Investment & Privatization Journal
January, 2020
Government wants quick NEVP implementation
despite resistance from auto industry

Despite auto assemblers’ reservations regarding the National Electric Vehicle Policy (NEVP), the government has aimed at making it operational by January 2020.

The federal cabinet approved NEVP on Nov 5 and the Ministry for Climate Change (MoCC) has summoned an inter-ministerial meeting in Islamabad to discuss the same.

The MoCC has informed relevant ministries and government departments that the “NEVP needs to be operational by January 2020 by validation of incentive packages through the Economic Coordination Committee (ECC).”

Prime Minister Imran Khan has already announced early implementation of NEVP, especially for two- and three-wheelers as well as buses for public transport in order to prevent smog.

The ministry said the subject policy under section 8 envisages the constitution of an inter-ministerial committee which would include members from the federal line ministries, provinces, private sector and the academia.

This committee would be responsible for overseeing all issues related to the entire electric vehicle value chain in order to smoothly introduce and coordinate efforts towards local manufacturing.

It will also be responsible for overseeing standardisation, regulation and compliance towards infrastructure. Periodic amendments in the policy based on changing technology and marketplace will also be its responsibility.

“We have not been invited in the inter-ministerial meeting,” Pakistan Automotive Manufacturers Association (Pama) Director General Abdul Waheed Khan told said, adding that “we have also not been taken into confidence on NEVP.”

He said on Nov 4, the news was swirling in the market that NEVP policy was on agenda of federal cabinet meeting the next day.

Before this, the climate ministry had circulated draft policy of electric vehicle while requisite input from the stakeholders on it was still to be obtained.

On the instance of MoCC, the Engineering Development Board (EDB) conveyed a meeting on May 23 with the auto sector people on the formulation of electric vehicle policy.

Here, the stakeholders had unanimously voiced that the concerned ministry was alien to the subject and it was the domain of Ministry of Industries and Production (MoIP).

Gang using fake invoices to evade taxes busted
Chinese keen to invest in economic zones
Chinese business delegation visited Allama Iqbal Industrial City to strengthen bilateral trade relations through exploring business potential and investment opportunities.

The delegation visited the Special Economic Zone (SEZ) of Faisalabad Industrial Estate Development and Management Company (FIEDMC) under the China-Pakistan Economic Corridor.
Both sides discussed issues for improvement in various sectors and projects, said a press release.
Highlighting the development projects of the FIEDMC, Mian Kashif Ashfaq said that around Rs357 billion foreign and local investments will be injected into various projects, which clearly indicates that investors have reposed complete confidence in the present regime. More than 25 Chinese firms have made agreements to invest in the industrial city, he added.

He said that Allama Iqbal Industrial City has been planned over an area of 4,000 acres, which is strategically located on Motorway M-4 near Sahianwala Interchange, Faisalabad.
He further said that all industries within the export processing zone will be exempted from tax for a period of 10 years and plants, machinery, raw material and other equipment can be imported duty-free.

Representatives of the Chinese delegation said Pakistan and China were all-weather strategic co-operative partners and their partnership was aimed at promoting peace, development and prosperity in the region.

They stressed that the Chinese investors were confident about Pakistan’s economic potential and hoped that the economic relationship between the two countries would increase.

Later, the delegation visited different parts of industrial city and expressed their satisfaction over the pace of development of various ongoing projects.

The FIEDMC chairman said the importance of the CPEC as a strategic alternative is immense, leveraging the economic opportunities that can unleash its strategic significance and bring prosperity, peace, as well as stability in the whole region.

Karachi industrialists lambast gas shortages
Leaders representing Karachi Industrial Forum and members of different textile bodies have criticised the utility company over its failure to supply gas to industrial units and warned of protests in case the Sui Southern Gas Company (SSGC) failed to restore gas at normal pressure.

Addressing a press conference at the Karachi Press Club, they said that by curtailing gas supply to Karachi industry, around 57 per cent of country’s industries have been affected in addition to hindering 54pc of the total exports.

The gas crisis is bound to hurt country’s exports because in the forthcoming Heimtextil, Frankfurt — the world’s biggest textile exhibition — exporters would be unable to enter into contracts due to gas shortages.

Moreover, they said that on one hand the government is not providing gas to the industrial whereas on the other, it is hinting at increasing gas and power tariffs further.
They said that businesses had started laying-off daily wage workers and if the current gas supply situation does not improve, they would be forced to lay off regular workers soon.
They demanded the federal government to ensure smooth gas supply to Sindh as per the Article 158 of the Constitution which means that first priority is given to a province where gas is produced and then surplus could be given to other provinces.

They further said that if KPK can ensure its right under the Article 158 of the Constitution over the gas produced in the province then why Sindh, which produces highest quantity of gas, can’t be facilitated as well.

They were critical about the policy of giving priority to domestic connections for gas supply and stated that since 2011, the number of domestic consumers have increased to 9,159,594 from 7,059,594 which means that over 2.1 million new connections have been approved during the period.

