Pakistan: Refineries asked to raise petrol output

This morning I was shocked to read a news that the government has asked local refineries to overcome the likely shortfall of 8,000 tons of petrol in the country. This clearly indicates that the concerned departments were unaware of the factors responsible for the shortfall: 1) delay in opening of L/Cs due to the limited availability of the foreign exchange and 2) overflowing furnace oil storage tanks of the refineries.

Let me address the second issue first. In the recent past government asked power plants not to use furnace oil. The limited offtake of furnace oil forced the refineries to operate at lower capacity utilization. The decision has no rationale because running of refineries at lower capacity utilization, reduced output of petrol as well as diesel.

The worst has been the decision of the government to stop or delay opening of L/Cs. Though, the government as well as State Bank of Pakistan keeps on denying delay in the opening L/Cs, it emerged to be the harsh reality.

To be prudent, the government must allow: 1) opening of L/Cs for the import of crude oil – available on deferred payment from Saudi Arabia and 2) ensuring operating refineries at optimum capacity utilization.

Lately, PARCO has solicited order for the export of furnace oil, despite the impression that Pakistani refineries are not competitive in the global markets.

Sector experts are of the opinion that the government should immediately allow running of power plants on furnace oil.

Enhanced offtake of furnace oil will allow operating of refineries at optimum capacity utilization and achieve greater synergy and reduction in the cost of production.

World powers oppose Israeli settlement authorization

Foreign ministers of four European countries and Canada joined Washington on Tuesday in opposing a decision by Israeli Prime Minister Benjamin Netanyahu's government to authorize nine Jewish settler outposts in the occupied West Bank.

The foreign ministers of Britain, France, Germany, Italy and the United States issued a joint statement voicing concern over the plans announced by Israel on Sunday.

"We strongly oppose unilateral actions which will only serve to exacerbate tensions between Israelis and Palestinians and undermine efforts to achieve a negotiated two-state solution," they said.

Later, Canadian Foreign Minister Melanie Joly said Ottawa also strongly opposed the expansion of settlements and added that such unilateral actions jeopardize efforts to achieve comprehensive, just and lasting peace.

On Sunday, Israel granted retroactive authorization to nine settler outposts in the West Bank and announced mass construction of new homes in established settlements, prompting US Secretary of State Antony Blinken to say he was deeply troubled.

Israel's foreign ministry had no immediate comment but Security Minister Itamar Ben-Gvir, from the hardliner religious nationalist bloc in Netanyahu's government, said he wanted to go further.

"This is our mission. This is our doctrine," Ben-Gvir said. "Nine settlements are nice but it's still not enough. We want much more," he said in a video message.

Most world powers view as illegal the settlements Israel has built on land it captured in a 1967 war with Arab powers.

Israel disputes that and cites biblical, historical and political links to the West Bank, as well as security interests.

Since the 1967 war, it has established 132 settlements on land Palestinians see as the core of a future state, according to the Peace Now watchdog group.

Besides the authorized settlements, groups of settlers have built scores of outposts without government permission. Some have been razed by police, others authorized retroactively. The nine granted approval on Sunday is the first for this Netanyahu government.

Hussein al-Sheikh, a senior Palestinian official, welcomed the joint statement but added, "We demand that words be turned to deeds."

With tensions in the West Bank already high, the move has alarmed world powers which fear an even greater escalation of violence. Israeli forces have conducted near daily raids in the West Bank, pursuing a crackdown begun last year in the wake of a spate of deadly Palestinian attacks.

This year more than 40 Palestinians, including both militant fighters and civilians, have been killed by Israeli forces. At the same time, 10 people have been killed in Israel in two attacks by Palestinians.

 

Pakistan plans to quadruple domestic coal-fired power generation

Pakistan plans to quadruple its domestic coal-fired capacity to reduce power generation costs and will not build new gas-fired plants in the coming years, its energy minister told Reuters on Monday, as the country seeks to ease a crippling foreign-exchange crisis.

