Bilateral trade: Industry wary as govt prepares to give market access to India

Export of Pakistan’s cement, which has a huge demand in the Indian market, has dropped due to the non-tariff barriers. ILLUSTRATION: JAMAL KHURSHID.

LAHORE: 

At a time when dialogue with India to boost trade ties is one of the top priorities of the government, the industries have once again strongly objected to opening the country’s market for Indian companies, as Islamabad gears up to grant non-discriminatory market access (NDMA) to Delhi.

Following the Indian Show in Lahore starting February 14, the government may offer NDMA to India, a more open status than the Most Favoured Nation (MFN) status.

“In a recent meeting with leading businessmen of the country, Commerce Minister Khurram Dastgir shared privately that they have decided to accord NDMA status to India without demanding reciprocal facility from the Indian side,” said a source present in the meeting.

“This announcement will be made when a high-powered delegation of Indian diplomats, politicians and businessmen visits Lahore next week.”

The pharmaceutical industry is one of those at the forefront in raising voice against the opening of Pakistan market. The MFN or NDMA status may bode well for other industries, but for the pharmaceutical sector it will be disastrous on many counts, it says.

The industry believes that it will completely nullify the heavy investment and technology transfer that have taken place so far, destroy the employment base of four million people, pave the way for foreign pharmaceutical companies operating in the country to shift their plants to India and make the country fully dependent on the neighbour.

“The onslaught of cheap, substandard Indian drugs will force the pharmaceutical industry to close down and in the long run Pakistan’s 180 million people will be held hostage to Indian politics and industry, which is known for shutting down the peace process,” said Asif Akhai, Chief Executive of Akhai Pharmaceuticals.

Sharing his views on NDMA, Akhai said “the first and foremost issue concerns the quality of Indian drugs. Since we don’t have a vigilant regulatory framework, it would be really difficult for us to completely check the quality of Indian drugs. Any spurious products could result in a big mayhem. So we have to have effective and standard regulatory frameworks before even thinking of giving access to Indian companies.”

Meanwhile, export of Pakistan’s cement, which has a huge demand in the Indian market, has dropped in the first six months of fiscal year 2013-14 due to the non-tariff barriers (NTBs) imposed by Indian authorities despite all the efforts of the PML-N government to smoothen and enhance bilateral trade, industry sources say.

Statistics revealed that cement exports to India stood at 786,672 tons in 2007-08, which steadily dropped to 482,215 tons in 2012-13.

Talking about the stance of the auto industry on trade with India, Pakistan Association of Automotive Parts and Accessories Manufacturers (Paapam) Chairman Usman Malik said the dynamics and economies of scale in both the countries were quite different.

India manufactures around two million vehicles a year while Pakistan produces just 150,000 vehicles. Furthermore, the law and order situation and scarcity of utilities mean there can’t be a level playing field for the two.

Moreover, Pakistan’s auto industry was not prepared for the phase-out of the negative trade list as the government had not carried out administrative and organisational changes in the internal systems to prepare for the Indian challenge, he added.

Malik suggested that the authorities should be careful about taking such decisions and this was definitely not the right time. Indian NTBs were unreasonable and unfair and this was the reason Pakistan’s exports were nominal despite being awarded the MFN status years ago, he said.

Court battle: German court rejects JS Bank’s claims

Transparency International is an association under the German law which is distinct from its national chapters. PHOTO: FILE

ISLAMABAD: 

A German court, following a hearing on January 21, has quashed its own injunction and rejected the claims of JS Bank Limited against Transparency International EV and ordered JS Bank to bear the costs of the proceedings.

According to a press release, earlier Transparency International was facing in December 2013 an injunction from the German court, which was issued at the request of JS Bank and intended to restrain Transparency International from making or disseminating certain allegations concerning the bank in relation to a letter published on the website of Transparency International Pakistan.

Transparency International is an association under the German law which is legally, organisationally and financially distinct from its national chapters which, among others, include Transparency International Pakistan.

According to reports in December, JS Bank had won a preliminary injunction against Transparency International in Germany, restraining the latter from claiming and/or distributing or, respectively causing others to claim and/or distribute, with reference to JS Bank and its purchase of Pakistan operations of HSBC Bank, that HSBC received any payment regarding this transaction and that such payments may have been illegal as falsely claimed by TI Pakistan in a letter to the Governor of the Bank of England subsequently published on the Pakistan website.

