Monday, June 8, 2009

With 184 trillion cubic feet of proven natural gas reserves, 36 billion barrels of proven oil reserves and significant deepwater production growth from finds such as Total's Akpo field, Nigeria remains one of the world's most promising energy markets. Although most attention focuses on the challenges posed by militant groups in the Niger Delta, the success or failure of the country's regulatory reform process could have an even greater impact on future energy production.

Popular discontent with the status quo largely focuses on recurrent fuel shortages and Nigeria's chronic inability to generate enough electricity to meet domestic demand. Persistent mismanagement and neglect have left the country's four domestic oil refineries regularly producing at less than 50% of their nominal capacity and forced Nigeria to import almost 85% of its refined petroleum products.

Complex reforms.In January 2009 the "Petroleum Industry Bill, 2009" was introduced in the Nigerian Senate. A daunting attempt to reform governance across the entire hydrocarbons sector, the bill contains 495 separate clauses. However, its principal aims fall into five categories:

--Clean slate. The Petroleum Industry Bill would repeal about 10 existing pieces of oil- and gas-related legislation, including the petroleum profits tax.

--NNPC break-up. The reform bill would break the Nigerian National Petroleum Corporation up into seven distinct entities. The existing NNPC is criticized for being a monolithic entity that confusingly combines policy, regulatory and commercial activities in one institution. The reforms would create a number of distinct regulatory agencies out of the current NNPC and also create a new national oil company called the National Petroleum Company of Nigeria (NAPCON), which would be a private commercial company. NAPCON would assume NNPC's shares in existing joint ventures with Shell, ExxonMobil, Chevron, Total and Eni. These partnerships will ultimately be reconstituted as incorporated joint ventures (IJVs). The IJVs will be financially autonomous entities able to secure their own funding directly from financial markets, thus relieving existing cash call pressures on the government.



Courtesy: Forbes.com

Monday, June 8, 2009

HONG KONG -- Hong Kong shares started the week downbeat, as airline stocks retreated on an industry-wide forecast of losses that are double those previously expected. Investors awaited further details of Bain Capital's purchase of a stake in Chinese electronics retailer Gome, as well as a tie-up between Ping An Insurance and Shenzhen Development Bank. Japanese exporter stocks had a brighter Monday, as signs of stabilization in the U.S. job market encouraged a stronger dollar, beating back the yen.

Hong Kong's Hang Seng Index closed down 2.3%, to 18,253,39 points. Airlines stocks took a beating, after the International Air Transport Association estimated the global airline industry will post a loss of about $9 billion, double previous forecasts. China Southern Airlines plunged 4.0% to 2.16 Hong Kong dollars (28 cents).

The H-shares of China Eastern Airlines were put on a trading halt as the air carrier is said to be in merger talks with smaller Shanghai Airlines. The merger has reportedly received formal government approval.

Trading of Ping An Insurance and Shenzhen Development Bank shares were halted, pending an announcement of Ping An's possible purchase of U.S. private equity firm TPG's controlling stake in the Shenzhen bank.

Media reports floated widely Monday that Bain Capital will take a 16% to 18% stake in China's Gome Electrical Appliances Holdings. Gome shares have been suspended from trading since late last year when Gome founder Huang Guangyu was detained by authorities for alleged improper financial conduct. Huang, still in police custody, was once China's richest person.Banking stocks in Hong Kong mostly retreated after last week's rally. Bank of China declined 1.1% to 3.52 Hong Kong dollars (45 cents), while HSBC lost 2.6% to 64.10 Hong Kong dollars ($8.27).

The Shanghai Composite index rose 0.5% to 2,768.34. China Minsheng Banking jumped 5.8% to 7.69 yuan ($1.12), after the lender said over the weekend that it plans to sell up to 3.3 billion new shares in the Hong Kong market, representing about 15% of its enlarged share capital.


