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Is Pakistan the biggest buyer of black tea Page 02
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profit.com.pk
Sunday, 22 January, 2012
‘EU trade concession not beneficial under present energy crisis’ KARACHI GHULAM ABBAS
He much awaited unilateral tariff concession to Pakistan proposed by european Union (eU) is unlikely to benefit the country’s exports as its production of textile made-ups has badly affected by the present energy crisis. As the production has reduced drastically due to the electricity and gas shortages the eU package which is likely to be discussed at World trade Organisation on February 1, would also not be able to change the down-
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ward trend of textile exports. talking to Profit, Mohsin Aziz, Chairman All Pakistan textile Mills Association said that the in view of the acute energy crisis country’s exports would be reduced by over $2 billion during the current financial year. the current negative growth against the expected $14 billion worth exports would also cause reduction in overall exports. the export of textile, in terms of quantity, has been reduced by at least 38 per cent during the couple of months. Last month exports were declined from $1.12 billion to $900 million with the re-
CGT RATIONALISATION
Ministry accepts SECP proposals Investors exempted from showing source of income g NCCPL and not FBR to directly deduct CGT at source g Individual investors’ participation in MTS allowed g Brokers given Rs50mn for executing additional business g Cash margin requirement for MTS cut from 25 to 15 per cent g Withholding tax on turnover abolished to avoid double taxation g
KARACHI
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ISMAIL DILAWAR
inister for Finance Dr Abdul Hafeez sheikh saturday agreed to the securities and exchange Commission of Pakistan’s (seCP) proposals on the rationalisation of controversial Capital Gains tax (CGt) to revive the investors’ confidence at the country’s volumes-starved capital market. Under seCP proposals taxpayers would be exempted from declaring his/her source of income till June 2014, withholding tax (WHt) on the turnover would be abolished, the current CGt rate would be frozen till 2016 and that the national Clearing Company of Pakistan Limited (nCCPL) under a revised collection mechanism would at source deduct the tax on capital gains directly. Further, besides allowing individual investors’ participation in the Margin trading system (Mts) the apex regulator, by amending securities (Leveraged Markets and Pledging) rules 2011, allowed 15 per cent cash margin and 10 percent margin via eligible securities with immediate effect (from Monday). Moreover, to enhance brokers’ capacity to execute business, seCP allowed each member of the three stock exchanges to do additional business against a specified collateral amount from their respective Clearing House Protection Funds. the brokers at Kse would be allowed to do additional business by rs50 million (each) against a collateral amount of rs10 million. “this would increase the daily market capacity by around 150 million shares,” seCP chairman Muhammad Ali told a well-attended ceremony on “serving investors and industry” held here at Karachi stock exchange (Kse) saturday. the nCCPL would manage the three Funds as separate pools for each exchange. “i do accept these proposals and
want the same be in operation from April 1,” the finance minister told the gathering. Federal finance minister also assured the seCP chief of his full support on the proposed demutualisaion of the country’s stock exchanges on the legislative front. in his address, seCP chairman slammed the front regulators, the exchanges, for not playing their due role in proposing financial literacy which he said was the lowest in Pakistan. On seCP’s part, he said, a three-year investors’ education Plan was due to be approved next week. Further, urging the need for “better surveillance” for investors’ protection, Ali said second phase of e-dividend was in the offing in collaboration with the Central Depositary Company while the nCCPL was developing “central data base” that would not only help the exchanges ease out documentation process but also keep check on money laundering. “We expect this programme to finalise by the end of March,” the seCP chief said. Commenting on the development, the analysts believe that by exempting the investors from declaring their source of income till 2014 the economic managers wanted to whiten their mostreferred black money. “Afterwards that wealth would be treated as white,” said Khurram schehzad, an analyst at investCap research. seCP, however, says the exemption of CGt for a long period of 36 years, from 1974 to June 2010, had created a situation whereby the investors had earned legitimate but “undocumented gains”. About the collection of CGt by the nCCPL, the analyst said it would help the taxpayer avoid the income tax officers. seCP decided to revamp the CGt after eventually realizing that maintaining status quo on the CGt was not in the interest of the economy as it had adversely impacted tax revenue collection as well as trading volumes at capital markets.
