight wagons owned

by PR peaked in 1975 at 37,395 and has steadily declined since then to hit 15,452 in 2015, according to the Railways financial statements. The number of locomotives has also dropped precipitously. The total number peaked in 1970 at 1,071 and stood at 458 in 2015.

“Even the locomotives we have are all dysfunctional,” said Bilour. “They stop working in the middle of their routes.”

How was this abysmal situation allowed to fester in the first place? The answer appears to lie, at least partially, in an accounting trick the government implemented decades ago to make the financial statements of Pakistan Railways look healthier than they really were.

The government has allowed the organisation to omit the depreciation of its assets from its calculations of its operating costs to make the deficit look smaller than it really is, said Ijaz Jaral, an official at the

accounts department of Pakistan Railways.

Jaral said this move was made decades ago, though he was not specific about precisely when this happened.

The problem with not listing depreciation as an operating cost – aside from being an atrocious accounting practice – is that it means that the organisation is not keeping track of the money it will need to replace them when their usable life expires. In the case of a state-owned enterprise, this means that rather than having replacement equipment – whether it be locomotives or freight wagons – be accounted for in the usual subsidy that the government pays to the Railways to cover its deficit, the railway would need to apply for separate funding every time any piece of equipment went obsolete.

Yes, the short-term financial health of Pakistan Railways looks better, but the price paid is the long-term survival of the railway as a going concern.

When asked about this absurd accounting practice, Bubak, the Railways CEO, engaged in an even more absurd case of whataboutism. “The cost of transporting goods on trucks or by air is way higher than the cost of transporting them through rail.

But the fact that we provide a service which allows the user to transport goods at a lower price does not show up on our balance sheet, even though the amount runs into billions of rupees and the entire nation benefits from it.”

No, Mr Bubak. That is not how accounting works. (For the uninitiated, the portion of the total economic value of rail transportation that is available to Pakistan Railways is already reflected in the price it is able to charge its customers, and hence in its revenue numbers. The portion of eco-

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nomic value from rail transportation that is accrued to its corporate clients is reflected in their operating profit numbers. If both sides did not gain economic value, the transaction would not take place. It is ludicrous to suggest that the total economic benefit of the transaction should be reflected on one set of financial statements.)

In addition to the accounting troubles, it did not help that since 1991, the position of head of the railways has been held, not by a member of the Railway Group of the Civil Service of Pakistan, but by a member of the powerful District Management Group (now known as the Pakistan Administrative Services).

“Even in India, the practice is that a railway man heads the department and not any officer from another group who has no prior experience of running railways,” said Bubak. “This is a complex, multi-disciplined department and the only person who should run it is someone who has worked for their entire lives in this department, not officers from other groups.”

“In order to mitigate the effects [of this DMG dominance], the government recently created the post of Chief Executive Officer in order to give more power and autonomy to the highest authority in the railway department after the Chairperson,” he said.

CPEC-led recovery?: 2013-onwards ubak’s larger point, however, is valid. The railway does accrue tremendous economic value to the country as a whole – more so than roads and highways – and is an institution worth preserving and investing in for the future. On that front, there appears to be some cause for optimism.

The first of these is who got appointed railways minister when Prime Minister Nawaz Sharif returned to office in May 2013. He appointed Khawaja Saad Rafique, an influential member of the ruling Pakistan Muslim League Nawaz (PML-N), to the position. As bureaucrats all over the world know, when it comes to deciding how much in federal resources will get allocated towards your department, it matters a great deal who the minister is in the cabinet meeting, and how much he or she has the prime minister’s ear.

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It is not just Rafique’s influence that has counted, however. Bubak says that the minister has been supportive of the railway management and has not engaged in what is common behaviour among Pakistani politicians: forcing the government departments or state-owned enterprises that fall under their purview to hire their own political supporters as payback for helping the politicians win the election.

“He ensured that we allow merit-based promotions and competent, honest officers to take hold of important positions in the department,” the CEO said with reference to the minister.

Rafique came on as minister at what was unquestionably the worst period in the 156-year history of Pakistan Railways. “The situation was so bad that our workshops’ electricity were disconnected. Employees were blocking roads in protest over unpaid salaries. In Karachi, employees had skirmishes with police. Senior pensioners were braving the heat to demonstrate against unpaid pensions,” said Rafique.

The minister got to work in trying to resolve those issues. It is in matters like this that it helps to have the prime minister’s trust, as Rafique was able to get enough federal funds allocated to the railway to pay overdue bills, pensions, and salaries.

In his interview with Profit, Rafique appeared to make it clear that while Pakistan Railways has a higher cost basis than a purely commercial organisation might because of its public service mission, PR’s basic financial problem is not costs, but revenue. And on that front, the core of Rafique and Bubak’s strategy is going after reviving the cargo business.

“In 2013, we sent 182 up-country freight trains from Karachi in a whole year – which meant one train every two to three days. This number has now swelled up to 3,500 in 2017. At the previous fiscal year’s end (June 30, 2017), Pakistan Railways’ revenue has more than doubled, going up to

over Rs40 billion from Rs18 billion in fiscal 2013. Only eight locomotives were running freight trains in mid-2013; now there are 102 operational freight locomotives,” said Rafique.

Cargo, however, is not the only place where the current management of the Railways is paying attention. Some of those initiatives include investing in newer and better locomotives, investing in improving tracks to allow for faster train rides (a project financed through CPEC), encouraging public-private partnerships to allow for the creation of a premium passenger train service, recovering the encroached railwayowned land, and hiring the best qualified professionals for all available jobs.

The railway is also investing in newer, more powerful locomotives. Right now, the majority of Pakistan Railways’ locomotives are 2,000 horsepower engines. The government recently purchased 55 new locomotives of 3,000 horsepower each. The advantage of more powerful engines is that they can pull more carriages on the same routes, effectively increasing the railways’ capacity. The new locomotives did not come cheap, though. Each costs Rs500 million.

The government has also tightened requirements for who is allowed to fill positions at Pakistan Railways. “Before this policy, there was not a single qualified lawyer in the legal department and the IT department was manned mainly by high school graduates,” said the minister. The in-

sistence on high standards, however, has come at a price in a country that has a very low quality of human capital: there are currently 20,000 mostly technical jobs at Pakistan Railways that currently remain unfilled.

Another important strategy has been to recover some of the more than 5,600 acres of railway-owned land that is currently being encroached upon by both private citizens as well as other government departments (the most prominent of which is the military).

Through a combination of lease agreements and litigation, Pakistan Railways has been able to reclaim 1,055 acres of its encroached land, yielding in a total of Rs6.12 billion in additional revenue over the past four years.

One of the more publicly celebrated recent railway initiatives, first started under the Zardari Administration, is public-private partnerships that allow railway infrastructure to be leased by private companies to run passenger trains. There are currently four trains – Night Coach, Hazara Express, Fareed Express and Shalimar Express – that are being operated by private companies and have yielded an additional Rs2.6 billion in revenues over what Pakistan Railways was earning when it operated them on its own.