Courtesy: Forbes.com


Courtesy: Associated Press


TOKYO -- Japanese stocks rose Monday as investors took heart from fewer-than-expected U.S. job cuts in May while chasing gains in exporters on the back of a weakening yen.

The benchmark Nikkei 225 stock average rose 97.62 points, or 1 percent, to 9,865.63, an eight-month high. The broader Topix index added 1.1 percent to 926.89.

"Sentiment was steady as export-linked shares climbed in line with a falling yen," said Yutaka Miura, senior strategist at Mizuho Security Co. Ltd.

A weakening yen helps Japanese exporters like Toyota Motor Corp. and Sony Corp. by inflating their overseas income. The yen stood at 98.51 to the dollar in Tokyo Monday afternoon trade from 98.61 in New York late Friday.

The market also rose on optimism over the U.S. economy, which recorded fewer-than-expected U.S. job losses in May.

The Labor Department said Friday U.S. employers cut 345,000 jobs last month, far less than the 520,000 that economists predicted, and the fewest since September.

Courtesy: Associated Press,



LONDON -- Barclays PLC said Monday it is still in talks with U.S. investment group BlackRock Inc., among other bidders, over the potential sale of its investment arm Barclays

Global Investors.

The bank said there was no certainty that it would find a different buyer for San Francisco-based iShares, which generates half the profits within BGI and which Barclays had agreed to sell to CVC Capital Partners for $4.4 billion. Barclays has until June 19 to make a better deal under a "go shop" clause in the sale agreement.


"The discussions are not yet concluded and there are a number of significant open issues which could affect the nature and terms of any transaction," Barclays said in an announcement to the London Stock Exchange.

"There is no certainty that these discussions will result in Barclays concluding a different transaction than that announced on 9 April with CVC regarding iShares."

In a separate announcement, BlackRock also said there was no certainty of reaching a deal.

Barclays would have to pay CVC Capital Partners $175 million to break their sale agreement on iShares.






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ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has asked the Federal Board of Revenue (FBR) to apply reduced corporate tax rate on new listing of companies on stock exchanges in the 2009-10 budget. It is learnt that the SECP has proposed tax slabs for new listing of companies through amendment in the Schedule-I, Part I, Division II of Income Tax Ordinance, 2001.

The amendment has been proposed to encourage new companies for listing on the stock exchanges, which would increase market capitalisation. According to the proposed amendment, the rate of tax imposed on the taxable income of a company for the tax year 2007 and onward shall be 35 percent.

Provided where a Company is listed on a stock exchange after June 30, 2009, the rate of tax on the taxable income of such company for a period of five years from the year of its listing subject to minimum free float as follows: Where paid-up capital is Rs 200 million to Rs 1 billion (free float 50 percent), the tax rate should be 30 percent; where paid-up capital is Rs 1 billion to Rs 5 billion (free float 30 percent), the tax rate should be 25 percent; and where paid-up capital is above Rs 5 billion (free float 20 percent), the tax rate should be 20 percent.

Sources said that the low corporate tax for newly listed companies would act as an incentive for such companies. Some countries have provided tax incentives to newly listed companies by lowering the corporate tax rate for a period of 5 years or more provided these companies offer a high amount of capital, say 40 percent to 50 percent of their shares to the general public.

The listed companies are required to adhere to the "Code of Corporate Governance" for greater transparency in the corporate sector. Listed companies follow improved reporting and disclosure standards by publishing and circulating their accounts on quarterly basis.

The proposed tax difference between listed and un-listed companies will serve as part of compensation for closely governed listed companies. The listing of new companies on the stock exchange will resultantly enhance revenue collection in the form of capital value tax (CVT) and withholding tax due to increased trading volume. The reduced rate of income tax will encourage new listing which will resultantly increase listed capital and market capitalisation, the SECP added.


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ISLAMABAD: The government is considering a proposal to circumvent any role of the government in fixing oil prices and, instead, to authorise the oil marketing companies (OMCs) to make automatic adjustment in oil prices in line with the global oil prices from the next fiscal year 2009-10. However, OMCs will follow the formula of oil pricing set by federal government.

