Dollar and gold continue smashing dearness record

KARACHI: The rupee plunged by 3.29 percent to a record low against the dollar on Wednesday in what appeared to be currency devaluation by the central bank ahead of the IMF bailout package approval due next month.

Gold price has also soared and business at the stock exchange also witnessed a decline. The government has also decided to increase gas and electricity tariffs substantially. The rupee closed at 162.16 to a dollar, compared with previous close of 156.98 in the interbank market. The rupee weakened Rs5.18 to a dollar during the day. The currency was trading as low as 162.25 to the dollar in an intraday trade. The rupee weakened Rs6.1 to close at Rs163 to a dollar in the open market.

Dealers said the rupee came under renewed pressure and the State Bank of Pakistan (SBP)’s reticence also fueledspeculative onslaught on the battered currency. “It was another volatile trading day despite a lack of payment pressure,” a dealer said. He said, “The market expects rupee will face more pressure in coming days as the government is about to get IMF approval on $6 billion loan package.” The IMF’s board is due to meet on July 3.

The economy is going through a familiar boom-and-bust cycle; debt is soaring, inflation is rocketing, and reserves are falling after a deficit blowout. The IMF has long advocated Pakistan to loosen its grip on the rupee, and estimated the real exchange rate was overvalued by as much as 20 percent in 2017. The market participants said there are also reports that government has already signed letter of intent and memorandum of economic and financial policies for securing approval of $6 billion loan from the IMF’s board. “The rupee is likely to weaken further, trading at 180 to a dollar in the next few months,” said another dealer.

Samiullah Tariq, director research at brokerage Arif Habib, said dollar recorded increase on back of importers demand and some of the oil payments. “Moreover, due to year end closing some of the multinational companies might have been purchasing dollars to repatriate their earnings to their principles.” The rupee has lost more than 50 percent of its value since December 2017, stoking inflation and becoming the worst performance Asian currency.

Reuters, quoting SBP, reported that the central bank said it is watching the foreign exchange market closely and would act in the case of “unwarranted” volatility. It said the recent slide “reflects the continuing resolution of accumulated imbalances of the past and some role of supply and demand factors”. The SBP governor, earlier this month, defended the market-based exchange rate system that he said staved off external finance risks in the past couple of months.

Governor Reza Baqir, in his first press briefing, reiterated the central bank’s resolve to intervene in the market to check ‘excessive volatility’ and ‘disorderly conditions’. He said currently market-based system is implemented in Pakistan, which protects exchange rate from manipulation and simultaneously follows demand and supply mechanism. Neither fixed not free-float regime of exchange rate is good for Pakistan, as the former can lead to external imbalances and the latter can lead to manipulation, governor viewed.

Meanwhile, the Economic Coordination Committee (ECC) of the Cabinet extended conditional approval for hiking the gas tariff up to 191 percent and average power rates by Rs1.49 per unit for consumers using over 300 units. With second increase in the power tariff in the last six months, the government will generate Rs190 billion from the consumers. The government hiked the electricity tariff by Rs1.27 per unit in January 2019.

The ECC granted its approval and now the final approval would be sought from the federal cabinet before implementing this decision. The ECC also decided to withdraw Rs3 per unit for export-oriented sectors with the condition that the subsidy will continue for peak hours. The government has accomplished almost all prior actions agreed with the IMF staff except one more action pending which will be fulfilled soon.

Pakistan will have to fulfill all conditions before tabling Pakistan’s request in front of IMF’s Executive Board scheduled to meet at Washington DC on July 3 for approving $6 billion under 39 months Extended Fund Facility (EFF). A new wave of inflation is going to hit the country with start of next fiscal year during which the administrative hike in utility prices such as gas and electricity, devaluation of rupee against dollar that had touched from Rs157 to Rs163 in a single day, increased taxation rates and possibility of surge in POL prices with effect from July 1 will push price hike making lives of common man of the country more miserable.

A top official of Finance Division confirmed that the electricity tariff will be increased by Rs1.49 per unit while the government protected power consumers using 300 units on monthly basis. The government allocated Rs216 billion subsidy for protecting the vulnerable segments from hike in power tariff in fiscal year 2019-20 starting from July 1.The government claims that there would be no increase for 40 percent consumers for initial slabs.

According to official statement issued by Finance Ministry after ECC meeting, Adviser to Prime Minister on Finance, Revenue and Economic Affairs Dr Abdul Hafeez Shaikh chaired the meeting to review the demands of various ministries/divisions. In order to promote Maritime Sector and strengthen the shipping industry in the country, the Committee approved the proposal of Ministry of Maritime Affairs to extend the existing tax incentives to the shipping sector from 2020-2030, subject to vetting by Law Division.