In case of non-compliance with this injunction, Transparency International may face a fine of up to 250,000 euros or imprisonment. This preliminary injunction was granted by the District Court of Berlin without hearing Transparency International.

Later, Transparency International filed an objection against the injunction and a hearing took place in January.

Back on track: Engro Fert back in black with Rs5.49b profit

Sales of the company jumped by a significant 64% to Rs50.12 billion compared to Rs30.62 billion in 2012. PHOTO: FILE

KARACHI: 

Engro Fertilizer − part of Pakistan’s largest conglomerate Engro Corp − returned to profit and posted net earnings of Rs5.49 billion for the year ended December 31, 2013 compared to a loss of Rs2.93 billion in the previous year.

Earnings per share (EPS) rose to Rs4.66 against a loss per share (LPS) of Rs2.59 in the previous year.

Sales of the company jumped by a significant 64% to Rs50.12 billion compared to Rs30.62 billion in 2012.

The growth in earnings is primarily attributable to better production at Engro’s Enven plant, which was shifted to the Mari gas system. Moreover, gas supply from Guddu gas field increased after July 2013.

According to Engro, both plants of the company run at around 80% of capacity for most part of the second half (July-December) of the year. It is because of this reason that Engro reported urea off-take at 1.56 million tons, up 66% compared to 0.94 million tons in 2012.

Owing to continuous operations since July, higher operational efficiencies enhanced gross margins by 12 percentage points to 44% in 2013 from 32% a year earlier.

Moreover, other income increased two times to Rs1.1 billion while financial charges dropped 19% to Rs8.7 billion, lending support to the bottom line of the company.

On a quarterly basis, profit stood at Rs2.3 billion (with EPS at Rs1.74) in the fourth quarter compared to profit of Rs43 million (with EPS at Rs0.03) in the same quarter of 2012.

With improved profitability, the company recently decided to go for an initial public offering (IPO), which was oversubscribed four times.

In 2013, the urea industry grew 13% after a downturn in 2012. Urea production jumped to 5.90 million tons in 2013 compared to 5.23 million tons in 2012.

This growth was mainly attributable to the better conditions of major crops while weather also remained favourable, casting a positive impact on urea demand

Still strong: Cherat Cement posts profit despite drop in exports

Drop in demand in Afghanistan and India has hurt exports of the entire sector. PHOTO: REUTERS/FILE

KARACHI: 

Cherat Cement posted a profit after tax of Rs710 million in the six months ended December 31, 2013, up 17% compared to Rs607 million in the corresponding period of previous fiscal year.

Earnings per share (EPS) jumped to Rs7.43 compared to Rs6.35 earlier. The company announced a cash dividend of Rs1 per share.

On a quarterly basis, Cherat Cement recorded a profit of Rs437 million, or EPS of Rs4.57, in the quarter ended December 31, 2013 compared to Rs339 million or EPS of Rs3.54 in the corresponding quarter of previous year.

In fiscal year 2012-13 (FY13), the company had reported a record profit of Rs1.22 billion, up 181% from Rs436 million in FY12.

Cherat is a small-cap cement company with a capacity of 1.1 million tons, but it has an added advantage of being close to the Afghan border. Its factory is located near Nowshera, Khyber-Pakhtunkhwa, which was built on a land bordering Cherat Hills − the company’s source of high-quality limestone.

This gives it an edge in exports to Afghanistan and India, two of the cement industry’s major export destinations.

Like other cement manufacturers, Cherat Cement made significant gains in the last two years because of a considerable increase in cement prices and low international coal prices.

However, like other manufacturers in the north of Pakistan, the recent decline in exports to Afghanistan and India due to security and political uncertainties is causing trouble for the company.

Demand in Afghanistan also diminished recently as Nato forces began the drawdown. Moreover, continuous availability of cheaper Iranian cement in Afghanistan is also giving Pakistani cement makers tough time.

Along with Afghanistan, a slowdown in the Indian economy, coupled with non-tariff barriers, also led to reduced demand for cement in India.