But perhaps the biggest, most important initiative being planned by Pakistan Railways right now is the ₨886.68 billion (US$8.4 billion) CPEC-financed upgrade of its Main Line One (Torkham to Karachi), which aims to improve tracks, signals, locomotives, and other infrastructure that would allow trains to increase their average speed up to 160 kilometres an hour for passenger trains and 120 kilometres an hour for cargo trains. Those speeds may not sound very high, but consider the fact that the Khyber Mail currently goes from Karachi to Peshawar at an average speed of less than 54 kilometres an hour, meaning that the journey takes 32 hours. At 160 kilometres an hour, that journey would take 10 hours and 45 minutes in train time alone. Adding in time for stops along the way should still result in an express train being able to do a Karachi to Peshawar journey in close to 12 hours.

It is this shrinking of distance, both in terms of time and transportation costs, that is likely to have the most profound impact on the Pakistani economy – and possibly even Pakistani society – over the next few decades… if we get it right.

Why the railway ma‫מּ‬ers to pakistan magine if Pakistan Railways is actually able to pull this off and trains run considerably faster than they do right now.

Here is what that will mean.

You can get on a train from Lahore and arrive in Rawalpindi in just two hours, to Peshawar in just three and a half hours, to Multan in just over two hours, and to Faisalabad in just over an hour and 15 minutes. Sukkur would go from being a six-and-a-half hour drive from Karachi to being less than a threehour train ride away. Imagine what that kind of shrinkage of distance – coupled with the fact that trains are significantly more comfortable than buses while not being significantly more expensive – would mean for the fate of the country.

You might argue that this does not really matter because all of those routes have flights as well. Yes, but flights are typically more expensive than train rides. Besides, consider the Lahore to Rawalpindi trek. Yes, the flight is only 45 minutes, but you also have to get to the airport a little more than an hour before the flight in order to make it on time. Add the wait time at the airport to the flight time, coupled with the fact that train stations tend to be closer to the heart of cities than airports, and one gets a total journey time for some routes that would actually be shorter on a train versus on a plane, and also probably cheaper. (This, by the way, is why rail travel is exceedingly popular in Western Europe and the northeastern part of the United States.)

But the impact of increasing train speeds goes well beyond convenience. To take just one of the examples above, Sukkur’s fate would be completely trans-

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formed. Instead of having to locate factories in Karachi to be close to the port, for instance, small businesses could choose to locate in Sukkur instead and use the cheap, quick rail shipping to transport their goods to Karachi. It would fundamentally alter the economic prospects of Sukkur and its one million residents. Now imagine that repeated for every single small city in Pakistan.

It would also alter how Pakistani citizens view their own prospects. Take, for example, the case of a hypothetical (yet very realistic) young native of Multan and fresh graduate of Bahauddin Zakariya University.

She may face the choice between a somewhat lower paying job with few prospects in Multan itself, or a higher paying job with better prospects in Lahore. Hundreds of young people no doubt face similar choices every year and no doubt some might chose to move to Lahore, but one suspects that many more would prefer to stay close to family in Multan. But imagine if, instead of a grueling six-hour drive, Lahore were only a two-hour, cheap, convenient, train ride away. How many more people would be willing to move out of their hometowns, knowing that, if need be, they can hop on a train and be back home in a couple of hours?

And what would that do to our social fabric? All of us would have more relatives living in other parts of the country instead of having high levels of geographic concentrations. Would we not be more socially cohesive as a country, less divided along at least ethnic and geographic lines?

This is what is at stake in the revival of Pakistan Railways. You may not have cared about the railway, but its absence has impoverished your life, and its revival could enrich it in more ways than we can measure. n

transport

Will star-crossed Kia strike it big in its third avatar in this country – this time under the robust Lucky Cement banner?

By: Bilal Hussain ou could have a Kia Classic, just little below Honda City in terms performance, in the price of a Daihatsu Coure. That was something great,” said Shakaeb Khan, an automobile enthusiast, who also runs SK Motors Syndicate. A car repairing service company, SK Motors Syndicate is was nominated for Shell Tameer award for startups in 2012.

“My family bought it in 2005 and kept it for five years. It didn’t need any major maintenance. It

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was a good car,” said Khan.

“Hyundai’s one-ton truck Shehzore had been a successful, trouble-free commercial vehicle. Also marketed by the Dewans in this country, it was then priced around Rs600,000. Those old, reconditioned models are now available for around Rs700,000 to Rs800,000.”

Citing Mitsubishi Lancer as a case in point, he said, it was a massive hit in the global market but somehow didn’t do all that well over here. Rolled out by the Dewans in this country, “the old Lancers are still selling above what was its brand-new price.”

Before the Dewan Mushtaq Group signed technical license agreements with Kia Motors Corporation in December 1998, Naya Daur Motors was the first to introduce Kia in Pakistan in 1994. According to court filings, the company took over around Rs800 million as booking fees from around 16,000 people. Less than a thousand vehicles were delivered before the company went bankrupt.

After signing a separate deal with Hyundai Motor Company and KIA Motors Corporation in December 1998, Dewan Mushtaq Group started production in the year 2000. However, Kia Motors stopped its assembly line in Pakistan after just seven years, in 2007.

Conglomerate’s fall takes down Kia ia, Hyundai or Mitsubishi were not bad or even expensive vehicles. Far from it. The trio was unlucky to have been associated with the Dewans falling empire.

A source close to the Group, who prefers to remain unnamed, confirmed that Kia’s production in Pakistan was halted owing to the Dewans management failure and not because there was anything inherently wrong with Kia. “The Dewans had bit more than they could chew by having Kia, Mitsubishi, Hyundai and the BMW under their standard. Devoid of the business and managerial nous, the quartet was always going

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to prove too much of a challenge for the Dewans. Lacking financial discipline, the Dewns did not take banks fully on board and kept on moving money from one line of business to another without a care in the world. The bankruptcy when it came was quite predictable,” the source said.

Earlier, the Tawakkal group had brought Kia over under its enterprise ‘Naya Daur’. “The group neither had any credibility nor the intent to stay in the business for long enough. This all was meant to dupe people. Those who made the initial payment of around Rs50,000 per vehicle never saw their money back.”

A trendsetter in many businesses over the years, dubbing a group like the

Having been here a couple of times early, KIA Motors is no stranger to Pakistan before. First, Naya Daur Motors introduced it in 1994, followed up by the Dewan Mushtaq Group. Both Naya Daur and Dewan Mushtaq Group folded up after a while, filing for bankruptcy. This time around, Lucky Cement is unleashing it with aplomb

‘KIA, HYUNDAI OR MITSUBISHI WERE NOT BAD OR EVEN EXPENSIVE VEHICLES. FAR FROM IT. THE TRIO WAS UNLUCKY TO HAVE BEEN ASSOCIATED WITH THE DEWANS FALLING EMPIRE’ Dewan, as incompetent would to some extent be injustice.