A shortage of natural gas, which accounts for over a third of the country's power output, plunged large areas into hours of darkness last year. A surge in global prices of liquefied natural gas (LNG) after Russia's invasion of Ukraine and an onerous economic crisis had made LNG unaffordable for Pakistan.

"LNG is no longer part of the long-term plan," Pakistan Energy Minister Khurram Dastgir Khan told Reuters, adding that the country plans to increase domestic coal-fired power capacity to 10 gigawatts (GW) in the medium-term, from 2.31 GW currently.

Pakistan's plan to switch to coal to provide its citizens reliable electricity underscores challenges in drafting effective decarburization strategies, at a time when some developing countries are struggling to keep lights on.

Despite power demand increasing in 2022, Pakistan's annual LNG imports fell to the lowest levels in five years as European buyers elbowed out price-sensitive consumers.

"We have some of the world's most efficient degasified LNG-based power plants. But we don't have the gas to run them," Dastgir said in an interview.

The South Asian nation, which is battling a wrenching economic crisis and is in dire need of funds, is seeking to reduce the value of its fuel imports and protect itself from geopolitical shocks, he said.

Pakistan's foreign exchange reserves held by the central bank have fallen to US$2.9 billion, barely enough to cover three weeks of imports.

"It's this question of not just being able to generate energy cheaply, but also with domestic sources that is very important" Dastgir said.

The Shanghai Electric Thar plant, a 1.32 GW capacity plant that runs on domestic coal is funded under the China Pakistan Economic Corridor (CPEC), started producing power last week. The CPEC is a part of Beijing's global Belt and Road Initiative.

In addition to the coal-fired plants, Pakistan also plans to boost its solar, hydro and nuclear power fleet, Dastgir said, without elaborating.

If the proposed plants are constructed, it could also widen the gap between Pakistan's power demand and installed power generation capacity, potentially forcing the country to idle plants.

The maximum power demand met by Pakistan during the year ended June 2022 was 28.25 GW, more than 35% lower than power generation capacity of 43.77 GW.

It was not immediately clear how Pakistan will finance the proposed coal fleet, but Dastgir said setting up new plants will depend on investor interest, which he expects to increase when newly commissioned coal-fired plants are proved viable.

Financial institutions in China and Japan, which are among the biggest financiers of coal units in developing countries, have been backing out of funding fossil-fuel projects in recent years amid pressure from activists and Western governments.

 

Pakistan: Prior action needed to reach Staff Level Agreement

After recent visit by IMF delegation to Pakistan, the much awaited Staff Level Agreement (SLA) with the visiting IMF team was not executed.

The IMF statement was encouraging as it stated that virtual discussions will continue and hinted towards certain prior actions. The statement also said considerable progress was made during the mission on policy measures to address domestic and external imbalances.

These developments came after a long 9-day visit that was unusually longer than past IMF review team interactions. As a precursor to the visit, the government of Pakistan had let go of the dollar peg late last month where the Pak Rupee devalued by around 14% since Jan 26, 2023 till date.

The Finance Minister in a press conference early Friday morning indicated that Rs170 billion of additional taxes will now be imposed. Circular debt accumulation will also need to be stopped and the finance minister hinted towards energy sector reforms.

As per news reports, the government has decided to implement tax and non-tax measures as demanded by IMF as a prior action through a Presidential Ordinance.

Even though the exact timeline of events may move, it is believed that the SLA will be signed in next couple of weeks or so. In a month's time after that, the IMF Board approval will likely come though paving the way for the disbursement of the US$1 billion tranche by next month. This will be followed by disbursements from World Bank, ADB and friendly nations.

Funding from friendly countries is very critical this time around for the resumption of the IMF program, and could be one of the IMF demand. Disbursement from Saudi Arabia, UAE, Qatar and China may be to the tune of US$5 billion (other than already committed or expected rollovers).

The IMF may also seek assurances of exact amounts of funding from these countries before its Board approval.

The time period from now to the disbursement of the IMF tranche could pose risks in terms of shortages of goods in the country as the country’s focus will be ensure debt repayments and maintain only critical imports. There is already hint of petrol rationing in some parts of the country coupled with selected capital controls and slow processing of non essential imports.

