Bangladesh: Padma Bridge getting costlier

The long-cherished Padma Bridge is set to cost more as more funds and time is needed to complete the structure even though it is open to the public since June 2022.

At the time of inauguration on June 25, 2022, some works, especially river training, a major component of the project, were incomplete.

Now, the bridges division has sought Tk 2,682.13 crore more and an additional year, according to the revision proposal sent to the Planning Commission for approval.

If the proposal is approved, the bridge, which established a direct connection between the capital and the country’s southwest, will end up costing Tk 32,875.51 crore — more than three times the original estimate.

Project Director Shafiqul Islam cited the increase in the cost of construction materials, depreciation of taka against the dollar, the need for additional money to build power transmission towers and increase in value-added tax and income tax rates due to changes in legislation as the main reasons for the latest round of cost escalation.

The project authorities would need Tk 3,444.89 crore extra but they are clawing back Tk 762.76 crore from several components, including Tk 368.09 crore allocated for resettlement.

Of the sum, Tk 1,665.60 crore would be required for the main bridge, Tk 877.53 crore for river training and Tk 450.29 crore for consultancy services.

“The US dollar traded at Tk 78.3 in the foreign exchange market when we started the works but the rate has escalated since then. We had to spend an additional Tk 500-600 crore for this reason alone,” Islam said.

The government on many occasions has changed VAT and income tax rates.

In the case of foreign contractors, the VAT and income tax have been increased to 15% from 10.5%, so the project authorities have to provide the additional 4.5% as per the contract, he said. This cost the project authorities an additional Tk 687 crore, according to officials.

The project authorities have to spend about Tk 400 crore more for the detailed design and construction of foundations of seven 400KV transmission towers on the Padma.

They will also have to procure some equipment for the operation of the bridge, which will take about Tk 300 crore, he said.

Approved in August 2007, the project was supposed to be implemented at the cost of Tk 10,162 crore within June 2015. In 2011, it went through a major revision that took the project cost to Tk 20,507 crore. After two more changes in expenditure, the project cost rose to Tk 30,193.34 crore. The latest deadline for the project is June this year, including a year as a defect liability period.

Asked about the reason behind the time extension, Islam said they would take up to June this year to complete the river training works.Then, they would require another year for the defects liability period.

A defects liability period is the time period specified in the contract during which a contractor is legally required to return to a construction site to repair any defects which have appeared in that contractor’s work since the date of completion.

“That’s why we sought the deadline extension to June 2024,” Islam added.

As of December 2022, the project saw 95.8% overall progress, with 99.7% and 96.25% progress in main bridge and river training respectively. The project saw 93.68% financial progress.

 

Pakistan Stock Exchange benchmark index plunges 4.8%WoW

Continuation of political uncertainty in the country, following the Punjab and KP government dissolution, kept the market under pressure during the week ended on January 20, 2023.

The KSE-100 index lost 1,915.5 points or 4.8% to end Friday’s trading session at 38,408.0 points. Volumes dried, with daily volumes averaging 143.2 million shares as compared to 183.3 million shares in the earlier week, registering a 22%WoW decline.

On the currency front, the PKR depreciated by 0.66%, ending the week at PKR229.67/US$.

Other major news of week were: 1) July-December 2022 remittances fell 11%YoY to US$14.1 billion, 2) World Bank promised US$615 million for flood-relief work, 3) E&P companies raised alarm on brewing foreign exchange crisis, 4) Barrick Gold plans to start productions in 2028 at Reko Diq mine, 5) GoP to announce RKR200 billion mini-budget to appease IMF, 6) July-November 2022 LSMI output declines 3.58%YoY, 7) FDI plunges 59% during first half of the current financial year, 8) Current Account deficit dipped 60% in H1FY23 on lower imports, and 9) GoP expressed readiness to meet all IMF demands to revive loan program.

The reserves held by State Bank of Pakistan (SBP) showed a WoW increase for the first time in about 8 weeks, up by US$258 million to US$4.6 billion, corresponding to less than 1 month of import cover.

Sector-wise, the top performing sectors were: Modarabas, Leasing companies, and Insurance, while the least favorite sectors were: Cement, Leather & Tanneries and Cable & Electrical Goods.

Stock-wise, top performers were: EFUG, DCR, FFC, COLG, and ABL, while laggards included: KTML, CHCC, KOHC, CEPB, and TGL.

Foreign Investors were the major buyers with net buy of US$4.88 million, followed by Banks/DFIs with net buy of US$4.07 million.

Mutual funds were major sellers, with a net sell of US$9.64 million followed by Insurance companies with a net sell of US$4.96 million.