At least on the record, Dewan Yousuf, the brain behind the establishment of Dewan Farooque Motors Company Limited (DFML), was a visionary businessman. The company was formally launched in December 1998.

Yousuf had a conviction that auto industry has a big role to play in any country’s real economic growth. Previously, in an interview to Express Tribune, Yousuf was quoted as saying, “In Europe, it’s like every other person is associated with the auto industry.” He also takes credit of reviving it in Pakistan in the mid nineties.

DFML was the first automobile company in this country to have robotic paint machines after it sealed its partnership with KIA and Hyundai to assemble vehicles. Car leasing was also introduced

by DFML through Askari Leasing – allowing many with enough cash to pay a vehicle up front to possess one.

DFML had the capacity to assemble 10,000 vehicles at its plant annually. According to a newspaper report, it produced 95,429 automobiles – including Kia Classic, Kia Spectra, Sportage – between 2000 and 2011. The DFML also sold 50,000 Shehzore trucks. Combined sales of all of DFML car sales revenue grew to Rs10.6 billion from Rs 3.3 bil-

lion in 2001, posting a cumulative net profit of Rs840 million over a period of six years.

It appears that not much was wrong with DFML but there definitely were issues with the larger conglomerate, as the Dewan Mushtaq Group was in polyester, cotton yarn, sugar, cement and petroleum businesses.

DFML is still functional and selling BMW cars in Pakistan and intermittently comes in the news, coming with one or another plan to once again steer into auto industry.

“There was a time when the people would generally only go for Toyota, Suzuki or Honda cars. But by 2005 and 2006, with the import of used cars, people started to realize that other brands were also as good. But by then, the time was up for Dewans, I guess,” Shakaeb Khan said.

Lucky-Kia partnership, good for both mer Arshad, who runs a car review channel on Youtube, mostly concurred with Khan’s views that the cars the Dewans were dealing in didn’t have any problems.

“Before Dewan halted its operations, Kia’s Sportage was selling at Rs200,000 ‘on’. The official rate of the car was Rs1,550,000 and people were ready to dish

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out Rs1,750,000 – meaning there was much demand for the car. But Dewans failed to keep it going because of its mismanagement,” Arshad said.

‘On’ money is considered ‘unethical’ profit earned by investors who book the car at price-tag rate only to resell at a premium to those keen to skip the waiting period for delivery.

Two more Kias, Spectra and Classic, did not strike it big in the Pakistani market.

The latter was with a trunk, with a price similar to hatchback Suzuki Cultus but its boxy shape was visually not good-looking enough for people, added Arshad. The former, Spectra, was 1,500 CC, its fuel inefficiency making it unattractive. “They should with have replaced have replaced it with other cars or changed shape. The insight and timely action seemed to be lacking,” he said.

Now Lucky Cement has partnered with KIA Motors and would be marketing KIA vehicles, accessories and parts in Pakistan.

Familiar with the development of Lucky Cement gunning to bring Kia under its banner in its first foray in the auto industry, an official informed that the Korean company has been relentlessly improving and has jumped in international standings to 8th spot from 11th, moving one step up on the ladder every year. “This means Kia is nudging ahead of one competitor every year.”

In its Initial Quality Survey, Kia has been rated as number one brand for two consecutive years by JD Power Marketing Research Company in 2015 and 2016.

Partnering with a group as sturdy and credible as Lucky – solid reputation, financial muscle, good equity and superb track record – would be good for Kia. Kia is a famous car in the Middle East, also in the USA and other regions. Approximately 70% cars in Iraq are of Kia brand.

People having visited abroad understand that Kia is an internationally accepted brand.

Since Kia has been making good cars, it would be viable for the local company to extend warranty better than the competitors.

‘THE KOREAN COMPANY HAS JUMPED IN INTERNATIONAL STANDINGS TO 8TH SPOT FROM 11TH, MOVING ONE STEP UP ON THE LADDER EVERY YEAR. THIS MEANS KIA IS NUDGING AHEAD OF ONE COMPETITOR EVERY YEAR’ Dispelling the impression that Kia would be synonymous with cheap, a source inside Lucky-Kia said: the package would be good cars at affordable price.

Spoiled for choice eanwhile, the source added that the entry of Kia-Lucky, NishatHyundai and Al-Futaim-Renault in the auto industry in Pakistan will benefit the consumers most as they will have various options compared to now.

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‘WITH THE ENTRY OF NEW PLAYERS, THE MONOPOLY OF THE PREVIOUS PLAYERS WOULD BE BROKEN BUT THEY WOULDN’T BE GOING ANYWHERE’ Kia-Lucky will initially be a subsidiary of Lucky Cement but the group has planned to list it separately in the near future after ascertaining its viability.

According to a financial analyst of Insight Securities, Zeeshan Afzal, Lucky is a strong group and funds are available for it to venture into new businesses.

“But the success of an automobile is not necessarily dependant on the host company. Lucky is only an investor. It will depend on how market receives Kia. Apparently I see no reason for Kia to flop because it is an acceptable brand in India,

‘APPARENTLY I SEE NO REASON FOR KIA TO FLOP BECAUSE IT IS AN ACCEPTABLE BRAND IN INDIA, WITH THE MARKET HAVING SIMILAR CHARACTERISTICS ACROSS THE BORDER’ 28

with the market having similar characteristics across the border. For instance, income level and family size, that influence a person’s decision to buy a certain vehicle are roughly the same in India and Pakistan,” he said.

The government of Pakistan, he added, is facilitating new entrants by offering lower import duties as compared to established players.

“The cost of production is higher for companies venturing into new markets – for on top of production, they have to market more aggressively to carve a niche for themselves. Meanwhile, the former players have completed their depreciation age since they have been here for over 30 years.”

Monopolies, a thing of the past ith the entry of new players, the monopoly of the previous players would be broken but they wouldn’t be going any-

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where.

“I haven’t seen new players ousting former players from the auto industry anywhere. So, the Japanese market leaders would not be going anywhere. But since the competition would raise the benchmark, they would have to offer better packages to consumers, who would demand better deals.

Either the consumers would get those or they would have the option of switching to the other brand that does,” he added.

Afzal further said that the auto-industry would benefit with the entry of new players, as would the local spare parts’ industry for it would have the opportunity to produce more and achieve economies of scale. Previously, it had not been viable to produce spare parts because the market had not been big enough.

Moreover, the new players’ entry will have to hire labour from Pakistan for their assembly plants – a good thing for the industry and the country.