duction of $2.5 million. During november and December 2011, there was a decline of at least $400 million. Keeping in view the current downward trend and massive energy crisis, PtMA forecasts that the country would hardly reach the $12 billion worth exports by the end of the financial year 2011-2012 against the previous figure of $14 billion. He said negative growth in textile sector was alarming and this trend is likely to continue in future unless energy and interest rate issues for the textile industry are addressed.
the textile exports, in terms of value, he claimed, were better during July and August of the current fiscal year, but the decline in quantity terms was started from October after the days’ long gas end electricity breakdowns especially to the industrial sector of Punjab. Another factor of decline in exports, what he said, was the high interest rate which was affecting both production and expansion of the industry. According to him, a reduction of 150 basis points in rates to produce export surplus has failed to push credit off-take, which means the interest
rate is still on the higher side and both commercial and industrial borrowers are reluctant on further financing. talking about eU trade concessions package of 75 items to Pakistan, the chairman APtMA hoped that the draft waiver sent by eU to Council of trade and Goods of WtO would be passed unanimously next months. However, he said, until the energy issue, which has paralysed the country’s industries, is resolved besides taking other measure for growth of production and exports, the eU package would not be fruitful to the country.
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Sunday, 22 January, 2012
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news
Is Pakistan the biggest buyer of
BLACK TEA? IsmAt sAbIR eA is commonly used as beverage in almost all over the world. Pakistan is the fourth largest tea importer in the world, after russia, UK and egypt. Pakistan has a market of over 140 to 170 million kg for black tea, which is imported from 21 countries including Kenya, indonesia, india, Bangladesh and sri Lanka. Black tea is the only kind of tea that is subject to international quality regulations. to meet the demand, Pakistan imported tea worth $120 million in 199899, which rose to $210 million in 1999-00, showing an increase of over 65 per cent. its imports were rs9.611 billion in 2001-02, increased to rs12.965 billion in 2006-07, rs12.653 billion in 2007-08 and rs17.417 billion in 2008-09. it further rose to rs22.712 billion in 2009-10. the imports during the nine months, July-March 20010-11, were as high as rs22.329 billion. it is estimated that at the end of this decade Pakistan would be the biggest buyer of black tea in the world. the per capita consumption of tea in Pakistan is about one kilogram and is continuously increasing due to increase in demand. the average annual per capita consumption in the world is 0.75 kg. the average consumption in the Us is 0.35 kg, Australia 2.7 kg, iran 2.4 kg, sri Lanka 1.45 kg, india 0.52 kg, China 0.3 kg, and Japan 0.94 kg and in turkey it is 2.15 kg. About 170,000 tonnes tea was imported in 2010. the average annual tea imports come to rs17.417 billion during 2008-09 that was a massive burden on the national exchequer. the historical facts showed that tea was discovered around 5,000 years ago and supposed the oldest prepared beverage. tea is available in black, green and yellow or in white colours, depending on how it was processed. the tea tree, under natural conditions, can reach up to 10 to 15 meters, but when it is cultivated in gardens its height is artificially limited to one meter only in order to facilitate the pickers. tea trees are grown mainly in tropical and subtropical regions with humidity of 70 to 90 per cent. rainfalls must be abundant with a yearly average of 1,500 to 2,500 millimeters. Leaves can be picked by hand or mechanically. However, manual picking yields leaves are of higher quality. imperial picking involves picking only the terminal bud (Pekoe) and the first leave. Fine picking involves picking the terminal bud and the first two leaves. Classical picking, the main technique being used today, includes the terminal bud plus three to four leaves. tea is a most common beverage; its benefits are that it makes the body active, cure headache, giddiness and tiredness. it facilitates respiration, eases the brain and helps in strengthening the memory. it has been indicated in a research study of iC that tea helps in preventing cancer and filling of teeth cavities.