US ends probe of Samsung's use of essential patents

A man walks out of Samsung Electronics' headquarters in Seoul January 6, 2014.— Reuters Photo

WASHINGTON: The US Justice Department will close its investigation into Samsung Electronics' use of a special class of essential patents to attack rivals but would keep monitoring related patent litigation, it said on Friday.

Samsung had filed a patent infringement complaint against Apple at the US International Trade Commission and won an order in June 2013 banning the sale of some older iPhones and iPads in the United States. Samsung and Apple are the No. 1 and No. 2 smartphone makers, globally.

One of the patents involved in the case was a so-called standards-essential patent (SEP), a class of patents that ensure different devices can work together and are expected to be widely licensed.

The Justice Department and the US Patent and Trademark Office have argued that sales bans imposed as punishments for infringing on these patents should be done only in very rare cases.

Otherwise, patent holders "could use the threat of an exclusion order to obtain licensing terms that are more onerous than would be justified by the value of the technology itself," the Justice Department said.

The ITC's sales ban on Apple devices was overturned in August by the Obama administration, citing the effects on US consumers and the economy.

Based on that action, a Justice Department investigation was unnecessary, the department said.

"The Antitrust Division is therefore closing its investigation into Samsung's conduct, but will continue to monitor further developments in this area," the division said in a statement.

Representatives of Samsung and Apple declined to comment on the decision.

Apple, which revolutionized the smartphone, and Samsung, which makes mobile phones based on Google's Android software, have fought tooth-and-nail over patents in more than 10 countries, seeking a competitive edge.

Heading into another patent trial due to start in March, Apple's chief executive, Tim Cook, and his Samsung counterpart, Kwon Oh-hyun, have agreed to a mediation session by February 19.

Germany sends ECB’s anti-crisis measure to EU Court

File photo

FRANKFURT: Germany’s top court voiced doubts Friday about the European Central Bank’s bond-buying programme, credited with calming the eurozone crisis, and sent the case to the European Court of Justice.

The EU Commission in Brussels welcomed the decision and experts suggested the move could actually be good for the euro.

A rejection by the Constitutional Court would remove a key tool from the ECB’s arsenal and risk ratcheting up tensions again as bailed-out eurozone states try to return to the debt markets.

Back in September 2012, the Constitutional Court had overruled a number of legal challenges by a group of eurosceptics to the two key eurozone crisis tools — the European Stability Mechanism (ESM) and the European fiscal pact.

As a result, German President Joachim Gauck was able to sign those two crisis tools into law. But the eurosceptics also filed a last-minute challenge to the ECB’s OMT bond purchase programme, arguing that it overstepped the central bank’s mandate and was tantamount to printing money to pay countries out of their debt.

The Outright Monetary Transactions programme — under which the central bank can theoretically buy up unlimited amounts of the sovereign debt of crisis-ridden countries — was unveiled by ECB chief Mario Draghi in August 2012.

While it has never actually been put into use so far, its mere existence has proven to be the most effective weapon against the crisis and largely defused fears of an imminent break-up of the eurozone.

The German constitutional court, based in Karlsruhe, said it would issue its final ruling on the ESM on March 18.

But it also decided to consult the European Court of Justice with regard to the OMT because the ECB as a European body comes under the jurisdiction of the Luxembourg-based court.

It is the first time that the constitutional court has made such a referral.

In the court’s opinion, “there are important reasons to suggest that it goes beyond the ECB’s monetary policy mandate and infringes on the powers of the member states and contravenes the ban on monetary deficit financing,” it argued.

Nevertheless, the court said it “believes it is possible” that limitations could be applied to the OMT programme in such a way as to make it compatible with EU law.

ECB acting ‘within its mandate’

Observers said the decision could actually be good for the euro, because the ECJ as a European body was unlikely to overturn an anti-crisis measure that has been instrumental in restoring calm to the markets.

“It’s the solution we wanted,” one source told AFP.

The EU Commission in Brussels welcomed the move.

“The Commission has stated on more than one occasion that it is confident that the ECB is exercising its mandate in full independence, and acts in conformity with EU law,” said Simon O’Connor, spokesman for the EU’s commissioner for economic and monetary affairs, Olli Rehn.