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OPINION

KK Shahid Crude AwAkening

The year in energy While several commendable efforts have been made to improve the energy situation in the country, it is unfortunate that some projects have faced obstacles during the course of the year as well he year 2017 was touted as one of development for the energy sector of Pakistan, with several energy projects progressing and also receiving approval. The country has been bearing the brunt of a multi-pronged power crisis for decades, and these recent developments in the energy department are all attempts towards curbing the crisis faced by the nation. According to Prime Minister Shahid Khaqan Abbasi, 10,000 megawatts have been added to the national grid, with plants to add the same amount to the grid over the course of the coming two years.

In terms of progress, Pakistan has been able to increase power generation on a year-on-year basis. Numbers reported in November 2017 indicate that power generation has increased by 2.3% since last year. In actual terms, 6,994 GWh of power was produced in November 2017, compared to the production of 6,840 GWh in November 2016. However, the data reported by National Electric Power Regularity Authority (NEPRS) indicates that there has been a change in the energy mix of Pakistan.

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KK Shahid is Energy Correspondent, Profit

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‘THIS YEAR HAS OVERALL BEEN ONE OF PROGRESS FOR THE NATION’S ENERGY SECTOR. SEVERAL PROJECTS HAVE BEEN APPROVED TO BOOST THE POWER GENERATION CAPACITY OF THE NATION, WHILE OTHERS SEEM TO BE PROGRESSING WELL IN GENERAL, MINUS A FEW HICCUPS’

Power generation has experienced a 51% reduction from furnace oil and 22% reduction from hydel sources. Coal and re-gasified Liquefied National Gas (RLNG) have increased in terms of their production contribution in Pakistan. This change has been witnessed amid decisions to opt for low cost fuels for energy production in the country.

The end of October 2017 saw the closure of eight furnace oil based plants that produced more than 4,000 megawatts of energy and the start of LNG and coal plants for the production of 5,000 megawatts of energy.

In December, some furnace oil plants such as Hub Power and Kot Addu have been allowed to resume production with the condition of using only imported furnace oil.

The Thar Coal Power project has been progressing at a satisfactory pace, and is set to be completed by June 2019, according to Sindh Engro Coal Mining Company (SECMC) Chief Shamsuddin Ahmed Shaikh. The project is known to support a generation capacity of nearly 660 megawatts.

In recent news, the World Bank has recently granted Pakistan a loan of $825 million for upgrades in energy and public finance. It is estimated that nearly $425 million will be channeled to modernize the national grid based on the National Transmission Modernization Project – I (NTMP-I). The project is set to cover the rehabilitation, expansion and upgrade of 500kV and 220kV substations and transmission lines.

Besides this, the government has recently approved power purchasing payments for five energy projects that have the capacity to generate 1,300 megawatts

of electricity for the country. The approval was extended under the second Supplemental Agreement to Implementation Agreement of CPEC projects. The approval signifies the government’s commitment to keep the energy generation wheel rolling whereby the Ministry of Finance will fulfill payments for the CPEC projects in case power purchasers fail to pay up. This is supposed to render the CPEC projects risk free from the issue of circular debt that has plagued several projects in the country.

This year also saw a couple of firsts, especially when the recent news of the Sindh government’s intention to launch a tariff-based auction surfaced. This is the first project that is being implemented based on NEPRA’s decision to implement tariffbased auctions for solar photovoltaic (PV) power projects. Under this, the Sindh government intends to develop a 50 megawatt solar project in the province.

During mid-November, the Executive Committee of the National Economic Council (ECNEC) accorded its approval to 15 projects in different sectors, with a total investment of Rs211 billion. Power projects are seemingly receiving more attention within this program as the ruling government has been pushing forward to sort out the energy crisis being faced by the nation.

The ECNEC approved four projects in the power sector, including the 220KV Guddu-Sibbi single circuit transmission line at a cost of Rs. 8.366 billion and the 500 KV Lahore North substation and its transmission lines at a cost of Rs. 20.732 billion. Hydro and wind based power projects have also been approved under this program as well.

While several commendable efforts have been made to improve the energy situation in the country, it is unfortunate that some projects have faced obstacles during the course of the year as well. The Asian Development Bank (ADB) had granted funds totaling to $325 million under the Access to Clean Energy Investment Program for projects in Punjab and KPK, setting aside

THE DATA REPORTED BY NATIONAL ELECTRIC POWER REGULARITY AUTHORITY (NEPRS) INDICATES THAT THERE HAS BEEN A CHANGE IN THE ENERGY MIX OF PAKISTAN. POWER GENERATION HAS EXPERIENCED A 51% REDUCTION FROM FURNACE OIL AND 22% REDUCTION FROM HYDEL SOURCES. COAL AND RE-GASIFIED LIQUEFIED NATIONAL GAS (RLNG) HAVE INCREASED IN TERMS OF THEIR PRODUCTION CONTRIBUTION IN PAKISTAN $237.3 million for projects in KPK and the remaining $87.6 million was to be utilized by projects in Punjab. Under the program, 25,587 schools and public health units in the provinces were to be provided with electricity. However, as of today not a single solar facility has been set up in either of the provinces owing to lack of interest of the concerned officials of the provinces.

In other news, as the power plant projects located along the banks of the Neelam River, are now coming to a close. As they approach their completion, there are concerns of how Pakistan’s downstream project might be deprived of water by neighboring rival India who also has a project being completed on the opposite side. This deprivation could result in electricity production to contract by as much as 10-13%. According to Arif Shah, an engineer who has been

working on the site for the last eight years, Pakistan might be able to complete the project before India does, as pressures mount up to eradicate nationwide power cuts before the 2018 elections.

This year has overall been one of progress for the nation’s energy sector. Several projects have been approved to boost the power generation capacity of the nation, while others seem to be progressing well in general, minus a few hiccups. The ruling party is pursuing the fulfillment of its commitment to end the energy crisis evident by initiating several projects during the course of this year. And the government appears to be confident about the new projects being completed in ‘record time’.

As the new year is around the corner, what remains to be seen is whether these promises are fulfilled.

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By: Syeda Masooma othing sensitises one to others pain than having acutely felt it yourself. Having lost her mother in post-op care after an open heart surgery four years ago, co-founder and CEO of recently-established urgent-care hospital Cosmos Health Services Ashba Kamran embarked on a research to provide a platform for patients’ pre- and post-operations.

“There is a gap between the patient and the nurse, and then the nurse and the doctor,” said Ashba. Starting from a palliative nursing home in 2013, she has now expanded into a full-fledged medically equipped center for caring for patients with terminal and traumatic illnesses.

On December 10, 2017, Cosmos signed a joint venture with Thailand’s World Medical Centre (WMC) to set up 100 acute hospitals and urgent care clinics all over the country.

