BRICS establish $100bn bank and currency pool to cut out Western dominance

The group of emerging economies signed the long-anticipated document to create the $100 bn BRICS Development Bank and a reserve currency pool worth over another $100 bn. Both will counter the influence of Western-based lending institutions and the dollar.

The new bank will provide money for infrastructure and development projects in BRICS countries, and unlike the IMF or World Bank, each nation has equal say, regardless of GDP size.

Each BRICS member is expected to put an equal share into establishing the startup capital of $50 billion with a goal to reach $100 billion. The BRICS bank will be headquartered in Shanghai, India will preside as president the first year, and Russia will be the chairman of the representatives.

“BRICS Bank will be one of the major multilateral development finance institutions in this world,”Russian President Vladimir Putin said on Tuesday at the 6th BRICS summit in Fortaleza, Brazil.

The big launch of the BRICS bank is seen as a first step to break the dominance of the US dollar in global trade, as well as dollar-backed institutions such as the International Monetary Fund (IMF) and the World Bank, both US-based institutions BRICS countries have little influence within.

“In terms of escalating international competition the task of activating the trade and investment cooperation between BRICS member states becomes important,” Putin said.

Russia, Brazil, India, China and South Africa account for 11 percent of global capital investment, and trade turnover almost doubled in the last 5 years, the president reminded.

Each country will send either their finance minister or Central Bank chair to the bank’s representative board.

Membership may not just be limited to just BRICS nations, either. Future members could include countries in other emerging markets blocs, such as Mexico, Indonesia, or Argentina, once it sorts out its debt burden.

BRICS represents 42 percent of the world’s population and roughly 20 percent of the world’s economy based on GDP, and 30 percent of the world’s GDP based on PPP, a more accurate reading of the real economy. Total trade between the countries is $6.14 trillion, or nearly 17 percent of the world’s total.

The $100 billion crisis lending fund, called the Contingent Reserve Arrangement (CRA), was also established. China will contribute the lion’s share, about $41 billion, Russia, Brazil and India will chip in $18 billion, and South Africa, the newest member of the economic bloc, will contribute $5 billion.

The idea is that the creation of the bank will lessen dependence on the West and create a more multi-polar world, at least financially.

“This mechanism creates the foundation for an effective protection of our national economies from a crisis in financial markets," Russian President Vladimir Putin said.

The group has already created the BRICS Stock Alliance an initiative to cross list derivatives to smooth the path for international investors interested in emerging markets.

Russia has also proposed the countries come together under an energy alliance that will include a fuel reserve, as well as an institute for energy policy

"We propose the establishment of the Energy Association of BRICS. Under this ‘umbrella’, a Fuel Reserve Bank and BRICS Energy Policy Institute could be set up,” Putin said

.

Documents on cooperation between BRICS export credit agencies and an agreement of cooperation on innovation were also inked.

Bringing emerging economies closer has become vital at a time when the world is guttered by the financial crisis and BRICS countries can’t remain above international problems, said Brazil's President Dilma Rousseff.

She cautioned the world not to see BRICS deals as a desire to dominate.

“We want justice and equal rights,” she said.

“The IMF should urgently revise distribution of voting rights to reflect the importance of emerging economies globally,” Rousseff said.

Sit-down: French expansion in Pakistan expected

I

KARACHI: 

Despite ‘typos’ over the country’s economic growth, investors remain somewhat pleased with the turnaround the country has witnessed.

France Ambassador Philippe Thiebaud, too, said he was hopeful that several French multinational companies would expand their business in Pakistan, ushering in an era of increased bilateral trade between the two countries.

Thiebaud, in a media briefing at the French consulate, said Total – a French multinational integrated oil and gas company – was looking to expand and take over the oil distribution network in Pakistan. “They are in the process of finalising the deal,” he informed the media.

“Pakistan faces a grim situation on the energy and terrorism front, though France has assisted the country in its power crisis,” he said, referring to the Uch-II power plant owned by a French company in Balochistan. The plant has been operational since April 2014, generating 1,000 megawatts of electricity.

Thiebaud explained the mechanism of the European market post-eurozone crisis, indicating great potential for Pakistani exporters as the local population reaches out to cheaper products. “We are quite convinced there is more that can be done in the trade and commerce sectors,” he said.

Despite market competition from the EU and non-EU countries, he believes Pakistan’s mature textile industry has the potential to move ahead of the rest, provided it expands its value-added sector of the industry.

“Like other parts of the world, Europe has different groups of population and a large part of consumers, with the economic slowdown, wants to buy cheap products. This provides a lot of opportunities for Pakistan,” he said, stating that quality is not necessarily the basic requirement.

“France is more focused on manufacturing luxury brands of which 80% are sold internationally.”