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VARIETIES tea can be grown in three main varieties: camellia sinensiss, camellia sinensis assamic and camellia seinensis cambodiensis. Botanically called Camella sinnensis, is found both in shrub and tree forms. this crop can be
successfully grown in a wide range of climate in different parts of the world. its plantation ranges from 42 n to 27 s and at altitude from sea level to 2000 meters. tea growth required temperature should range from 12C to 30C. temperatures below freezing and above 35C greatly hamper the tea growth. it is usually grown on sloping land. However, it can be grown on plains with good drainage. the water requirement of tea is comparatively higher than other crops. tea is a perennial crop. it takes four to six years to mature and crop life is between 80 to 100 years. tea is a high return per acre crop that is higher than other agronomic crops. Yield per acre varies from field to field, in india; yield per acre is about 450 kg. One plant produces about 70 kg of black tea in a year. in warm climate, the plant is plucked in four years with the production period of 50 years. in countries like sri Lanka having favourable production climate, tea plant is plucked every 5 to 10 days. in other countries like China and Japan’s plucking interval is between 70 to 90 days. Being a perennial crop, it covers the soil round the year thus helps in increasing the storage life of dams and other water reservoirs. in hilly areas it can also act as sanctuary for wild life as it can be a good shelter for various wild life species and needs very little care.
PRICES tea prices in Pakistan have increased almost six times since 199091. the price of a tea packet of 250 kg was available in rs20 that increased to rs54 in 2000-01, rs62 in 200405, rs68 in 2006-07, rs98 in 200809 and rs119 during 2009-10. now 200gm packet is available at rs114 in Karachi market. it is estimated that out of the total 200,000 tonnes of consumption, about 50 per cent is smuggled under the cover of Att.
IMPORTS Pakistan imports around 65 per cent tea from Kenya, while it is also imported f r o m Bangladesh, Brazil, i n d i a , Uganda and some o t h e r African countries. in addition, tea is smuggled via the borders of Khyber Pakhtunkhwa and Balochistan.
SMUGGLING tea smuggling is the main problem that is not only hurting genuine tea importers but also depriving national exchequer. For instance, during 2006 about 48,000 tonnes of tea was brought illegally in the country as compared to 40,000 tonnes in FY05, causing a revenue loss of
rs2 billion. the tea smuggling further increased to 100,000 tonnes in 2009-10.
TEA CULTIVATION IN PAKISTAN For tea cultivation some areas of Khyber Pakhtunkhwa were found suitable that include the districts of Mansehra, Batagram, shangla and swat. in these areas 1.5 lakh acre of land has been declared suitable for tea cultivation. to grow tea domestically many efforts have been made to cultivate it in the mountainous areas but could succeed. now three private companies have planned to grow tea over an area of 17,000 acres in Khyber PK and AJK, which would be given on lease for a period of 30 to 40 years to the investors who intended to invest rs4.5 billion. Out of the three tea importing companies, two companies have managed to acquire 1,000 acres each in AJK at lease for 30 years. the national tea research institute, shinkiari, was to provide saplings. Although ntri was established in 1970 but after lapsing 30 years the desired results could not be achieved. Only 1,350 acres were brought under plantation by institute. On the other hand, to fulfill do-
mestic demand about 170,000 acres are needed to be brought under cultivation.
TEA PLANTATION IN AJK the AJK government has leased out 3,000 acres of forest land to a group of three companies for 15 years for tea cultivation in the area. the land had been leased out against rs600,000 per annum. the group of tea plantation was to invest about rs1.5 billion over the next five years in the AJK, east of Muzaffarabad city. the project has a potential of producing over 100 million kg of tea per annum. the group would train and encourage local farmers to set up tea sapling nurseries in their holdings on a guaranteed buy back agreement basis. the group would also establish tea processing units after tea plantations were set up in the area at large scale. these units would buy all the raw green leaf produced by the private farmers in the area. the tea cultivation is a labour intensive activity; it would generate employment opportunities and can reduce poverty in the tea growing areas. Besides, it is estimated that a farmer can earn up to rs80,000 per year from tea cultivation on one kanal of land, which is many times more than the income from any other crop. it was planned that tea farmers could also get interest free loans from the scheduled banks under the policy of the federal government.