Even before Cosmos, Ashba was no stranger to caring for the needy. Her dyslexic son, who is now aged 25 and is a professional photographer, gave her impetus to enter hospitality industry years ago. Her Green Meadows School for children with learning disabilities now has 500 children enrolled. As she put it, “Suffering through the inability of doctors to care for my mother after her operation, I real-

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ized that this is a major gap in Pakistan’s healthcare sector and I decided to bridge it.”

“Pakistan’s finest health care is just not good enough. The word hospital [root: from Latin, hospes] stems from hospitality. But hospitals here are just a building. The private sector is as bad as the public, because when the latter fails to bring any competition to the former, the bare minimum suffices for them too,” says Ashba.

There is no accountability or credibility for private sector hospitals and no regulatory body to keep a check on the services, which is a must given the circumstances, lamented Ashba. “They have started with the Punjab Healthcare Commission but it is still not following the standards that are internationally accepted.”

There is no concept of allied urgent care in Pakistan. The only hospitals that exist, both public and private, are acute care hospitals.

“All around the world there are acute hospitals, and then there are nursing homes, and urgent care.”

About 60 percent of the occupancy in a regular hospital, said Ashba, is by the terminally ill patients because there is no concept of hospitals primarily for patients with non-traumatic or terminal illnesses – neither requiring a long-term treatment. “Patients who are terminally ill are only left with the regular hospi-

tals and lengthy bills despite not being under treatment of any kind. There is no infection control or any other services that is required by terminally ill patients.”

Satellite hospitals, need of the hour he believes that it is better to have small satellite hospitals for terminal as well as non-traumatic illnesses. She is also of the opinion that satellite hospitals will help people avoid the long commutes they have to make to reach a hospital for general health issues like gastro.

Recounting how her two-bedded facility grew into a complete equipped hospital she said, “I brought a Hungarian girl on board to train my nurses. She had worked in such institutions before. When we started training our first batch of 20 nurses, we found that all they knew was to put up a granula.” About 12

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‘HOSPITALS HERE ARE JUST A BUILDING. THE PRIVATE SECTOR IS AS BAD AS THE PUBLIC, BECAUSE WHEN THE LATTER FAILS TO BRING ANY COMPETITION TO THE FORMER, THE BARE MINIMUM SUFFICES FOR THEM TOO’ Ashba Kamran, Co-founder/CEO Cosmos Health Services

HEALTH

weeks later only two of them stayed, 18 leaving on account for not being paid for the training time or for requiring to sign a bond with Ashba’s institution. “The two who stayed are still with me and now I have a total of 35 nurses working here.”

According to Ashba, the capital investment required by this 12-room facility with an additional three-bed emergency department was around Rs50 million. “That's the cost for one urgent care hospital. We are also in the process of launching an acute hospital which we will launch in the first week of January.”

She did not share any further details about the acute hospital project, but said that the urgent care and the hospital will both refuel each other in terms of patients as well as finances. “The non-traumatic patients will come here and patients with traumatic illnesses would be shifted there. We will also introduce mothercare concept of well-baby, sick-baby in Pakistan and it will be at work here.”

Cosmos also has the online pharmacy channel Sehat on board as the medicine supplier. It is a channel of Apothecare (Pvt.) Ltd. – a venture by Fazal Din family, and will continue to be a part of expansionary plans of Cosmos.

Location: Hub of healthcare egarding the business perspective of her venture, Ashba said that there is an obvious need and when the product is available, the customers will come. “We started marketing ourselves with small lunch gatherings to introduce people to the idea. We invited the general public as well as some doctors so they could come and see.

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For patients, it is a convenience of healthcare while for doctors it is an additional opportunity to work.”

This is also the reason, Ashba said, that determined the location for her hospital. “It is a hub of healthcare, surrounded by Shaikh Zayed Hospital, American Eye Center (MediVision Hospital), Bridge Rehab and Psychiatric Services, and Doctors Institute of Medical Sciences, among others.

She dismissed the idea that having hospitals around the would serve as a competition, rather opined that it will be suitable for doctors from those hospitals to continue their practices as well as be part of visiting faculty for Cosmos. “For patients too it will be easier to shift to Cosmos from nearby hospitals.”

For the product positioning and pricing, Cosmos CEO said that it is a premium product but priced at par with the private hospital costs. “What we are trying to convey is that our services are better and still cheaper than the services of regular hospitals.”

The consultancy fee is standardized, somewhere between Rs3,000 and Rs5,000, depending on which doctor the patients want to consult. “We can call the doctors of their choice as visiting doctors, but that also means that different doctors will charge different consultancy fees,” said she. The CEO said that she will also eliminate the waiting line practice for her patients, making online appointments available for her patients as long as they are punctual.

“We are also going to implement the Health Management Information Systems (HMIS).”

As an organization Cosmos has per hour wages contracts with the doctors. It gives the hospital more independence and limits the working hours per doctor. “One doctor cannot work more than 168 hours a month. We have doctors here who are either running their own

practices or are studying in their final year in the medical colleges. We also have specialists on call, but the General Physician is here all the time,” Ashba explained.

Cosmos also plans to work with government sector but as independent managers, and only for burn centers. “That is something that you cannot manage on your own but it is also better to run the ones already established instead of making new ones. We will manage them independently through a corporate structure.” She said that the financing and running of the center will also be done by Cosmos without any control by the government, if such an agreement ever comes into play.

She, however, has strong sentiments when it comes to government’s role in the healthcare center. “The MS of hospitals should be trained in management and hospitality. Being a doctor isn’t enough. Then regulatory bodies also need to be made, and instructed to be strict in regulating hospitals according to international standards.”

Her opinions for managing a hospital are equally uncompromising. “Don’t break the chain. The culture here in Pakistan of pulling friendships to get your work done, just because you know someone in the management is the problem. If someone goes to my directors and asks them to do something that only I have the authority to do, my directors don’t break the chain and rather send them to me.

Likewise as the chief executive, I am running the show but I am not in the forefront and I leave that job to the people concerned instead of forcing my authority.”

Sharing her plans for the future, she concluded, “We see ourselves as the healthcare platter with 10 top care hospitals at par with the international standards in the next three to five years.” n

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impact – and te a e cr to f e li e b d n a n Using visio of it carving a success out By: Syeda Masooma like people, I like speaking, and I like creating impact,” says Umer Khan, Evenement CEO, founder of Activ8 and Service Punch, and co-founder of the Pakistan Human Capital Forum.

“Everything starts with belief. With the will to Make It Happen!” this is the cornerstone of Umer Khan’s motivational training model and also the personal belief that has enabled him to build two successful enterprisesin diverse and competative fields. Organizations that create tremendous impact and provide a creative home to more than twenty full time employees.

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Umer’s journey as an entreprneur has been an interesting one, and so Profit sat down with him to get the inside story.

We met at the bright and buzzing creative hub that houses offices for both Activ8 and Evenement. Instantly one is stuck by the productive and comfortable vibe of a busy team working in sync. Motivational quotes line the funky latticed walls as collegues exchange queries and easy banter across the open plan space. The team has recently relocated to their ecclectic first floor offices after a massive fire destoryed their existing home. Umer uses the fire as a starting point for his narrative.