The Power Division briefed the Committee about the cash and non-cash settlement for power sector. The ECC decided that Industrial Support Package (ISP) and AJK power sector subsidy would be adjusted against the outstanding loan of government of Pakistan from power sector entity.

It also approved the proposal of Power Division to provide additional power supply for three hours to the tube-wells, domestic and commercial consumers of Balochistan province for initial period of three months. In this regard, an amount of Rs9 billion was approved for three months which is to be provided in three tranches. The Committee would review the performance of the Qesco on monthly basis to find whether the recovery drive against the power sector defaulters is producing the desired results.

The ECC decided to give a deadline of three months to Power Division to resolve the issue of recovery from around thirty thousand and eight tube-wells of Balochistan. The Committee directed Power Division to accelerate the recovery campaign against the defaulters and submit a report to ECC on monthly basis. The Committee acceded to the proposal of Petroleum Division to allow import of petroleum products by PSO under Saudi Fund for Development. It also reviewed various slabs of gas tariff. The ECC approved supplementary and technical supplementary grants of various ministries/divisions.

The summary tabled before the ECC on hike in gas tariff stated that in order to meet the projected revenue shortfall of Rs563 billion, Ogra has also recommended category wise prescribed prices to be made effective from July 1, 2019 and recommended 31 percent and 20 percent across the board increase in gas sale prices. Up to 0.5 cubic hecto meters there will be no increase in prices for consumers. Up to 1 hm3, the monthly bill will go up from Rs572 to Rs933, up to 2 hm3 consumers the monthly bill be increased from Rs2305 to Rs3872, for users up to 3 hm3 the monthly bill will go up from Rs3589 to Rs7995, up to 4 hm3, the bill will be increased from Rs13508 to Rs14373, above 4 hm3, the bill will be decreased from Rs31573 to Rs25534.

For fertilizer sector, the price went by 62 percent from Rs185 per MMBTU to Rs300 per MMBTU, fertilizer fuel by 31 percent from Rs780 per MMBTU to Rs1021 per MMBTU, power sector by 31 percent from 629 per MMBTU to Rs824 per MMBTU, cement by 31 percent from Rs975 per MMBTU to Rs1277 per MMBTU, general industry by 31 percent from Rs780 to Rs1021 per MMBTU, zero rated industry by 31 percent up from Rs600 to Rs786 per MMBTU, CNG up by 31 percent from Rs980 to Rs1283 per MMBTU and commercial from Rs980 to Rs1283 per MMBTU.

According to summary Ministry of Energy (Petroleum Division) approved by the Economic Coordination Committee (ECC) of the Cabinet under chairmanship of Adviser to PM on Finance Dr Abdul Hafeez Shaikh here on Wednesday approved gas prices up to 191 percent after protecting lifeline consumers.

The summary states that the natural gas price hike will become effective from July 1, 2019. The two gas utility companies, viz Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL) are engaged in gas purchase from Exploration and Production (E&P) Companies and transmission, distribution and sale thereof to various categories of consumers. They are operating on Cost plus Return on Assets formulae under licences from Oil and Gas Regulatory Authority (Ogra).

Under this regime and in accordance with Section (1) of Ogra Ordinance 2002, revenue requirements of the two companies are determined by Ogra which mainly comprise (i) well head gas price (ii) transmission & distribution cost and (iii) profit margin (presently 17.43 percent return on assets before financial charges and taxes).

The per unit Revenue Requirement (Rupees per million BTU) is defined as prescribed price. Based on Revenue Requirements, Ogra pursuant to section 8(1) of the Ogra Ordinance, 2002 advises category wise prescribed prices for various categories of consumers, which forms the basis for the federal government in determining the category wise Gas Sale Price for each category of consumer, pursuant to section 8(3) of the Ogra Ordinance, 2002.

Ogra in its latest decision dated May 17, 2019 has determined the estimated Revenue Requirement of SNGPL Rs 293.305 billion and SSGCL Rs270.776 billion for the FY 2019-20. Accordingly a Net Revenue Requirement after adjusting other income regarding SNGPL is Rs277.913 billion and SSGCL Rs263.247 billion.

Current Gas Sale Prices would result in a Net Revenue Shortfall of Rs87.630 billion and Rs56.803 billion respectively. To meet the projected revenue shortfall, Ogra has also recommended category wise prescribed prices to be made effective from July 1, 2019 and recommended 31 percent and 20 percent across the board increase in gas sale prices for all categories of consumers of SNGPL and SSGC respectively, except domestic sector, where the suggested increase illustrates an approach towards rationalisation of domestic tariff based on indexation of each slab tariff with weighted average Prescribed Price (Cost of Supply).