PLAN TO REDUCE TEA IMPORT BILL to reduce the tea import bill that is more than rs22 billion, the government has decided to commercialise tea production by starting a rs890 million public-private partnership programme. the project was to be launched in the northern areas of the KP and AJK. According to the plan, tea plantation would be done on 4,000 acres by the private sector, 800 acres by the KP extension department, 200 acres by the AJK extension department and 50 acres in FAtA. there are many constraints in tea cultivation such as climate and fre-
quency of rainfall, type of land, degree of slope of land, availability of inputs like seed and fertilisers and the untrained labour. tea cultivation is not possible in Punjab and sindh due to the above reasons. Due to small holdings the farmers are reluctant to grow tea because it is a long duration crop takes seven to eight years to reach complete yielding stage. therefore, they prefer short duration crops like vegetables, maize, rice and wheat etc. that provide quick return to meet their daily life expenditures. Most of the farmers are very poor while tea requires some investment for its cultural practices such as weeding, fertilisation and irrigation etc. thus investment on tea and poverty of the farmers are one of the big hurdles for tea cultivation in Pakistan. the Zarai taraqiati Bank (ZtBL) facilitates the farmers by providing rs60,000 in three installments, free of interest for the first four years, which do not meet the requirements of this crop. the interest rate is very high i.e. nine per cent, which would be charged after four years while the crop reaches complete yielding stage after seven to eight years. the amount of loan is not only insufficient but also further increases the burden on the growers. Moreover, the procedure getting loan is too complicated for a poor and illiterate farmer. the loan provision is limited to only two acres plantation. if government is sincere, it should announce attractive incentives for private companies and individuals. the tea research institutes should provide technical know-how to private sectors for plantation. the loan amount should be increased and the repayment should be extended from existing 4th to 9th year. similarly, the loan procedure should be simplified and the limitation should be increased beyond two acres so that block plantation could be encouraged on common farmer’s fields. tea production can be enhanced either by increasing the acreage or by boosting yields through management practices. the acreage can only be increased if farmers know better techniques and have credibility that their harvest would be lifted without difficulty.
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Sunday, 22 January, 2012
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Cement consumption: a barometer of progress FARAKH sHAHzAd He construction industry is very important for country’s economic growth, infrastructure development and employment generation. the industry trains manpower not only for meeting the country’s domestic requirements but also the needs of foreign markets. the construction industry and cement are as intertwined as the human body and soul in a way that none can survive without the survival of the other. Cement is always considered as a barometer of progress in the developing countries and is rightly taken as an important economic activity indicator. Cement consumption is considered to be major source of economic growth, development and economic activities which plays a key role in generating income in both formal and informal sectors by offering job opportunities to millions of unskilled, semi skilled and skilled workforce. it is the driving wheel of the construction industry which plays a pivotal role in the socio economic development of a country by providing infrastructure, sanctuary and employment by setting up a network of hospitals, schools, township, offices, houses and other buildings: urban infrastructure (including water supply, sewerage and drainage); highways, roads, ports, railways, airports, power stations; irrigation and agriculture systems including dams and telecommunications. it generates a substantial employment and provides impetus to other sectors through backward, forward and parallel linkages. the prolonged recession of recent years and drying of government development programs have played havoc with viability of cement sector. Capacity utilisation of cement sector reached its lowest – at 69.67 per cent – of the past decade, in the first two quarters of 2011-12 that ended on December 31, 2011. Whereas, exports continue to decline and in turn offsetting the gains in local consumption. All Pakistan Cement Manufacturers’ Association (APCMA) sources say that cement industry did not end the year 2011 on a happy note as the capacity utilisation of the industry stood at 81.53 per cent in 2007-08 that has gradually declined to its present level, giving nightmares to the cement manufacturers. the expected turnaround in the economy did not materialise as the capacities of the sector continue to increase. it is to be noted that domestic de-