“Seeing all you’ve built destoryed by one faulty wire gives you perspective. For me, as

‘I THINK ONE THING WHICH IS STILL MISSING AND I WOULD LIKE TO DO MORE OF IS TO TAKE SERVICE PUNCH TO THE LEVEL WHERE IT CREATES THAT SERVICE REVOLUTION THAT WE WERE AIMING AT. WE HAVE ENGAGED ENOUGH PEOPLE BUT THERE’S ONE THING THAT I BELIEVE IN: A HUGE OPPORTUNITY IS THERE FOR THE TAKING’ someone who espouses the power of positive challenge management for a living, it gave me the opportunity to live up to my convictions and in fact, to test my own beliefs.” says Khan looking back on the fateful day last October.

Collegues and employees tell this Profit reporter how Umer never stopped, never slowed down and most importantly did not let the team despair. We understand from the team that despite the massive financial hit, the company closed its most successful financial year to date and each team member not only owns that success, but attributes it to the unflailing belief of their CEO. So what are those beliefs, and how have they played a role in Khan’s entreprenurial success?

Straight out of GIK with an undergraduate degree in Mechanical Engineering Umer was shortlisted for an engineering job. However knowing his passion lay elesewhere, as did his natural talents, he relentlessly kept at the interviewer to give him an opportunity in mar-

keting instead.

Before having conducted a single workshop, he dubbed himself a trainer, and without any track record whatsoever, convinced Dupont to give his proposed training programs a shot.

He had a vision to bring together the HR community and he created an organization that now has three impactful and active chapters.

He saw a space for imporvement and created Service Punch | The Service Conference to begin a conversation about service in its truest form.

These achievements sum up Umer Khan’s belief system. Know what you want, believe that it is attainable, understand what it takes to achieve it, and be ready to execute in the moment. Use each set back as an opportunity to learn and grow, and stop at nothing to make it happen.

“If you are good at studying, it follows that your parents want you to pursue a particular set of studies and specific type of career. I studied engineering but I never planned to pursue that as a career.”

THE RELATIONS YOU BUILD ARE NOT WITH THE BUSINESSES, BUT WITH PEOPLE. EVERY TIME A PERSON GOES FROM ONE PLACE TO ANOTHER, YOU HAVE TO RECOMMENCE FROM THE SCRATCH. THE VALUE THAT YOU HAVE BROUGHT TO A PARTICULAR ORGANISATION EVAPORATES THE MOMENT PEOPLE YOU HAD WORKED WITH DEPART’

Khan always knew that he wanted to create something of his own, something that would leave a lasting impact and touch peoples hearts and minds. After GIK, he dabbled with a few internships and jobs before continuing his education. “I was in Agha Khan Hospital Karachi with my mother and I found out that an ex-colleague from GIK had found employment in the sales department at Engro. That gave me a big boost. I made a bunch of calls to Engro from a payphone to a lady from HR to interview me. Before that, I had, had my fair share of failures. Everything was telling me to believe in stereotypes, but Engro was my first experience that gave me confidence and since then I have started believing in myself and my dreams.”

In 2001 Khan, decided to pursue further education in business and went to Virginia Tech University for an MBA – “with just enough money for my first semester” and a promise to return if he failed to find funding for his the rest of his education. Come back he did, but only armed with a degree – only to find that there was nothing in the job market to interest him.

“Even if you have strong points and interests, they are not always aligned with your purpose. Sometimes they can indeed become a distraction and that happened to me.” To make do in the interregnum, Umer found himself teaching assignments. “LSE, UMT, you name a business school and I was teaching there. I taught

ENTREPRENEURSHIP

‘EVERYTHING WAS TELLING ME TO BELIEVE IN STEREOTYPES, BUT ENGRO WAS MY FIRST EXPERIENCE THAT GAVE ME CONFIDENCE AND SINCE THEN I HAVE STARTED BELIEVING IN MYSELF AND MY DREAMS’ Umer Khan, CEO, Evenement courses ranging from organizational design to marketing research, and I started calling myself a trainer. I didn’t have any company or proper experience, but I still got a chance.”

When Dupont had a team-building engagement and reached out to a trainer they had heard of, who teaches, Umer jumped on the opportunity. They never asked him about his experience, instead, demanded a training plan. “I gave them a list of topics I would be coaching on and they hired me. I believed this was something I could do and I worked hard to make that belief a reality. It hasn't been easy and the learning curve was massive.

But if you have a vision and are on the path of realizing it, then you have to be in a mindset to sieze opportunity and roll with the punches.”

Although training was his passion, Khan’s first entreprenurial venture something quite different.

Venturing into event management Sometimes while running training courses, he also ventured into event management. In 2004, he launched Evenement. Sanjan Nagar Institute of Philosophy & Arts became his first client.

“Even there we have enhanced our rates in multiples of at least a hundred.”

Khan doesn’t believe in any given type of event, keeping his range and repertoire vast, though the initial idea was to specialize managing expat weddings.

“We built a whole model based on the specific needs of expats because we wanted to go where the opportunity was.

Back then, planning a wedding was not a huge trend and people coming from other countries had to depend on their relatives to make all the arrangements, as they had neither much information nor any real avenue to find what they wanted.” Umer continues “But as I stepped into the event management industry, I realized that the corporate world is my main strength and though the weddings paid a lot, corporate work was where I felt at home. That said, we haven't restricted ourselves to any particular category, but now it's not just me. I have an entire team that looks at different sectors. With clients, we strongly focus on cultivating a relationship where we cater to everything – from the smallest possible meetup to the biggest scale event.”

“Part of knowing what it takes to achieve your goals is surrounding yourself with people who complement your own abilities with their diversified skills. And in order to have the most effective team, you have to create an environment of ownership and autonomy.” This is what Umer set out to do with EVENEMENT his event management company. Empowering individuals has always been a passion for Umer and seeing the impact of empowered employees led him to create an initiative that's sole purpose is harnessing hidden potential and maximizing individuals, Activ8 Training & Development.

With Evenement up and running, Umer had the chance to transform his passion into a second viable business. One which both diversified and complemented the corportate side of his events business

‘THE EVENEMENT HAS BEEN THROUGH EVENTFUL TIMES, THE MOST EXPLOSIVE BEING KHAN’S SPLITTING WITH HIS PARTNER AND CO-FOUNDER. BUT HE LOOKS AT THESE AS A NATURAL COURSE OF EVENTS THAT ENDED UP TO HIS ADVANTAGE’ 38

and one in which he could realize another long term dream. A partnership with his father.

“Since my first training with DuPont, I have multiplied my daily rate as a trainer about 25 times.” Fourteen years ago when he began training he was just a name, doing independent training or partnering with other organizations. Today he has multiplied his daily rate more than twenty-five times and established Activ8 as one of the premiere training and leadership development companies in Pakistan.