At present, high speed diesel (HSD) price is de-regulated, based on a federal government formula, whereas the prices of other products, including light diesel oil (LDO), kerosene oil, motor spirit, JP-1, JP-4 and JP-8, are regulated and notified by the government at the end of every month.

Sources told Business Recorder that a meeting was held recently in Finance Ministry to consider the proposal. The meeting reviewed the current situation of oil price mechanism and considered a proposal to exclude the role of government, and authorise OMCs to automatically adjust oil prices in line with the global oil prices. This proposal was made in the aftermath of government decision to withdraw the subsidy on oil and products in the forthcoming budget.

Oil prices in the international market are on the rise and there is a possibility that petroleum development levy (PDL) on petroleum products, as is currently being levied, will automatically end after the global oil price exceeds $70 per barrel crude oil price.

The government continues to face the problem of circular debt and a major reason for this is the pending payment of price differential claims (PDC) to OMCs. State run Pakistan State Oil (PSO) is still facing the problem of circular debt and is in a critical condition in terms of running its operation of supplying oil to the power sector.

PSO's dues against different companies are piling up. PSO is to recover Rs 3 billion from Wapda, Rs 31 billion from Hubco, Rs 19 billion from Kapco, Rs 3.2 billion from PIA and Rs 5 billion PDCs from government. PSO is to pay Rs 28 billion to Parco, Rs 9.1 billion to PRL, Rs 7.6 billion to NRL, and Rs 3.7 billion to Bosicor oil refinery.

The government had announced 2.5 percent reduction in price of petrol, high speed diesel (HSD) and HOBC following the orders of Supreme Court, effective from May 22. Despite cut in POL prices, the government is still charging PDL of Rs 12.28 per litre on petrol, Rs 16.44 per litre on HOBC, Rs 6.88 per litre on kerosene oil, 3.95 per litre on light diesel oil, Rs 3 per litre on JP-4 and JP-8.



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NUSA DUA: Nineteen leading agricultural exporting nations, including Australia, Brazil and South Africa, kicked off talks in Bali on Sunday aimed at pushing forward troubled world trade negotiations.

As well as seeking to move forward the stalled Doha trade round, the Cairns Group of nations - accounting for more than 25 percent of the world's agricultural exports - is also expected to take aim at US and European dairy export subsidies.

Despite the global economic crisis sharpening pressures for protectionism, there are also hopes political conditions for a world trade deal are improving. US Trade Representative Ron Kirk is due to attend the three-day meeting in the resort of Bali, as well as officials from the European Union and India. WTO Director-General Pascal Lamy is also scheduled to attend.

"We can't conclude (the Doha round) unless we have the combination of technical work being done to conclude the very difficult and outstanding issues and the political will to drive it," Australian Trade Minister Simon Crean told reporters.

"I hope this meeting ... will reinsert that political will," added Crean, who is chairing the meeting. The new Obama administration is conducting a review of US trade policy including efforts to reach a deal on Doha and some of America's trading partners have been impressed by Kirk's conciliatory style, though they are still waiting to see the substance.

According to a draft document obtained by Reuters, the talks would include "How can the Cairns Group best exert influence to reinvigorate the negotiations and finish the (Doha) Round."

The protection of farmers from price swings or market implosions, such as subsidies for agricultural products, has emerged as one of the trickiest topics in the Doha round.



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RIYADH: Four members of the oil-rich Gulf Cooperation Council signed an accord in the Saudi capital on Sunday to create a monetary union, a GCC spokesman said. Foreign ministers from four of the six GCC countries - Bahrain, Kuwait, Qatar and Saudi Arabia - agreed to set up a monetary council in Riyadh this year as a precursor to the ultimate goal of establishing a common currency, the spokesman said.