It will be interesting to evaluate the Pakistan Country Report issued by IMF after the IMF board approval. Especially condition related to reach foreign exchange reserves of US$16 billion by June 2023 as per the news reports.

There is also a need to see IMF condition on Pakistan L/Cs payment. According to news reports, IMF has insisted on immediate removal of restrictions on imports for which US$4 billion will be needed to open L/Cs.

 

Russia: Outlook painted by IMF looks too rosy

The International Monetary Fund delivered some uplifting economic news to Vladimir Putin. The Russian president should now make the case to his own government, which doesn’t share the IMF’s optimism.

The international body recently estimated that Russia will avoid a recession in 2023 and expand at 0.3% after shrinking by 2.2% in 2022 that amounts to a quasi-stagnation, but still looks too positive.

At first glance, the Fund’s latest forecast is a reason for hope for an economy battered by the cost of its invasion of Ukraine and associated sanctions. Even though the global economic prospects do not look as dire as they did a few months ago, the Russian revision is significant. In October 2022, the IMF was seeing the country’s GDP contracting by 2.3% in 2023.

The IMF hasn’t detailed the assumptions underpinning its upbeat Russian outlook. Russian economists, polled this month by the country’s central bank, are still expecting GDP to fall by 1.5% this year.

The economy ministry still predicts that output will contract by 0.8%, according to Russian independent publication The Bell.

The key to the IMF’s optimism may be its assumptions about oil prices and the effect of the recent bans and price caps by the European Union and the G7 group of industrialized countries. The measures will not significantly affect Russia’s oil exports, the Fund says.

That is a matter of intense debate among economists since oil prices remain below the cap set by the G7.

Much will depend on the evolution of oil prices this year. Oil and gas exports amounted to about 15% of Russia’s GDP in 2021, and related taxes finance more than 40% of the government’s budget.

Urals , the Russian crude, trades at around $56 a barrel. The discount to benchmark Brent is now at 33%, against 7% before the war. That is a sign that sanctions have had some impact. It also throws further doubt on the IMF’s optimism.

In October 022, Russian central bank predicted that the domestic economy would contract by between 1.5% and 4% this year. That assumed a US$70 a barrel price for Urals – the same number the government used for its budgetary planning.

Four months later, the world economy has brighter prospects and Russia may be more resilient than expected. But only a serious oil price rally, improbable in the context of the global economy’s subpar growth - to quote the IMF - could justify looking at Russia through rosy glasses.

 

Saudi Arabia-United States: Cracks have developed in the marriage of convenience

For decades United States has kept Saudi Arabia subservient to its ‘Foreign Policy Agenda’. However, it was only a cover up the real objective was to keep the largest oil producer under its thumb.

The story began with the discovery of oil in the Kingdom by a US oil giant leading to an agreement that the first customer of its oil will be United States and in exchange the super power will be responsible for the security of the kingdom, precisely the rulers.

When King Faisal, used oil as weapon, the immediate result was his assassination. To keep the rulers constantly under the fear, US coined a mantra after the Islamic Revolution in Iran, “Iran is a bigger threat for Saudi Arabia as compared to Israel”; the prime objective was to sell arms to the Kingdom.

One may recall that Iraq was pampered to attack Iran and the war continued for a decade. There are indications that Saudi Arabia was the biggest financer of war.

The attack on Iran was aimed at stopping its oil export and keep oil prices high to ensure higher revenue for Saudi Arabia, but most of it was extorted by selling arms. The war was followed by imposition of economic sanction on Iran, which are there for more than four decades.

Having Iran pushed out of oil trade, the next target was Iraq. One may recall that the reason for the economic sanctions on Iran was its alleged involvement in the production of atomic bomb. Using the same strategy United States raised a hoax call “Iraq is producing weapons of mass destruction (WMD)” and attacked Iraq. The war is still going on in Iraq and its oil export has remained negligible.

In the meantime to achieve self sufficiency in oil production, United States kept on implementing its “Shale Oil and Gas plan”. During this time oil prices were kept high to achieve two objectives: 1) sell more arms to the Kingdom and 2) lure Saudis to invest in the development of shale technology in the United States.