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mand in December 2011 was encouraging, showing a growth of over 13 per cent. this compensated to some extent the decline of 5.12 per cent in local demand in november. However, the exports remained under pressure during the last six months posting decline in four of the last six months. statistics shows that exports declined by over eight per cent in December. Overall decline in exports stood at 4.58 per cent during July-December 2011 period. total cement dispatches in the first two quarter of this year was 15.40 million tones which was 4.21 per cent higher than the cement dispatches of 14.78 million tonnes during corresponding period last year. Manufacturers complain that low gas pressure is causing plant tripping as well as production losses to industries. the situation, unfortunately has now exacerbated, deficient gas pressure is causing further production losses to industries which already observed two days shut down. All this is translating into escalating financial losses and threatening the survival of many industries. Contrary to the claims of manufacturers, who are constantly trying to portray the condition of cement sector as worse through jugglery of data, the cement sales in Dec 2011 have jumped by 18.1 per cent with domestic sales skyrocketing by an impressive 23 per cent. experts said that the cement cartel is continuously demanding the government to provide it subsidy or payment of inland freight as the sector’s sale is either going to downward or it is stagnant. According to experts, the cement sector also availed the relief in last budget 2011-12 when the FeD was reduced from rs700 per tonne to rs500 per tonne, Gst was reduced by one per cent and the special excise Duty was abolished. Hence, the impact of these measures amounted to over rs30 per bag but it was not passed on to the consumers, they added. some analysts said that despite increase in the electricity tariff, furnace oil rates and diesel prices in the past six months, the hike in the cement prices was unjustified, as the main ingredient in cement industry is coal, which is becoming cheaper these days. Cement manufacturers has warned that government that mounting losses have propelled closure of four out of 22 cement industry units, while others are on the verge of collapse. the APCMA sources say that they are still paying around rs100 per 50 kg bag in terms of various taxes in addition to the freight charges. they say that the fiscal year
2010-11 proved to be a nightmare for the cement sector as 80 per cent of the cement manufacturers suffered huge losses on the back of stagnant local consumption. they regretted that the government failed to honor its commitment for payment of inland freight subsidy that could have boosted exports. APCMA sources have stated in their press release that continuous losses to cement industry are unbearable and might jeopardize the servicing of rs132 billion in loans the industry owes to the banking sector. the association says that the cement industry has been incurring massive losses due to high cost of production, declining exports and decrease in local demand of the commodity but the government ignored all the issues of cement makers and no support was extended to the ailing industry. the spokesman from APCMA said that two years ago the government agreed to share transportation cost from mills to sea port. this, he added, boosted exports and provided some relief to the industry but it is regrettable that the promised sup-
port was never provided. even in the current budget, there is no mention of an inland freight subsidy of rs270 million to the cement makers which has added to the problems of the industry, he stated with dismay. He recalled that the economic Coordination Committee (eCC) and trade Development Authority of Pakistan (tDAP) had approved inland freight subsidy on export of cement by sea. APCMA has called for the government to take action to save the cement industry which is the guarantor of progress in the country. the cycle of progress will move backward if prompt and positive steps are not taken at the right time. APCMA has demanded the government to encourage the construction of concrete roads and use of cement blocks instead of bricks which is the modern and internationally recognized method of construction. it is significant to note that inflationary pressures in the past three years have surged rates of each item; however, the cement industry has not passed the increased cost on the consumers due to stiff
competition amongst manufacturers and surplus capacity. Current cement rates range between rs415 and rs425 per bag in different markets. APCMA sources say that the cement manufacturers are yet to pass on the large impact of rapidly increasing input costs in coal, electricity, diesel, paper sacks and transportation cost. they claim that 30 percent of the per bag price goes to the government in taxes and levies which means that a consumer pays rs125 to the government while purchasing a cement bag. the analysts say that they expect cement profitability that is expected to be more dependent on prices as compared to dispatches. if the dispatches clock in at (32.5mn tonnes in FY12 as expected) and prices remain firm, profitability of the big sectors is expected to generate further investor’s interest in these companies. However, cement dispatches are expected to improve from February onwards due to better utilisation as the election year dawns, thus the government is expected to enhance its public spending in the 2HFY12.