Eventful times venement has been through eventful times, the most explosive being Khan’s splitting with his partner and co-founder in 2012.

But Khan looks at these as a natural course of events that ended up to his advantage. “Like every business, there were several directions to take and several routes to follow, and I think that we had a great time together. Then came a time when we should have separated and we did.”

Taking a lesson out of this division and commending his partner at the same time, he said, “You need to continue to move forward. Certain distractions and hurdles always come but my best advice to anybody would be: faced with a challenge, try to get out of it double quick and move forward as soon as possible. I would give credit for this to my former partner too because the total time it took us from discussing our division for the first time to being fully operational sepa-

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rately in our own business was three weeks.”

When asked what he would do differently if he gets to do it all over again, he said that except being “less lazy,” he will do it “with the same people, in the same way, without any regrets.” Since he feels that he hasn't given off his best yet and, that remains his driving force, so he would do better there. “I would totally want to move ahead to do justice to the dream and to the opportunity.”

He considers himself his own biggest competitor. “The only thing stopping us, or any other business, from going forward or going bigger is our own self.

For anybody who is doing it the right way there is no way of losing business due to competition. The pie is big enough for everyone to grow without affecting anyone else massively. Besides the more people there are, the happier I am. Not only that leads to customer awareness,but also keeps on filtering the best. So clients also realize the brands who give them value and those who don’t.”

Overlapping clients he choice of training and event management professions sometimes also comes in handy for Khan because it brings in overlapping clients. Arranging events for a particular organization brings Khan close to their business practices, challenges and

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objectives, allowing him to design custom-made consulting and training projects for them. “At least 70% of our clients are in both businesses and I expect that eventually, the remaining 30% will also come to the fold. We take great pride in being able to provide a unique and holistic solution to our clients.”

The biggest challenge for him is the same in both these industries as well.

“The relations you build are not with the businesses, but with people. Every time a person goes from one place to another, you have to recommence from the scratch. The value that you have brought to a particular organization evaporates the moment people you had worked with depart. We need to develop maturity and understanding that while having relationships is great, one’s value should be seen in what you contribute to the company and not to the people who brought you in.”

He is proud of his accomplishments outside these two companies as well and that is where he believes most work is yet left to be done. Khan Co-Founded the Pakistan Human Capital Forum (PHCF) with Adeel Anwar and Faraz Aslam about five years ago. Since then the organization has grown into three chapters across the nation: Mughal, Mehran, and Margalla. With more than 200 members, it has dozens of organizations as part of it and while it is not revenue earning, to Khan “it creates impact.” This month the forum

held its 40th session.

The Service Punch Conference is another of his initiatives. The conference has held two editions in the last four years and gears up for the third edition in 2018.

Service Punch is a profit making venture, but Khan wants to take it to the level where it creates tangible disruption in the service space. “We find that in the customer experience and the business mindset a lot has been left to be desired. And there was not one platform providing a narrative. I think one thing which is still missing and I would like to do more of is to take Service Punch to the level where it creates that service revolution that we were aiming at. We have engaged enough people but there’s one thing that I believe in: a huge opportunity is there for the taking.”

Speaking on how long he thinks it will take him to get there, he said, “Since we have the right kind of people and right kind of organizations, I am looking forward to the next 3-5 years to really help create a service revolution.”

Both straight talking and affable, Khan closes our conversation with his view for the future. With big aspirations for both EVENEMENT and Activ8, I ask if there are other business venuters he has in mind. He doesn't say anything specific, but there was definitly a twinkle in his eye, that leaves one wonder, what they can expect next from the intrepid entreprenuer. n

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The era of deserted hotels is over, as hospitality industry has for a very large part recaptured its lost business but to realise its potential and thrive manifold it is looking up to the government to provide sustenance By: Usman Hanif ost September 11 attacks on the World Trade Centre and subsequent US ‘War on Terror’, Pakistan tourism and hospitality industry took a serious beating. It was to be expected, for a ‘frontline’ nation. Things kept on going from bad to worse, until the turnaround in the aftermath of Zarb-e-Azb in 2014. With governments on all five continents issuing travel alerts, advisories and warnings describing Pakistan as a ‘no-go’ destination, so grim was the situation that essential meetings of multinational, corporate and multilateral agencies were moved to Dubai, Bangkok, Malaysia and var-

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ious European capitals.

“Our business had taken a nosedive”, said Mustansir Zakir, Chairman, Pakistan Hotels Association. The ratio of foreign tourists slided to only five percent from a peak of up to 28 to 35 percent prior as we got embroiled in the war in Afghanistan and the terrorism that was unleashed as a consequence. The overall hotel occupancy rate declined to a woeful 20 to 30 percent.

During that period, the revenue per available room less than halved (RevPAR revenue divided by rooms available in a given period), went down to less than half, from Rs2500 to Rs1200.

Hotels in those days were at best running at break-even or bleeding losses.

“Hotel business is like a plane or a vehicle; if one parks it for a longish period, and it goes to rot, it would take a greater investment to make it operational again.

For that reason, we suffered losses but kept it going,” said Mustansir Zakir, also a Director in Hashwani Hotels Limited along with being the head of Pakistan Hotels Association.

After 2001, the only foreigners coming to Pakistan were from the US and other countries involved in the Afghan war. The same had happened during the 1980s when the USSR occupied Afghanistan.

“In times of war, the pattern of visitors changes, and businessman or common folk are replaced with the government officials,” said Erik Huyer, GM of Avari Towers Hotel.

After Zarb e Azab, and now Radd-al Fassad hospitality industry is regaining momentum. “The Pakistan Army’s endeavour has now started producing results, and the confidence of people is being restored,” he said. But he was quick to add that it will take time for negative image to changed, especially since unfortunately government’s role is non-existent”, Mustansir Zakir said.

Occupancy regained he good news is Pakistan has regained its occupancy to 60 to 75 percent “now we are enjoying the business as we have regained our occupancy rate to the extent that I am declining every client who insist on concession,” said Yasir Ahmed, Manager Sales

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‘IF WE COULD SOMEHOW LURE $1 BILLION WORTH OF CHINESE TOURISM, WE COULD BE FAR AHEAD FROM WHERE WE ARE TODAY’ Mustansir Zakir, Chairman, Pakistan Hotels Association and Marketing of Mehran Hotel.

However, share of foreign tourists figures to only 7 to 8 percent which, according to market experts, needs to be to at least 25 percent.

That said, there are positive indications. Only recently, Karachi hosted members of Bohra community from different parts of the world and almost all hotels were booked, even mid-range hotels in Saddar area, did good business after quite a while.