The envoy said that in the first quarter in 2014, Pakistan’s exports to the EU have increased 20% compared to the previous year — declaring GSP Plus status a reason for the development.

“The status has been granted for 10 years. This should improve the capacity of Pakistani exporters to strengthen their partnership with European importers,” he said.

In June this year, a Pakistani business delegation visited France, headed by the Pakistani Business Council and Pak-France Business Alliance, met their counterpart, the Movement of the Enterprises of France.

The ambassador added that a French delegation is expected to visit Pakistan in the first quarter of 2015

1HCY14: PTCL reaps high profits

PTCL’s after-tax profit increased to Rs8.2 billion or Rs1.62 per share for six months ending June 2014. PHOTO: FILE

KARACHI: 

Supported by higher revenues from its broadband and cellular business, the Pakistan Telecommunication Company Limited (PTCL) has managed to earn profits of more than Rs1 billion every month in the first half of 2014, according to its financial results, released on Tuesday.

PTCL’s after-tax profit increased to Rs8.2 billion or Rs1.62 per share for six months ending June 2014. This translates to an increase of 4.7% compared with Rs7.8 billion or Rs1.51 per share it earned in the corresponding period of 2013.

The financial results were accompanied with an interim cash dividend of Rs10 per share, according to a notification sent to the Karachi Stock Exchange.

The broadband giant grossed Rs68.5 billion in sales during the review period, up 4.7% when compared with Rs65.4 billion it grossed in the same period last year.

“We attribute an increase in revenues to the surge in cellular and broadband subscribers with major increase in EVO wireless segment,” Topline Securities said in a statement. “Moreover, other income increased 3.4% to Rs2.5 billion while financial charges decreased to Rs1.2 billion in the first half of 2014, down 30%,” it said, adding the company’s cost of sales surged to Rs42.5 billion. Resultantly, gross margins improved by 1% point to 37.3%

On a quarterly basis, the company’s revenues increased by 5.6% to Rs35.1 billion compared with Rs33.2 billion of April-June quarter of 2013, the Topline report said. “Although, a monthly average of long distance international (LDI) minutes witnessed a decline of around 11%, improvement in revenues is linked to surge in cellular and broadband subscribers.”

The report said that 8.6% higher cost of sales offset incremental benefit of revenue growth for the quarter. “As a result, gross profits remained stagnant at Rs12.6 billion while gross margins declined by 2% points to 35.8%.”

Higher admin, selling and distribution costs further dented revenue, according to the Topline’s report – admin cost increased by 17% to Rs5 billion while selling and distribution cost increased by 25% to Rs2.4 billion.

The report further stated that on a quarter-on-quarter basis, higher cost of sales resulted in 3% fall in gross profits despite a 5.3% increase in revenues. During the quarter, financial charges increased by 119% to Rs854 million.

In the second quarter of 2014, the company posted consolidated earnings of Rs3.9 billion or Rs0.76 per share as compared to Rs4.5 billion or Rs0.89 per share in the same quarter last year, the report said.

PIA accepts bids to acquire four A320s

KARACHI: 

Pakistan International Airlines (PIA) has accepted bids to hire four Airbus 320 aircraft against 10 narrow-body jets initially planned to be inducted in the fleet on dry lease.

The national carrier has accepted bids from the Dublin-based lessor AWAS for three aircraft while Aircastle, which operates out of the US, has offered one jet, according to the bid evaluation report on the airline’s website.

The jets will cost approximately Rs4.294 billion over the six-year lease period and help the airline meet demand on domestic and regional routes and in some cases even regain lost market share, officials said.

Two other bidders – a private airline and Aercap Holdings which together offered 19 planes – were rejected because they provided incomplete information on the type of aircraft or the planes were old, the evaluation report said.

PIA posts the evaluation report of the accepted bids on its website as a mandatory requirement under the Public Procurement Rules, allowing public a chance to give its feedback.

Out of the four planes, three A320s with construction numbers 3060, 3097 and 3031 are presently being operated by Czech Airlines, according to Planespotters.net, a website which keeps track of jets across the globe. It doesn’t mention AWAS being the lessor.

“Aircraft leasing business works in a funny way. There are companies which lease the jets themselves from other lessors. But for PIA, the important thing is the cost of that lease,” said a former head at the PIA’s Corporate Planning Department that decides aircraft-related matters.

“Airline officials normally give most weightage to the financially viable deal.”

There was a time when PIA used to lease planes directly from other airlines or aircraft manufacturers but now it has become difficult to get any sort of discount under direct deals, he said.

The aircraft offered by Aircastle is currently being flown by Sri Lankan Airlines, according to planespotters.net.

A PIA spokesman said that the national flag carrier has also called bids to lease four narrow body planes on wet lease.