The market trajectory next week would be determined by the Monetary Policy Committee decision, scheduled to meet 23 January 23, 2023. Market is largely expecting a 100 bps increase in policy rates. It seems the market has already priced in the 100bps hike, and any deviation in the decision could impact the market.

In addition to this, the external position of the country would remain in focus, with the delay in resumption of the IMF program detrimental to the sentiment in the market.

The IMF’s stamp of approval would unlock flows from bi-lateral and multilateral sources—the need of the hour considering the alarming reserves position of the country.

The GoP would have to take difficult decisions to appease the IMF, which includes additional revenue collection of PKR200 billion and gas and electricity tariff hikes, along with a market-determined exchange rate.

We continue to advocate companies that have dollar-denominated revenue streams as the weakness in the currency is expected to persist.

Saudi crude exports slip to five month low in November 2022

Saudi Arabia's crude oil exports fell to a five-month low in November 2022, while production also slipped, data from the Joint Organizations Data Initiative (JODI) showed on Thursday.

The kingdom's crude exports fell about 6.3% to 7.28 million barrels per day (bpd) in November 2022 from 7.77 million bpd in October 2022, marking the first reduction in exports in the last six months.

The world's largest oil exporter's crude production fell to 10.47 million bpd in November 2022 from 10.96 million bpd in the previous month.

Saudi's domestic crude refinery throughput decreased by 19,000 bpd to 2.660 million bpd in November 2022, while direct crude burn rose 49,000 bpd to 429,000 bpd.

OPEC oil output rose in December 2022, a Reuters survey found on Wednesday, despite an agreement by the wider OPEC Plus consent to cut production targets to support the market.

OPEC Plus, which comprises the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, last month had agreed to stick to a 2 million bpd oil output cut.

Chinese oil demand rose by nearly one million bpd from the previous month to 15.41 million bpd in November 2022, its highest since February 2022, the data showed.

OPEC said on Tuesday Chinese oil demand would rebound this year due to relaxation of the country's COVID-19 curbs and drive global growth, and it sounded an optimistic note on the prospects for the world economy in 2023.

Saudi Arabian state oil producer Aramco is discussing investments in petrochemicals with Chinese companies, Asharq reported citing an interview by the company's chief executive with Bloomberg.

Lately, oil prices have been caught in a tug-of-war between fears of a possible US recession and optimism over China's demand outlook.

 

 

US decides against sending tanks to Ukraine

A push to provide battle tanks to Ukraine is stalled after US officials this week expressed reluctance over difficulties in maintenance and training for the advanced tracked vehicle.

The US decision effectively prevents Ukraine getting tanks from other NATO allies as well, as Germany this week made clear it would only allow other countries to send German-made tanks if the US commits its own M1 Abrams tank first.

Ukraine has repeatedly asked for Western tanks to help in its fight with Russia, a topic that was front and center this week at the World Economic Forum in Davos, Switzerland, and will again be in the spotlight at a gathering of top defense ministers for a Ukraine Contact Group meeting on Friday. 

German officials have been mulling allowing Ukraine to have its Leopard 2 tanks, with speculation that the US and Germany may announce a deal on Friday to finally grant Kyiv’s wish for heavy tanks. 

But the United States believes it just doesn’t make sense for Washington to send over the Army’s main battle tank now, Sabrina Singh, deputy Pentagon press secretary, told reporters Thursday. 

“It’s more of a sustainment issue,” Singh said. “This is a tank that requires jet fuel. . . .. The maintenance and the high cost that it would take to maintain an Abrams, it just doesn’t make sense to provide that to the Ukrainians at this moment.” 

Months of pressure on the United States and Germany to hand over battle tanks appeared to make headway this week with the new appointment of German Defense Minister Boris Pistorius as well as discussions on tanks at Davos and high-level NATO meetings in Brussels.  

Also viewed as positive momentum was the US, French and German commitment earlier this month to provide Bradleys, AMX-10 RCs and Marder fighting vehicles, respectively, the first time the countries have done so. 

But former U.S. Ambassador to Ukraine John Herbst — who on Monday said it appeared that a deal to allow tank exports to Ukraine had been worked out between Washington and Berlin — told The Hill Wednesday that it appears a wrench had been thrown into the process. 

“There’s a game that’s been going on involving Berlin and the White House for months, which is the Germans would say ‘we’re not going to send any Leopards until the Americans sends Abrams.’ … The Americans say, ‘yes, we have no objection to Germany sending Leopards, we’re not gonna send Abrams.’ And then both countries get to avoid sending something they consider provocative to the Kremlin,” said Herbst, now a senior director of the Atlantic Council’s Eurasia Center. 

