Privatisation Programme and Investment

Opportunities in PakistanDr. Abdul Hafeez Shaikh

Minister for Privatisation & Investment

May 2003

♦ Revenues % GDP 11.3

♦ Investment % GDP 15

♦ Credit Rating B+

♦ Literacy Rate 50.5%

♦ Universities 68

(excluding private sector)

♦ I.T/BCS/MCS Institutes 27

♦ ISPs 127

♦ Software DevelopmentCompanies 278

♦ Workforce 41 Million

♦ Registered companies 43,000+

♦ Listed Companies 700+

♦ Foreign firms 600+

♦ Industrial Estates/Zones 63

♦ Export Processing Zones 3

Pakistan in PerspectivePakistan in Perspective

Improving Investment Environment & Improving Investment Environment & Economic FundamentalsEconomic Fundamentals

B+B-B-C♦ Credit rating

+452715186815201300♦ Stock Exchange Index-3.7257.8660.106158.4♦ Exchange Rate (Rs/US$)

+6110.3266.4316.263.22♦ Forex Reserves(Billion $)

-*3.5%-2.6%4.4%♦ Inflation

-4.5%(Expected)

-3.6%2.6%♦ GDP Growth

+/-%July-Mar, 03July-Mar, 022001-022000-01Indicators

+129658.2287.4484.70322.40♦ FDI (Million $)

+15310.02269.81400.00393.91♦ Net Revenue (Billion Rs)

+991.6263.2302.3891.087♦ Workers Remittances (Billion $)

+43(1.17)(0.82)(1.21)(1.52)♦ Trade Balance (Billion $)

+239.037.3510.3310.72♦ Imports (Billion $)

+207.866.549.129.20♦ Exports (Billion $)

Attractive Investment EnvironmentAttractive Investment EnvironmentAttractive Investment Environment

! Strong privatization , liberalization &

deregulation program

! Stable exchange rate.

! Increasing reserves.

! Vibrant capital market.

! Independent regulators.

! Reformed banking system with high liquidity.

!! Strong privatization , liberalization & Strong privatization , liberalization &

deregulation programderegulation program

!! Stable exchange rate.Stable exchange rate.

!! Increasing reserves.Increasing reserves.

!! Vibrant capital market.Vibrant capital market.

!! Independent regulators.Independent regulators.

!! Reformed banking system with high liquidity.Reformed banking system with high liquidity.

Attractive Investment EnvironmentAttractive Investment Environment………Continued………Continued

♦ Liberal Trade & Tariff Policy

♦ Reduced maximum tariff (25%) and number of

slabs (4)

♦ Provisions of TRIMS & TRIPS incorporated in

Pakistani laws

♦ Reasonable Tariff protection to industry

DeregulationDeregulation

♦ Investors free to choose projects/sectors♦ Foreign investment allowed in all sectors♦ No limit on project size♦ Independent regulators established :-

– Securities & Exchange Commission of Pakistan– Pakistan Telecommunication Authority– National Energy and Power Regulatory Authority– Oil & Gas Regulatory Authority– Pakistan Electronic Media Regulatory Authority– Pakistan Procurement Regulatory Authority

Changes ….Changes ….

♦ Improving country political risk

♦ New investment support measures– New Budget Growth Oriented

– Fiscal Policy to Support Growth in Investments

– Public Sector Development Program to boost local industries

Liberal Investment PolicyLiberal Investment Policy♦ All economic sectors open for FDI♦ Foreign equity upto 100% allowed♦ No Government sanction required♦ Attractive incentive packages♦ Remittance of royalty, technical & franchise fee allowed ♦ Network of Export Processing Zones♦ Export Manufacturing Zero-rated♦ Foreign investment fully protected by:

" Foreign Private Investment (Promotion & Protection) Act, 1976

" Protection of Economic Reforms Act, 1992" Foreign Currency Accounts (Protection) Ordinance, 2001

♦ Bilateral Agreements:" Investment Protection: 44 Countries" Avoidance of Double Taxation:51 Countries

Allowed as per guidelines - Initial lump-sum upto $100,000- Max Rate 5% of net sales - Initial period 5 years

No restriction for payment of royalty & technical fee.

Royalty & Technical Fee

50%50%Tax relief (IDA, % of PME cost)

0-10%***10%***0% ***5-25%

10%**5%**5% **

Customs duty on import of PME

0.30.30.3No Minimum Investment Amount (M $)

Initially 100% but to be diluted to 60% within five years.

100%60%100%Upper Limit of foreign equity allowed

AllowedAllowedRemittance of capital, profits,dividends, etc.

Not required except specific licencesfrom concerned agencies.

Not required except 4 specified industries *

Govt. Permission

Services including IT & Telecom Services

Infrastructure & Social

Agriculture

Other Indus-tries

Engg+ Chem, Agri business, housing & construction, tourism Cat(C&D)

Hi-Tech & IT Cat(B)

V.A + Export Cat (A)

Non-Manufacturing SectorsManufacturing SectorPriority Industries

Pakistan’s Investment PackageInvestment Package

Korea3% Others

15%

Japan6%

OIC10%

USA41%

UK21%

Germany4%

Source: State Bank of Pakistan Total: $ 6.035 billionTotal: $ 6.035 billion

Others, 439.6, 7%

Manufacturing, 1480.1,

25%

Services, 1297.2, 21%

IT & Communications,

281.8, 5%

Oil&Gas 1204.4

20%

Power, 1331.6,22%

Total: $ 6.035 billion

Pakistan: Pakistan: SectoralSectoral FDIFDI(89/90 (89/90 –– 01/02)01/02)