“We want these wet lease planes to be delivered to us from September onwards. This is being done to ensure we have sufficient planes and that we get a good deal,” he said.

Airlines normally avoid hiring planes on a wet lease, which is expensive than a dry lease and is mostly used to meet pressing needs. Civil Aviation Authority of Pakistan also discourages wet lease.

PIA has a fleet of 28 planes including nine B777s, nine A310s, six ATRs, three B747s and one A320.

Airlines normally avoid hiring planes on a wet lease, which is expensive than a dry lease and is mostly used to meet pressing needs. Civil Aviation Authority of Pakistan also discourages wet lease.

Neelum Jhelum: China bank offers $300m for power project

ISLAMABAD: 

Exim Bank of China has agreed to offer a loan of $300 million for completing the most critical Neelum Jhelum hydropower project, having a capacity of 969 megawatts, by 2016.

Water and Power Development Authority (Wapda) Chairman Zafar Mehmood disclosed this in a briefing to the Senate Standing Committee on Water and Power, headed by Senator Zahid Khan, here on Tuesday.

Mehmood, however, said Wapda still required $475 million to complete the project by 2016. “Borrowing from the private sector is on the cards as discussions in this connection are under way,” he said.

Furthermore, Rs57.4 billion will be arranged from power consumers through collection of a surcharge. Of this, Rs33 billion has already been received.

Mehmood pointed out that the surcharge, imposed at the rate of 10 paisa per unit, only met 10% of total expenditures and there were no arrangements for the remaining 90% expenses as the Saudi Fund, Kuwait Fund and other institutions had backed out of their commitments.

The prime minister also approved Rs14 billion for the power project, which had been released, he said.

Responding to a question, Neelum Jhelum Hydropower Project Chief Executive Officer Muhammad Zubair told the Senate panel that Rs14 billion had been released from the Public Sector Development Programme (PSDP) of last year, but no funds were earmarked for the project in the PSDP of current year.

He said the government set aside Rs48 billion for the project in 2013-14, of which Rs37 billion was spent. This year’s requirement is Rs72.9 billion, but no arrangement has been made so far.

He expressed fear that the project had not achieved financial close so far, indicating it could be further delayed with expected increase in cost.

Zubair said 64% of physical work had been completed with progress on the dam at 75%, tunnel 72% (total length of the tunnel is 45 km) and powerhouse approximately 100%.

On the occasion, the Wapda chairman asked committee members to visit the project site to see the progress. They are expected to pay the visit after August.

Senator Nisar Muhammad Khan emphasised the need for early completion of the project of national importance.

Munda Dam

Replying to a question about 800MW Mohmand dam and hydropower project, called Munda Dam, the Wapda chairman said it was economically feasible and all bottlenecks would be removed in coordination with the ministries concerned.

Committee members aired their reservations about the establishment of an inquiry committee on Munda Dam and said officials of the Planning Commission and finance ministry had assured of completion of the project after getting opinion of the law ministry.

Water share

The committee also discussed the Indus River System Authority’s (Irsa) role pertaining to distribution of water among provinces and the water and power minister’s remarks blaming Irsa for not releasing water. The issue came up for discussion after Senator Maula Bux Chandio remarked that the minister should not touch already settled issues and let Irsa do its duty.

The Wapda chairman, however, clarified that the minister had telephoned him after the controversy erupted and also wrote a letter to Wapda, asking it to coordinate with Irsa in streamlining the dysfunctional telemetry system in order to remove the confusion among provinces. He also read out the letter written by the minister.

“Water distribution is the sole responsibility of Irsa and Wapda cannot interfere in it,” he stated categorically.

The Senate panel also recommended removal of the chief executive officers of Islamabad Electric Supply Company and Gujranwala Electric Power Company, calling their work extensions illegal.

Committee chairman expressed his annoyance over absence of the water and power minister and secretary from the meeting.

Pepco data shows no increase in power generation in a year

LAHORE: Contrary to official claims, the sectoral data shows that power situation worsened over the past one year as the power generation is now stuck at exactly where it was a year ago (around 14,500MW), but the demand increased by around 800MW, widening the gap between demand and supply which has caused an increaseinloadshedding.

According to the system, demand-supply data prepared by Pakistan Electric Power Company (Pepco), the country on an average generated 14,424MW in July last year against the demand of 18,884MW, showing a gap of 4,460MW.The peak demand-supply situation was slightly different. During 6pm to 11pm the total demand touched 20,012MW on July 30 and generation went up 16,170MW on that particular day. Otherwise, the generation remained well below 15,500MW throughout the month. The highest shortfall for the month was recorded on July 6 when it rose to 6,553MW generation plummeted to 12,618MW against demand of 19,171MW.