While the West hasn’t completely closed the door on committing tanks to Ukraine — with the United Kingdom last week announcing that it will send the nation 14 Challenger 2s — reluctance reigns on shipping other heavy tanks to Kyiv.  

Some experts agree the Abrams isn’t a prudent addition to Ukraine’s war effort at the moment due to the sheer amount of effort it would take to run it, said Jeffrey Pryce, a former Defense Department special counsel now at the Johns Hopkins University’s School of Advanced International Studies. 

“The Abrams is a majestic tank, but it comes with corresponding logistical and maintenance burdens,” Pryce told The Hill. “What we’ve focused on is providing Ukrainians with capabilities that they can effectively use in the short term, and the Abrams doesn’t seem to be in that sweet spot.” 

He also disagreed with assertions that the U.S. was shying away from the system due to fears of escalating the conflict, pointing to Washington’s commitment to send such high-tech systems as the Patriot missile defense system and Bradley Fighting Vehicles. 

“I think it’s just a judgment as to what’s most helpful, what they can most efficiently absorb and effectively use in combat in the middle of a war,” he said. 

Late Thursday the United States announced a major US$2.5 billion weapons package for Kyiv, to include 90 Stryker armored combat vehicles but no Abrams tanks. The military aid was announced ahead of a gathering of the Ukraine Contact Group at Ramstein Air Base in Germany, to be attended by Defense Secretary Lloyd Austin, Joint Chiefs of Staff Chairman Gen. Mark Milley and about 50 other top defense officials from NATO as they look to coordinate future lethal assistance to Kyiv.  

Leaders of Ukraine’s military, which until now have used Soviet-era tanks on the battlefield, insist more modern tanks are needed, and soon, as Russia appears to gear up for a renewed spring offensive. 

“There is no rational reason why Ukraine has not yet been supplied with Western tanks,” Ukrainian President Volodymyr Zelensky said earlier this month.  

On Thursday, Zelensky reupped the request, saying that the need for Western tanks is still a “pressing and very sensitive” issue for Ukraine. 

Secretary of State Antony Blinken said Tuesday that he expected further announcements on military deliveries to Ukraine to come out of Ramstein but would not comment on whether Washington is pushing Berlin to give the green light for Leopard tanks for Kyiv. 

“On the question of, of tanks, and for that matter, any weapons system, these are sovereign decisions for each country to make,” Blinken said. 

On Thursday, Singh echoed that message, noting that Leopards are easier to fuel and maintain. 

“Ultimately this is Germany’s decision. It’s their sovereign decision on what security assistance they will provide. So we won’t be able to speak to them, but I think that we are certainly doing what we can to support Ukraine in what they need,” she said. 

“We’re continuing to work with other partners and allies around the world to see what else can be provided to Ukraine, and that’s the whole point of tomorrow’s meeting,” Singh added. 

While the Biden administration has offered little detail of its conversations with Germany, the German side has been clear about wanting the US to make the first move on heavy tanks, a message delivered by German chancellor Olaf Scholz in a call with President Biden and in-person to an American congressional delegation in Davos. 

Finland, Poland and the Baltic states all possess Leopard 2s in their own stocks and have publicly endorsed shipping the vehicle to Ukraine, but need Germany’s permission to do so due to German components within the tanks.  

The impasse has angered a number of American lawmakers, including Sen. Lindsey Graham (R-S.C.), who on Wednesday tweeted for the two sides to “stop bickering.”

“This impasse needs to come to an end. The tanks need to go to Ukraine from BOTH countries as soon as possible.  The future of Europe and a rules-based world is at stake,” Graham wrote. 

And Senate Foreign Relations Committee ranking member Sen. James Risch (R-Idaho) on Thursday called for Germany to immediately allow Poland and Finland to contribute Leopards.  

The latest public statements from Berlin and Washington suggest Ukraine may have to keep waiting; however. All involved will be keeping a close eye on the meetings at Ramstein on Friday. 

 

“There’s a decision that’s going to have to be made and we’ll see if there’s an agreement at Ramstein,” Pryce said. 

Iran oil production grows 7% in 2022

Iran oil production in 2022 increased 7% as compared to the previous year, according to OPEC’s first monthly report released in 2023.

According to the Report, Iran produced 2.554 million barrels per day (bpd) of crude oil in 2022 that was 162,000 bpd more than the figure for 2021, when the output was reported at 2.392 million bpd.