Pakistan’s hospitality industry contains more than 10,000 hotels including three, four and five star hotels comprising 50,000 rooms all over the country. But the revenue per available room is way low at $150 – nearly half if one compares with India where the same star hotel yields $300 to $350.

The Asia conference, the ABAD and the Ideas were good for the hotel industry, as many foreigners came for these. In addition, the multinationals have also restarted having business meetings and conferences here, instead of going abroad.

The industry share in the GDP is 3 percent, but it can be doubled in short order given the right environment, said the Chairman, Pakistan Hotel Association.

Presently, as Mustansir termed it, the situation has been retrieved a great by recapturing business and internal growth, but if the government takes steps to attract foreigners, it can really produce results.

The lack of investment is an issue. In the last 30 years, population has doubled, yet the country has seen no new 5 star hotel, the Lahore Avari being the last to have opened its doors in 1988.

The hospitality industry can only thrive when government of the country

has vision about it, “we used to hear and study five-year plans in our economy books. Where are they now?,” said Mustansir Zakir.

The Northern Areas of the country can have a major chunk of tourists. But even with the peace returning, there are questions roads being blocked from landsliding, quality of food and other necessities, and the rest houses not having gas for fire in extreme cold. Such issues deprive an intended visitor’s confidence, and he goes over to Dubai. “With proper arrangements up north we can retain over outgoing tourists and bring foreigners over too for our mountains, lakes and valleys are indeed magical,” Mustansir said.

Then, if you compare Karachi-Islamabad airfare, it is more expensive than Karachi-Dubai.

The government ought to not just rationalize taxes on the hospitality sector, but also simplify the procedure as dozens of taxes are collected by various departments, said Mustansir.

If the government encourages investment by rationalizing taxes, giving land at subsidized rates and provide infrastructure and other facilities, it will earn a whole lot more than what it is making now as the sector shall bring in a greater number of taxpayers.

When tourists arrive in a country, they spend the entire amount they had allocated for their holiday – not just on hotels, food and sightseeing but also shopping.

A former General Manager of Marriott, Karachi, Mustansir said, it was commissioned in the 1990s while Marriott Bombay became online in 2000s. While the

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former’s occupancy rate is around 60 to 70 percent while the latter is above 90 percent round the year – a clear indication of the difference between two neighboring markets.

Due to active tourism, hotels in India and Bangladesh across the board have more than 90 percent occupancy rate, with 50 percent of it being the foreigners.

Pakistan has five to six percent population growth which is a good sign from business perspective for example if Hashoo Group opens a new hotel they already have trained staff to run it so added cost won’t be high for the new hotel.

The Hashoo Group of Companies has launched a Pearl Continental in Gwadar, while four mid-priced hotels, under the banner ‘Hotel One’ were being opened in Multan, Muzaffarabad and Mirpur in Azad Kashmir and at Hayatabad, Peshawar.

The Avari Towers Hotel is also going to launch five mid-priced hotels in the next one year and a half.

“The likes of Hashoo Group and the Avaris have an inherent advantage: they already have trained staff to run their new ventures, and that curtails cost and effort.”

Lahore in the lead mong the various Pakistan cities, Lahore is doing greater business than others as it is more developed than others.

The plight of the industry can be gauged by its lack of attracting investment.

To the extent that since the early 1990s no big hotel has been launched across Pakistan, just five to six mid-level hotels, and these too in the last four years in Islamabad and Lahore.

The Ocean Mall was approved and developed as a hotel property only to be redesigned into a shopping mall when potential in hospitality business diminished, said Mustansir.

A pretty decent foreign exchange resource, the government is not taking advantage of hotel and tourism sector’s potential owing to weak bylaws. To increase foreign exchange earnings, hotel industry has suggested to the government to do legislation so that the foreigners could only pay their bills in dollars only, even if a local company

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‘THE NORTHERN AREAS OF PAKISTAN CAN HAVE A MAJOR CHUNK OF TOURISTS. BUT EVEN WITH THE PEACE RETURNING, THERE ARE QUESTIONS ROADS BEING BLOCKED FROM LANDSLIDING, QUALITY OF FOOD AND OTHER NECESSITIES, AND THE REST HOUSES NOT HAVING GAS FOR FIRE IN EXTREME COLD. SUCH ISSUES DEPRIVE AN INTENDED VISITOR’S CONFIDENCE’ foots their bill.

Mustansir Zakir presently does not see much of a CPEC role in hospitality industry’s revival, saying at the moment for 10 people Chinese companies hire a room with a common washroom and common dining room.

In future, it can benefit the hospitality industry but government needs to make a plan first, by providing land at subsidized rates for take time to build. The Chinese will stay at hotels constructed by the CPEC routes and the government will benefit through taxes. “But I don’t see any discussion on this in the government circles”, says Mustansir.

The government should give infrastructure and security to hospitality industry; it can give land lying redundant to hoteliers so that they could start business. It will create facilities and generate tax revenue. In order to build theme parks to attract people towards tourism, the government should give tax exemptions for the machinery and equipment that needs to be imported. .

Opportunities aplenty akistan has many splendours to showcase to tourists: deserts, beaches, islands, majestic mountains, forests, monuments, it can also build hiking and camping parks, zoos, aquaria, museums, botanical gardens and other paraphernalia to attract international tourists in big numbers.

The Pervez Musharraf regime worked on hotel industry but since then nothing.

The government holds meetings with them time to time but they don’t see any result, said Mustansir telling Once Zardari called a meeting and told us about a plan to build hotels near Haleji Lake when I asked whether the government is making infra-

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structure for the project he had no satisfactory answer.

Japanese come to visit Taxila, one of the premier Buddhist heritage sites, but they don’t find any hotel close by so they can’t stay more than a day, which is a great loss.

Though law and order is stabilizing, yet the security remains a huge issue, adding to the cost of doing business. For instance, the hotels that used to hire 20 guards now have 120 instead.

How the government can help?

Malaysia’s is a case in point on how to give a shot in the arm to tourism: the government floated international tenders for five hotels and one theme park. The land was granted gratis, and topped it up with tax break for 20 years on conditions that the foreign hoteliers will hire locals up to the position of supervisor while the Malaysians will gradually be inducted into managerial positions as well. That is how they turned an uninhabited area into a vibrant tourist place.

Pakistan should market its tourism through right media like travel shows and magazines to attract international tourist, says GM Avari Towers Hotel.

Due to the food and cultural diversity, Pakistan can be a tourist attraction.The Pakistani food alone has the potential to keep clients revisiting the country. “Pakistani food is not boring, every area of the country has its own specialities.”

According to the World Tourism Organization, the Chinese will spend $15 billion on many segments of tourism in 2018.

“We may not be high on the entertainmentseeking segment, but there are others, like those having visited the west now wanting to see other parts of the world, visiting historical places like Taxila. “If we could somehow lure $1 billion worth of Chinese tourism, we could be far ahead from where we are today,” said Mustansir Zakir. n

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