However, industrial gas during the period rose to 11,012 from 10,935 connections which meant that only 77 new industrial gas connections were given during the period.

It is pity that we talk about increasing exports but we are not ready to prioritise industrial sector, they added.

The industry leaders also questioned the wisdom of giving cross-subsidy in gas tariff to domestic consumers and stated that giving subsidy to affluent class living in bungalows and luxury apartments at the cost of industry makes no sense.


The Federal Board of Revenue busted a gang of 50-60 unscrupulous persons for issuing invoices in the name of bogus companies involving tax fraud of billions of rupees.

The Karachi-based Directorate of Intelligence and Investigation of FBR has unveiled a scam of evaders, who are engaged in issuing and utilising fake and flying invoices either to evade sales tax or to facilitate other persons in minimising their sales tax liabilities.

The gang is operating through various cities of Pakistan and issuing sales tax invoices without any physical movement of goods.

As per the investigation so far, paper transactions valuing Rs7.729 billion involving sales tax amount of Rs1.305bn is detected. The suspected revenue involve in the same can rise up to Rs10bn when the investigation completes, a senior tax official said.

The official said that investigations are underway to trace and apprehend the mastermind of the mafia.

Bogus companies, which exist only on papers, issue fake invoices. Then they claim refund from the sales tax department on raw material never purchased. Meanwhile, flying invoices are used by registered taxpayers to claim undue refunds from the FBR by showing excessive use of raw materials.

Further details show that an investigation is underway and so far suspension and black-listing of 10 bogus registered persons in Karachi has been initiated. These include Shahid Enterprises, Hashmi Traders, Jibran Enterprises, Rizwan Enterprises, Lucky Corporation, Zaid Enterprises, Zahid & Co, Khatri Enterprises, SSS Expo, and A-One Package.

The cases of bogus registered persons falling in other cities were referred to their respective directorates for further investigation.

These bogus registered persons have declared sales of multiple descriptions of goods, including coal and related products, lubricating oil and greases, petroleum and similar products, article of plastic, chemicals, paper, yarn and filament, textile articles, computer and other equipment, miscellaneous electrical, furniture beddings and cushion, which are not relevant to purchases of their buyers.


China seeks closer ties with neighbours

China made overtures on trade to Japan and South Korea and offered support for an infrastructure initiative as it hosted the leaders of its two neighbours this week amid strained ties with the US.

Chinese Premier Li Keqiang said at a meeting with Japanese Prime Minister Shinzo Abe that Beijing was willing to strengthen economic cooperation with Japan in third-country markets.

At the meeting on the sidelines of a trilateral summit in the southwestern city of Chengdu, Li added that China would “further open up its services industry” to Japan.

During a separate meeting with South Korean President Moon Jae-in, Li said China was willing to work on a rail network linking Korea with China and Europe, Yonhap news agency reported.

Li’s remarks come as China and the United States edge closer to an initial trade agreement after imposing tariffs on billions of dollars worth of goods over nearly two years in a bruising trade war that has hit the global economy.

The US President Donald Trump touted a “very good talk” he had held with China’s President Xi Jinping on a deal to resolve the dispute.

However details of the so-called “phase one” deal between the world’s two largest economies have yet to be published in writing, with officials citing incomplete translation and legal work.

Meanwhile, relations between the pair have been further strained by US legislators’ support for the pro-democracy movement in Hong Kong, and their condemnation of the mass internment of Muslim minorities in the western Chinese region of Xinjiang.

Free-trade deal
Li stressed the importance of China’s trade ties with Japan and South Korea, saying their vast volume of trade was due to the “joint protection of regional stability and peace”.
China, Japan and South Korea held a summit that also touched on a planned free-trade agreement between the three nations, which has been many years in the making.
Trade among the trio was worth more than $720 billion in 2018, according to a joint statement issued by the leaders.

The countries will “speed up the negotiations” on the agreement and “strive to realise a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment”, the statement said.

Saudi Arabia, Kuwait end dispute over shared oilfields
Saudi Arabia and Kuwait have ended a nearly five-year-long dispute over shared oil fields and have agreed to resume oil production from the divided Neutral Zone, but stressed this would not change their OPEC commitments to crude oil production cuts.

The allied Gulf Arab nations signed the agreement in Kuwait City. Local media reported that about 300,000 barrels per day were being pumped from the area before the dispute halted production in early 2015.

The divided zone, located between the two neighboring countries’ land borders, can produce up to half-a-million barrels per day.

The state-run Saudi Press Agency reported that the agreement will not affect Saudi Arabia’s commitments to reduce its crude output to 9.7 million barrels of per day.
The agreement was signed by Saudi Energy Minister Prince Abdulaziz bin Salman, who has spent the past few years as a Saudi energy insider trying to resolve the rare public spat between the kingdom and its Gulf neighbour.