Citing secondary sources, the report put Iranian crude output for December 2022 at 2.574 million bpd indicating a 9,000-bpd increase as compared to the figure for November 2022.

The country’s heavy crude oil price also increased by US$30.12 in 2022 to register a 43% rise as compared to the previous year, according to the OPEC report.

Iran sold its heavy crude oil at US$99.92 per barrel on average in the mentioned year, as compared to 2021 when the average price was US$69.8 per barrel.

In December 2022, the average price of Iranian heavy oil was reported at US$79.11, which decreased by US$9.62 compared to the earlier month.

Iran has been ramping up its oil production and exports over the past year as the country has been implementing new strategies to overcome US sanctions.

A recent report by Reuters stated that Iran’s oil exports have reached new highs in the last two months of 2022 and are making a strong start to 2023 despite US sanctions.

According to ship tracking data, Iran oil exports have risen mostly due to the higher shipments to China and Venezuela.

Energy consultant SVB International said Iran's crude exports in December 2022 averaged 1.137 million barrels per day, up 42,000 bpd from November 2022 and the highest 2022 figure SVB has reported based on estimates given earlier.

"In comparison to the Trump administration, there hasn't been any serious crackdown or action against Iran's oil exports," said Sara Vakhshouri of SVB. "January exports were so far strong like previous months."

Lower Chinese demand and Russia's supply to China have been a major challenge for Iran. Most of its oil still goes to the Far East, ultimately China. Iran also helps Venezuela to export its oil.

Consultant Petro-Logistics, which tracks oil supply, said it was also seeing an upward trend in Iranian crude exports which, in its view, in December 2022 reached their highest level since March 2019.

Kpler, a data intelligence firm, put Iranian crude exports at 1.23 million bpd in November 2022, the highest since August 2022 and almost at par with April 2019 average of 1.27 million bpd, although these slipped to just below 1 million bpd in December 2022.

According to another analyst, Vortexa, China's December 2022 imports of Iranian oil hit a new record of 1.2 million bpd, up 130% from a year earlier.

"Most of these shipments found home in Shandong, where independent refiners have turned to discounted grades since the second half of 2022 amid sluggish domestic demand and depressed refining margins," the company said.

Vortexa said supply of Russian Urals, the main competing grade to Iranian oil, fell in December 2022 - when a price cap on Russian crude exports and European Union ban created uncertainty for buyers.

The press department of China's Foreign Ministry, in response to a Reuters request for comment, said, "The legitimate and reasonable cooperation between China and Iran under the international legal framework deserves respect and protection," without directly addressing Reuters query on China's record Iranian oil purchases.

Iran has also been expanding its role in Venezuela, despite US sanctions, sending supplies of light oil for refining and diluents to produce exportable crude grades.

Iran's national budget bill for the upcoming year is based on even higher shipments of 1.4 million bpd, the semi-official Fars news agency reported this week.

Following Trump's removal of the United States from the nuclear deal and reimposition of sanctions, Iran's crude exports fell back to as little as 100,000 bpd at times in 2020 from over 2.5 million bpd in 2018, according to tanker trackers.

 

US Fed indicates further rate hikes

According to Reuters, US Federal Reserve policymakers on Wednesday signaled they will push on with more interest rate hikes, with several supporting a top policy rate of at least 5% even as inflation shows signs of having peaked and economic activity is slowing.

"I just think we need to keep going, and we'll discuss at the meeting how much to do," Cleveland Fed President Loretta Mester said in an interview with the Associated Press.

The remarks appeared to reflect a widely shared view among her fellow policymakers, most of whom as of December 2022 had penciled in a 5.00%-5.25% policy rate in coming months.

Mester said that for her part she expects the Fed's policy rate to need to go a bit higher than that, and stay there for some time to further slow inflation.

The Fed's benchmark overnight lending rate currently hovers in a target range of 4.25% to 4.50%, and investors expect the Fed to lift that rate by a quarter of a percentage point at the end of its January 31-February 01 meeting.

Spending, inflation, and manufacturing - all reported earlier on Wednesday - have helped stoke expectations that the Fed will end its current round of rate hikes sooner than Mester and most of her colleagues expect, with the policy rate just shy of 5%.

The central bank began raising borrowing costs in March 2022, when the policy rate was in the 0%-0.25% range and inflation was starting to make a climb that would see it rise to 40-year highs, several times the Fed's 2% target.

Like Mester, St. Louis Fed President James Bullard, speaking with the Wall Street Journal earlier, said he too sees the policy rate rising to the 5.25%-5.50% range, and added that policymakers should get it above 5% as quickly as we can.