FDI Inflow (JulyFDI Inflow (July--March 2002March 2002--03)03)

201.8Financial Business202.7U.K

32.1Trade11.5Japan

658.2Total658.2Total

141.7Others135.2Others

66.2Transport32.6KSA

80.4Chemicals112.7U.A.E

136.0Oil & Gas exploration163.5USA

Source Leading Sectors Million $

FDI GoalsFDI Goals

* $ 658 M (July * $ 658 M (July ––March, 2002March, 2002--03)03)

1,400 2003-04

1,000*2002-03*

Million $Year

Privatisation Policy & Program♦ Privatisation part of the Government’s policy

since 1990

♦ Privatise public sector entities

♦ Follow fair and transparent privatisation process

♦ Privatisation Commission established (1991) upgraded to Ministry (2000)

♦ Proceeds of approx. $ 2 Billion; 132 transactions completed.

Objectives of PrivatisationGOP is firmly committed to privatisation

– it has no business running businessesThrough privatisation, GOP expects to:♦ Enhance the quantity and quality of goods and

services♦ Strengthen GOP’s fiscal position

– Bulk of proceeds used to retire debt– Fiscal bleeding from loss-making SOEs stemmed

♦ Broaden and deepen capital markets♦ Reduce opportunities for corruption

♦ Macroeconomic stabilisation

♦ Resolving investor issues

♦ Deregulation and liberalisation

♦ Getting the Prices Right♦ Establishing / strengthening regulatory

frameworks in power, oil & gas, telecommunications

Improving Enabling Environment

Sale Proceeds To-Date

Rs. in Billion

! Telecom 31 ! Finance & Banking 26

! Energy 21

! Industrial & Others 21

Total: 99

or US$ 1.707 b

Sources of Proceeds of Rs. 99 billion upto April 30, 2003

Telecom 31%

Finance & Banking26%

Energy21%

Industrial & Others 21%

Major Upcoming Transactions

Major Upcoming Transactions

4th qtr 2003

26-51% Habib Bank Limited (HBL)

3rd qtr 2003

56% Faisalabad Electric Supply Co (FESCO)

4th qtr 2003

51% Oil and Gas Development Company Ltd (OGDCL)

3rd qtr 2003

51% Pakistan State Oil (PSO)

4th qtr 2003

26% Pakistan Telecom Co Ltd (PTCL)

Targeted Bidding

Date

%age Equity Sale with

Management Control

Company

Major Upcoming Transactions

3rd qtr 200351% Genco 1 (Jamshoro)

1st qtr 200451-74% Karachi Electric Supply Corp (KESC)

3rd qtr 200358% National Investment Trust Limited (NITL)

Targeted Bidding Date

%age Equity Sale with

Management Control

Company

♦ Strategic Sale of 26-51% Equity ♦ Largest Full Service Bank: 5 Million +

depositors,20% domestic market share

♦ Domestic network: 1,425 branches♦ Overseas Network: 48 branches, 3 subsidiaries

&2 joint ventures in 26 countries

♦ Successfully Restructured ♦ Financial Sector: High Growth & Efficiency

Habib Bank Limited

Pakistan Telecom Company Limited♦ Strategic Sale of 26% Equity ♦ PTCL is the telecom leader

#Local, long distance, and IDD services, GSM mobile service, internet, and data network services

#Network services to all mobile, data, and internet service providers and to payphone licensees

#Over 4 Million ALIS

♦ Low penetration: ample potential for growth

Pakistan State Oil

♦ Strategic Sale of 51% Equity ♦ Market Share: fuel oil - 85%, diesel – 60%,

motor gas – 40%, aviation – 60%, lubricants – 40%

♦ Retail distribution network: 3800 outlets♦ Largest network of storage depots and

terminals♦ High growth potential♦ Ongoing deregulation expected to increase

margins

Oil & Gas Development Company Ltd

♦ Strategic Sale of 51% Equity

♦ OGDCL largest E&P company in Pakistan

♦ Reserves: 1.4 Billion boe

♦ Production: 130,000 boe per day

Faisalabad Electric Supply Company Ltd.

♦ Strategic Sale of 56% Equity

♦ Low losses (12%) and high rate of bill collections

♦ Area covered 67,000 sq. km with Population of over 15 Million

♦ 1.8 Million customers

Jamshoro Power Company Ltd.

♦ Strategic Sale of 51% Equity

♦ 2 plants: Jamshoro (880 MW), Kotri (174 MW)

♦ Strategic Position in National grid: Proximity to Important Load Centers of Karachi andHyderabad

♦ Sale pursuant to a Power Purchase Agreement (PPA) with multi-year tariff

Karachi Electric Supply Corporation

♦ Strategic Sale of 51-74% Equity

♦ Other options also being studied

♦ Integrated utility serving commercial hub of Karachi

♦ Area covered 6,000 sq. km with population of over 12 Million

♦ 1.7 Million customers predominantly urban

♦ Major Financial Restructuring Undertaken

♦ Strategic Sale of 58% Equity♦ NITL manages NI(U)T: Largest open-end

mutual fund - 4 % of stock market, 80 % of domestic mutual funds

♦ Offers one window entry to Pakistan’s equity markets

♦ NI(U)T Portfolio: Significant strategic holdings in Pakistan’s best-managed companies

♦ NITL successfully restructured

National Investment Trust Limited

Privatisation in Short

♦ Strong commitment to Privatisation

♦ Continuously improving enabling environment

♦ Privatisation process - fair and transparent

♦ Major upcoming transactions -Opportunities in telecom, oil and gas, power and financial sectors

Pakistan is open for business…..