During this year`s July so far, the maximum demand has touched 20,815MW and peak generation around 14,539MW, a deficit of around 6,276MW.

According to a former managing directorofPepco,one shouldnotforgetthatthe government had just cleared the entire cir-cular debt a year before July and there were no system constraints. Every machine was running to its capacity. Now the circular debt has reared its head. Fuel supplies have been squeezed; the sector is getting around 22,000 tons furnace oil against total the demand of around 36,000 tons.

So, the situation was bound to worsen, he added.

The government prematurely inaugurated the Nandipur plant and launched a media campaign that 425MW plant has been added to the system. Within days, the plant went offline because its basics were not put in place. It was originally designed for furnace oil, but was being run on diesel. Managers at the plant have refused to run it permanently on diesel.Similarly, the 747MW Guddu power went offline because its contractor has refused to risk premature running of the plant. Same was the situation at 410MW Uch-I which still does not have transmission line to distribute power although the government`s media campaign led everyone to believe that it was in the system.

Both plants at Uch with total capacity of 835MW are available, but cannot transmit power; either one of them is switched off or Guddu is taken offline to supply power from that area. Had all these plants, with a combined capacity of over 1,500MW, been actually added to the system, the situation might have been better than the last year, the member of Wapda said.

Lessons in history for a better future

Pakistani entrepreneurs should take a leaf out of Gates, Jobs and Branson’s books. CREATIVE COMMONS

KARACHI: 

As Pakistan heads towards an uncertain future, its economy urgently needs the benefits of entrepreneurship to take root and help add a few points to Pakistan’s extremely poor GDP growth.

But how can we double the GDP growth rate? Where will this growth come from?

Future of the country’s growth will not depend on Foreign Direct Investment (FDI) or the entry/expansion of large multinational companies. In fact, it will depend on the disproportional growth in Small and Medium Enterprises (SME).

This will come from scores of Mom and Pop stores (like 7-Eleven), from the youth starting their own fast food chains (OP2P), from smart young software engineers starting their own software houses that would develop applications for smartphones and several other similar ventures. Remember 95% of jobs created in the US are by small business owners.

Three great entrepreneurs of our time — Bill Gates, Steve Jobs and Richard Branson have left some great insights for future entrepreneurs globally.

Improvise, not just Innovate

IBM approached Gates, founder of Microsoft, in 1980 to make an operating system for their upcoming personal computer. Gates lacked the innovative ability to write it from scratch, so he looked around and bought the rights to QDOS for $75,000 and modified it in-house into what he later called MS-DOS. This is what he licenced to IBM as PC-DOS and proceeded to make a huge fortune, making Microsoft a part of history.

The key lesson here is that coming up with an original innovation is not the only way to proceed. From the huge amount of knowledge existing today and building on existing ideas or inventions and improving them, one can create real sustainable value. Today, after 34 years, no one remembers that Bill Gates did not write MS-DOS, but what everyone does remember is how he grabbed an opportunity and created value for his company.

Use failures as opportunities

Jobs, founder of Apple, is one of the greatest innovators and entrepreneurs of our time. Last year, Apple’s market capitalisation was more than double of Pakistan’s nominal GDP in $ terms.  Job’s success has two salient features.

There is a need to continue making that effort despite failures. If you don’t try, you will not fail but if you don’t try, you will not succeed either. Second point is to learn from your failures. Failures are part of life. Every successful businessman has failed in the past but succeeded only when they learnt from their mistakes and persevered and continued their efforts.

When the Apple board fired Jobs in 1985, 30 years after he had created this billion-dollar company, how do you think he reacted? He positioned getting fired as the best thing that happened to him. He suddenly felt less burdened and entered the most creative period of his life.

Interestingly, when he died 70% of his personal wealth $8 billion came from a venture he started after leaving Apple — Pixar, an animation movie studio, where he created blockbusters including Toy Story, Finding Nemo, Monsters, Cars, Ratatouille and many more.

Attention to detail

A quote attributed to Branson, well known as a true global entrepreneur who has started over 400 companies. One key insight he emphasises is to focus on details — not letting any feedback or comment fall through the crack. He always carried a notebook to jot down a comment by a fellow worker, a customer or business partner. As someone very aptly said that the secret of success is 80% planning and 20% implementation.

Gates began his career by improving upon existing ideas. Jobs took an adversity and turned it into an opportunity. Branson emphasised focus on details and not let anything fall through the crack.

All of these icons in their own rights are role-models for young entrepreneurs. There is a need to learn from these gurus.

THE WRITER is associated with the CORPORATE SECTOR AND IS ACTIVE ON VARIOUS BUSINESS FORUMS AND TRADE BODIES