Several Fed officials have expressed support for slowing to quarter-percentage-point rate increases, after last year's much faster pace of rate hikes in mostly 75-basis point and half-point increments.

Bullard expressed more impatience. Asked if he was open to a half-percentage-point increase at the Fed's upcoming meeting, he asked "why not go to where we're supposed to go? ... Why stall?"

The answer may in part be found in the latest "Beige Book" report published by the Fed on Wednesday. The compilation of survey data from the central bank's districts around the country showed that while prices continued to increase, the pace in most districts was reported to have slowed.

And while employment continued to grow at a modest to moderate pace in much of the country, and several Fed districts reported modest economic growth, the New York Fed reported a contraction in activity, four other districts reported slowdowns or slight declines, and most expected little growth ahead.

Still, Fed policymakers say the mistake they do not want to make is to stop short of defeating inflation, only to have to raise rates even more to do the job later on, as happened in the 1970s and 1980s

Even Philadelphia Fed President Patrick Harker, who is generally less hawkish than Mester or Bullard and wants the Fed to switch to quarter-percentage-point hikes ahead, sees a few more rises in borrowing costs before a pause.

Dallas Fed President Lorie Logan also supports a slower rate hike pace ahead because of the uncertain outlook and the need to be flexible. But she also signaled the Fed may need to raise rates higher than is widely expected to keep financial conditions tight enough to press down on inflation.

"I believe we shouldn’t lock in on a peak interest rate," Logan said in Austin, Texas. She added that even once inflation is headed convincingly down to 2% and the Fed does stop raising rates, the risks will be two-sided and that further rate hikes could be in the offing.

In an interview with Reuters on Wednesday, outgoing Kansas City Fed President Esther George said she felt rates would have to move higher than many of her colleagues anticipate, but that she also would have been willing to move in smaller increments.

“People’s expectations about inflation are beginning to move down,” George said, an observation based on conversations with contacts in her Midwest district. “So I’m comfortable beginning that stepped-down process ... I’d be happy to do 25s if I were there.”

George will retire right before the Fed's next meeting and will not participate in it.

But she added, “We still have upside risk to inflation. I don’t think I’ve reached a point where I think it is clearly falling. There are enough issues out there to say we have to guard against them.”

Fed Chair Jerome Powell, who tested positive for COVID-19 on Wednesday and is experiencing mild symptoms from the virus, said after last month's policy meeting that the inflation battle had not been won and that more rate hikes were coming in 2023.

 

 

 

 

Five reasons for tankers owners to be cheerful

According to Seatrade Maritime News, New York broker Poten & Partners has identified five reasons why tanker owners should be cheerful this year.

The firm’s projections come with a health warning. Nobody forecast Covid-19 or Russia’s invasion of Ukraine – developments in 2023 are equally uncertain. The year ahead could be a prosperous one, but it could also be a bumpy ride, Poten warns.

However, if the broker’s views on key tanker market drivers prove to be correct, it’s good news for tanker owners.

The first plus point is China. The country’s zero-Covid policy constrained growth and led to 400,000 barrels per day (bpd) decline oil demand in 2022. The International Energy Agency (IEA) now expects demand to climb by 800,000 bpd this year – to 15.8 million bpd. Almost all of the extra volume will be shipped by sea, Poten believes, mostly on VLCCs, which are likely to command premiums over smaller tankers.

Second - Owners are likely to focus on new buildings as the volume of secondhand deals slows down. After tankers were crowded out by container ships and LNG carriers, strong earnings and a small orderbook is likely to rekindle interest in new ships.

Third - Product tankers are set to benefit most from the outcomes of the European Union’s (EU) February 05, 2023 ban on Russian refined products.

Long-haul movements (exports from Russia and imports into Europe) will drive ton-mile demand, notably for larger LR1s and LR2s to and from Asia.

MRs will get a boost from higher transatlantic volumes. Product carriers are therefore likely to outperform crude tankers.

Fourth - US oil exports could well set new records. The 2022 export figure of 3.5 million barrel per day – itself a record – was supported by major releases from the US Strategic Petroleum Reserve.

More of these are unlikely this year, Poten says, but oil production will rise by about 500,000 b/d, according to the IEA, and higher US exports will benefit all tanker segments.

Fifth and finally - Although Russia’s war diverted attention away from new IMO and EU environmental regulations, a new focus on carbon intensity means that many owners will need to adopt measures to remain compliant provided the new regulations are enforced, Poten believes.

The steady tightening of the IMO’s carbon intensity indicator (CII) framework will mean that today’s rules become stricter over time and all shipping sectors, tankers included, will be affected.