The ECB, too, insisted once again that the OMT programme “falls within its mandate”.

ING DiBa economist Carsten Brzeski said the announcement “could either be a sign that the court has reached its legal limits on European issues or that the issue is so tricky and touchy that it is better to pass it on”.

In the short term, the news could reduce market tensions.

“But not entirely. It is not a given that the European Court of Justice will only rubber-stamp the OMT programme,” Brzeski warned.

By contrast, Natixis economist Johannes Gareis thought it “very unlikely that the European Court will rule against the ECB’s bond-buying programme”.

Commerzbank economist Michael Schubert agreed.

“We assume that the European court will not share the constitution court’s misgivings about the OMT programme, so that it will continue to be available to the ECB as a crisis tool,” Schubert said.

But Bert van Roosebeke, a banking expert at Freiburg-based think tank the Centre for European Policy, said it was “completely up in the air how the European court will rule” and that a ruling could take months.

In Berlin, the Finance Ministry said it “respectfully takes note of the constitutional court’s decision”.—AFP

Iraq to auction 3G licenses for at least $307 million each

People surf the Internet at an Internet cafe in Baghdad November 11, 2012. — Reuters Photo

BAGHDAD: Iraq plans to auction third-generation (3G) telecommunications licenses for a minimum of $307 million each, sources familiar with the matter said, a move that could allow new entrants into the sector but slow the rollout of mobile Internet services.

The country did not have a mobile phone industry under Saddam Hussein but the sector expanded rapidly after the 2003 US-led invasion which toppled the dictator.

Yet revenue growth has stagnated in recent years, largely because the government delayed permission for the three national operators - Zain Iraq, a unit of Kuwait's Zain, Ooredoo subsidiary Asiacell and Orange affiliate Korek - to launch 3G services.

The hold-up has persisted for several years, but last week the Council of Ministers agreed in principle to auction 3G licenses for a minimum price of $307 million, Ahmed Alomary, a former commissioner at the Communications and Media Commission (CMC), told Reuters.

A government source, who declined to be named because of the sensitivity of the issue, confirmed this.

The Council refused a request from the CMC to grant the 3G licenses automatically to the three existing mobile operators, the sources said, because the Council believes that would be contrary to the regulator's statutes.

An open auction could potentially allow new entrants into Iraq's telecommunications sector, although the prospect of building out a network from scratch in crisis-torn Iraq may limit interest, and the process could slow the introduction of 3G services.

The government source said no time frame had been set for the auction, and it would take considerable time to study and decide on an auction mechanism. "I doubt it will happen this year."

The $307 million minimum price has not been set in stone. "The price is more of a shot in the dark to see what the reaction is," the source added.

The current operators each paid $1.25 billion for their 2G licenses in 2007 and had argued they should not pay any more to launch next-generation services; 3G would allow for faster mobile Internet access, allowing users to access web-based videos or other data-heavy applications.

 

"Mobile services have been the big success story of telecoms in post-war Iraq,"

said Paul Budde, managing director of Sydney-based telecommunications consultancy BuddeCom.

"The market has grown very quickly, partly due to the lack of fixed-line service. With mobile penetration reaching levels indicative of a maturing market, mobile data is the next revenue growth opportunity for the mobile sector."

Iraq's fixed-line network is limited; the country had 300,000 fixed-line broadband subscribers and 1.9 million landlines in 2013, according to BuddeComm. So mobile may in future become the primary way for Iraqis to access the Internet, although Internet cafes are a popular means to get online.

About 3.4 million Iraqis, or 10 percent of the population, now use the Internet, while mobile phone penetration is 81 percent, BuddeComm estimates.

Mobile phone operators had wanted the government to provide 3G licenses and frequency for free or at minimal cost, arguing their 2G licenses were much more expensive than even those in Europe when factors such as gross domestic product, population and revenue-per-user were considered.

Charging for 3G licenses and spectrum would hurt operators' ability to roll out 3G services, as they could have put this money towards boosting networks and expanding coverage, said an industry source who declined to be identified.

"In Iraq it's like Africa and other countries where the infrastructure suffered for whatever reason - mobile is the fastest way to get people onto the Internet," this source said.

"But it depends on how the government feels, does it want to get cash or do they want to accelerate Internet access?"