While United States, may have achieved both the target, Russia emerged as a “Game Spoiler”. It attained the status of one of the biggest oil producers. Russian-Chinese alliance not only changed the composition of oil markets but also influenced the geopolitical landscape.

To tighten its grip on Saudi Arabia, United States implicated the Crown Prince, to be precise defecto King, in a murder case. Donald Trump went to the extent of saying, “If United States takes its hands off the Kingdom will not survive for more than a few weeks”.   

Around the same time United States decided to take an exit from Afghanistan. There was a loud and clear message that Middle East, particularly, Saudi Arabia are no longer area of interest for United States.

This message became louder with the inculcation of Russia-Ukraine conflict and supply of billions of dollars latest and most lethal arms to Ukraine and imposition of economic sanction on Russia.

All these events indicate that the foreign policy of United States is governed by the owners of oil companies (commonly known as seven sisters) and military complexes.

The world also knows the role played by United States in the creation of turmoil in Libya and Venezuela.

Please allow me to sum up my narrative at “United States is no longer considered a trust worthy friend; it installs and topples governments in countries to support its Foreign Policy Agenda”.

 

 

Turkish government thanks Saudi Arabia for humanitarian relief

The Turkish government has thanked the Saudi government and people for the relief and humanitarian efforts offered in the aftermath of the earthquake that struck Turkiye a few days ago.

In an official statement, the Turkish government said “We are thankful for the support and solidarity of the leadership of the Kingdom of Saudi Arabia and its brotherly people.

“Several planes carrying Saudi humanitarian, relief, and medical aid have arrived in various affected areas in Turkiye, and Saudi search and rescue teams are working side by side with their Turkish peers.

“Receiving support and solidarity from brotherly countries is extremely important at such a difficult time, and Saudi Arabia is one of the first countries to support us.”

According to the statement, Turkish President Recep Tayyip Erdoğan mentioned Saudi Arabia in particular among the countries that have provided and will continue to provide support to Turkiye at this difficult time.

King Salman Humanitarian Aid and Relief Center (KSrelief), in implementation of the directives of Custodian of the Two Holy Mosques King Salman and Crown Prince and Prime Minister Mohammed Bin Salman, has launched a national campaign through “Sahem” platform to help the earthquake victims in Syria and Turkiye, which has raised, so far, SR254,987,681, with the number of donors amounting to 731,005.

The Turkish authorities described the earthquake that hit Turkiye on February 06, 2023 as the Disaster of this century.

The statement added “Two big earthquakes with the magnitudes of 7,7 and 7,6 centered in Kahramanmaraş province took place on February 06, 2023. This was followed by over 1,500 aftershocks. More than ten cities suffered damage and destruction.

“These series of earthquakes have impacted a vast area. The main difference that distinguishes this earthquake from the Great Erzincan Earthquake with a magnitude of 7.9, which was recorded as the most severe earthquake that occurred in Türkiye 84 years ago is the time difference.

“These earthquakes were independent and occurred with a 9-hour difference between them and that they, along with their aftershocks, were felt heavily throughout many regions of Türkiye and in other countries. In that sense, these earthquakes of February 06 could be well considered the “Disaster of this century”.”

According to the statement, a total of 18,991 people lost their lives in the earthquake in Türkiye and 75,523 people got injured and 6,444 buildings collapsed, adding that in the aftermath of the earthquakes, search and rescue teams were immediately dispatched to the earthquake-affected areas and that the Ministry of Interior, Ministry of Health, AFAD (Disaster and Emergency Management Presidency), governorships and all other institutions began taking necessary measures.

The Turkish president also confirmed that the Turkish government has taken the necessary measures with all its institutions since the moment of the earthquake, and all capabilities have been mobilized and harnessed, said the statement.

It added that following the earthquake, a Level-4 alert was declared, which includes international aid. So far, 97 countries have offered assistance and 61 of them are on the ground to join the search and rescue and other medical operations, said the statement.