The curious case of CNG conversion ban
eCentLY Government of Pakistan, without consulting the stake holders involved, imposed ban on import of CnG Kits and CnG Cylinders and has restricted the OeM companies i.e. Pak suzuki Motor Company, indus Motors Company and also after market installers to stop conversion of vehicles to CnG. it is pertinent to understand the background as to why GOP started vigorously
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promoting CnG around year 2000 onwards with the full knowledge of the natural gas reserves available in the country and the projected consumption of natural gas by other sectors of the economy. in late nineties the GOP was heavily borrowing from international Donors for the health sector. the major donors were of the view that two major factors affecting the health of the general masses in Pakistan were; a) non-availability of clean
drinking water and b) the very high level of pollution in our urban centers. the Donors were reluctant to help in the health sector unless the GOP took concrete measures to eliminate these root causes. this pressure of the donors was thus the main impetus for promotion of CnG as a short cut to improve the urban air quality. the civil society, especially in Lahore was cognizant to the air quality in Lahore, and as a consequence to their movement under the leader ship of Dr Pervaiz Hassan the ‘Lahore Clean Air Commission’ was formed by the Punjab High Court in 2005. the LCAC, apart from negotiating with the OeM’s the time frame for introduction of european vehicle emission standards also proposed: immediate ban on registration of 2stroke auto/motorcycle rickshaws Phasing out of existing rickshaws in one year. introduction of dedicated CnG buses for public transport conforming to euro-iii standards Phasing out of existing buses in two years i.e. by 1-7-2007. the effect of this initiative of LCAC can now be felt by any visitor to the city of Lahore especially in those areas where nonCnG auto rickshaws are not allowed. in the urban centre of Karachi, and parts of the country where air quality was deteriorating at fast pace due to pollution from
old model petrol vehicles and two stroke Auto rickshaws, environment conditions are much cleaner than before.this contribution of CnG towards the better health of the urban masses needs to be acknowledged and quantifies in monitory terms. the present policy makers intend to replace CnG as a vehicle fuel with LPG primarily on the pretext that natural gas is in short supply. An artificial shortage has been created in winter months by releasing natural gas to industries on 12 months basis with whom snGPL had a nine month supply agreement. this is being done by vested elements to promote the interest of a powerful LPG group without even considering the safety or economic aspects of LPG as a vehicle fuel and its large scale availability and effect on forests due to non availability of LPG in the far flung areas of the country. From the vehicle owner’s prospective the attraction for CnG is nOt its environment impact, but its cost viz-a-viz petrol and diesel. it is this differential in the operating cost of a vehicle that is the driving force to opt for CnG. the price of LPG being a couple of per cent less than that of petrol, or sometimes even higher has no attraction for the consumers. Discontinuing the use of CnG as a vehicle fuel will only add to the economic worries of the government that
will have to spend a couple of billion dollars more to import additional quantities of petrol and diesel because of capacity constraints of the local refineries.
IMPACT OF CNG INVESTMENT the decision by the government will adversely affect hundreds of thousands of workers directly and indirectly. Business investment in the sector currently exceeds rs108b, with foreign investment element of rs2b, public investment of rs120b, revenue contribution of rs240b/annum and savings in petrol estimated at rs222b/annum.
CNG CONSUMPTION We appreciate the Govts desire to conserve natural Gas and to ensure its continued availability for other priority sectors. However, transport is accounting only 7.7per cent, out of which the gas consumption of new vehicles is estimated to be as low as 0.38per cent of total natural gas consumption in Pakistan. Source Pakistan Energy Book 2010 pubished by M.O. Pet. & NR