The Kuwait News Agency reported that a lavish ceremony was held to mark the event, and was attended by Kuwait’s foreign minister, energy minister and other officials.
ETFs may not repeat stellar performance

Exchange-traded funds (ETFs) that use leverage to offer double or triple the daily return of benchmark US stock indexes rank among the 10 top-performing funds of the decade, with returns that in some cases neared 2,000 per cent, despite warnings that they are not suitable for most investors.

The huge gains for leveraged ETFs reflect the benefits of betting on growth during the longest bull market in history. But they also highlight the subtle ways in which record-low volatility bolstered investors.

High volatility hurts leveraged ETFs by adding costs to the daily rebalancing trades necessary to maintain leverage.

Fund experts and analysts caution that the outsized returns for leveraged funds may not be repeated in the decade ahead.

“This was virtually the perfect decade. You had very low volatility, very low borrowing costs, and above-average market returns,” said William Trainor, a professor at East Tennessee State University who specialises in the study of leveraged ETFs.
While leveraged funds will outperform other options in the decade ahead, Trainor said, rising borrowing costs over the next three to four years will likely weigh on possible gains.

“I don’t think we will see the returns that we’ve seen again,” he said.
The Direxion Daily Technology Bull 3X ETF, for instance, returned nearly 1,920pc between the start of 2010 through November of this year, according to Morningstar data, the biggest gain among the roughly 10,000 mutual funds and ETFs available in the United States. The ProShares Ultra, which offers two times the daily return of the Nasdaq 100 index, posted the second-best return with a nearly 1,330pc gain over the decade.

The top actively managed U.S. stock fund over the decade, by comparison, gained 441pc, led by the Virtus KAR Small-Cap Growth fund, the Fidelity Select Retailing fund, and the Berkshire Focus fund.

Despite their outperformance, leveraged funds remain more suitable for tactical investors such as hedge funds than long-term investors, said Todd Rosenbluth, director of ETF and mutual fund research at CFRA.


Nissan shares hit eight-year low after top executive quits
Nissan shares hit an eight-year low after the senior executive in charge of plans to revive crisis-hit Nissan has decided to quit just weeks after taking the job, sending the carmaker’s stock plunging more than three per cent.

Jun Seki, 58, number three at Nissan, had informed them of his decision to leave and the company had accepted it, the automaker said in a statement.

Seki, currently executive officer and vice chief operating officer, is expected to become president of major electric components maker Nidec, according to a source close to Nissan.

Ashwani Gupta, chief operating officer and number two at Nissan, should take the responsibility for the recovery plan instead of Seki, the source told AFP.
Struggling to rebuild itself after former chief Carlos Ghosn’s financial scandal, Nissan just started its new management under chief executive and president Makoto Uchida on Dec 1.

The company said it “has been on a steady path to regain trust, restore the company’s performance and work on its business transformation, and is already seeing progress.”
“Under the new top management, Nissan will continue to focus on these key areas, which remain our highest priority,” it said in the statement.

But investors were not convinced.

Nissan shares plunged 3.1 per cent on the Tokyo Stock Exchange to a low last seen in September 2011 Nidec shares gained 0.3pc.

Makoto Sengoku, market analyst at Tokai Tokyo Research Institute, said Seki’s resignation came at “an impossible timing.” “He was the No.3 and was supposed to be a central figure to drive the reform. It was inevitable that such a man’s departure spawned caution towards Nissan,” Sengoku told AFP.

“It’s an urgent task for Nissan to revamp itself but there is a doubt over how stable its leadership is,” he said.

Nissan, in a three-way alliance with Mitsubishi Motors and France’s Renault, last month slashed its full-year forecast for both sales and profit as it struggles with weak demand in Japan, the US and Europe, as well as fallout from the arrest of Ghosn.

Ghosn was arrested for alleged financial misconducts in November 2018 and is awaiting his trial which may start around April.
RBI sees governance ‘fault lines’ at some lenders
Growing problems of corporate governance are emerging at India’s private banks and all lenders are at risk of rising default rates even though asset quality has improved overall, the Reserve Bank of India said.

In its annual report on Trends and Progress of Banking in India, the central bank highlighted the possibility of defaults rising in the retail lending space after the economy slowed to 4.5per cent in the July-September quarter, its weakest pace since 2013.

Indian banks have shifted towards the retail market in recent years in response to a rise in soured corporate loans.


“Over the last couple of years, the space vacated by risk-averse public sector banks was taken up by the private banks; more recently, however, fault lines are becoming evident in the latter’s corporate governance,” the RBI said.

In financial year 2018-19 the proportion of gross non-performing assets (NPAs) to total loans decreased to 9.1pc compared to 11.2pc in 2017/18, after having risen for seven consecutive years as recognition of bad loans neared completion.

“Notwithstanding the improvement in 2018/19, the overhang of NPAs remains high. Further reduction in NPAs through recoveries hinges around a reversal of the downturn in the economy,” the central bank said.

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