Oman announced in 2007 that it would not join, while the United Arab Emirates, a key regional financial and commercial hub, pulled out last month after the GCC decided to base the future regional central bank in Riyadh. The UAE had expressed reservations over the monetary union after an informal GCC summit in Saudi Arabia on May 5 decided that Riyadh, which is home to the GCC headquarters, would host the future banking authority, while the UAE was the first member to request hosting the central bank.

The monetary union date was originally set for 2010 but analysts consider that unrealistic given the global economic slowdown. Reports suggest that 2013 is the new target.




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ISLAMABAD: The Private Power Infrastructure Board (PPIB) has warned the government to clear the outstanding receivables of independent power producers (IPPs) or face humiliation at every forum as the companies are threatening to call GoP guarantees, sources in PPIB told Business Recorder.

They said that letters from the Chief Executive Officer (CEO) of Hub Power Company (Hubco), Javed Mahmood, and CEO of Rousch (Pakistan) Power Limited, Fazal Hussain Asim, are tantamount to threats from these two very important IPPs.

"It is regrettable that after first tranche, promised payments are not being released and our total outstanding has reached Rs 41 billion. It is in the interest of all parties to reduce the burden and therefore we are requesting you to please direct Wapda and Pepco to clear our outstanding at the earliest because these are in clear violation of PPA and Implementation Agreement(IA)," sources quoted, Hubco CEO as having written to the Minister for Water and Power, Pervez Ashraf. He also held a meeting with the Minister and conveyed similar sentiments.

Hubco has also lodged a complaint against Wapda for not providing fully placed Letter of Credit (L/C) for the current fiscal year, sources added.

"We would also inform you that Wapda has not yet been able to provide us the fully placed L/C for 2008-09 which is presently short by over Rs 3 billion and in addition Wapda needs to ensure that it would provide Hubco with full L/C for 2009-10 latest by May 31, 2009. Keeping in view the fuel prices, the amount is expected to be greater than Rs 13 billion," said Hubco CEO. It is not clear whether Wapda met the deadline or not.

Sources said that PPIB Managing Director Fayyaz Elahi had apprised the decision makers that outstanding receivables of Hubco had reached a figure of Rs 36.2 billion by May 12, 2009 and due to nonpayments by Pepco/Wapda, the outstanding amount is snowballing once again towards gigantic proportions.

"Hubco has also agitated on the non-establishment of L/C by Pepco for the full amount ie Rs 13 billion for 2008-09," sources quoted PPIB MD as saying. Fayyaz is of the view that Hubco's role in power sector is of great significance and considered most reliable in view of power generation. The non-payment to Hubco would not only impair its financial capability to operate the plant but would also create a massive problem for GoP.


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ISLAMABAD: The government may levy 16 percent sales tax in coming 2009-10 budget on services provided by port/terminal operators on import cargo handling; banking companies and non-banking financial companies; insurance companies and professional service providers like legal/medial practitioners and a wide range of consultants through Provincial Sales Tax Ordinances. It is learnt that the Federal Board of Revenue (FBR) has proposed a comprehensive list of service providers to the Ministry of Finance for consideration under the Provincial Sales Tax Ordinances. The list also includes services provided by professional

service providers, like legal consultants and different categories of consultants operating in key potential sectors.

If the government levies 16 percent sales tax on these services through Provincial Sales Tax Ordinances, the FBR will have to withdraw excise duty from non-fund services provided by banking and non-banking financial companies, etc, and other services presently liable to excise duty.

According to sources, sales tax through Provincial Sales Tax Ordinances might replace the existing excise duty on some services. In this connection, the FBR has worked out the revenue implications, enforcement and compliance issues of the services for broadening the tax base.

The FBR has finalised the list of potential service providers for bringing them into the tax net. The FBR reviewed the list of services specified in the Chapter-98 of the Pakistan Customs Tariff (PCT) of the Customs Act, 1969. The definition, classification and nomenclature of services have been given in the Chapter-98 of the PCT.



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