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Pakistan’s Privatisation and Investment PoliciesNovember 2006

18

Privatisation Policy

– The Government’s Role should be confined to:– Making Policy and providing good governance – Providing a sound and effective regulatory framework, to

ensure social equity and economic justice – Providing an enabling environment, including physical and

technical infrastructure and social services – Privatisation Policy to encourage and promote private sector as

“engine of growth” to increase investment and introduce new technology, improve management and increase productivity

– To ensure better quality, lower cost and higher profits and increased dividends and tax revenues

“The Government has no Business to do Business”

19

Privatisation Programme Has Been the Cornerstone of Pakistan’s Reform Process– Most successful privatisation agenda in the whole of the sub continent– From 1999, to date over US$6.3bn has been realized Privatisation

transactions Privatisations Have Gained Significant Momentum in Recent Years…

Source: Privatisation Commission

316

57

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

From 1991- 1999 From 1999-Aug 2006

PKR

bn

(US$ 5.3 bn)

(US$ 0.9 bn)

320

102 Transactions 58 Transactions• Power Company• 4 Banks• 11 Cement Factories • 7 Engineering Units • 7 automobile and tractor plants • 11 Chemical Industries • 19 vegetable oil and 15 Roti/Bread plants

•Flagship Telecom Company •3 Banks •Karachi Port Utility •Major Oil Refinery •3 Fertilizer Co.s•4 Cement factories•6 Oil & Gas Fields

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Broad Based Privatisation Programme

Financial Institutions

–United Bank–Habib Bank–National Bank– ICP

–Strategic Sale and IPO–Strategic Sale– IPO and Secondary

Offering–Sale of management rights

Telecommunication

–Pakistan Telecommunication Co

–Strategic Sale

Oil & Gas –Working interest in 9 fields–National Refinery–Oil & Gas Development Co–Pakistan Petroleum–Sui Southern Gas Co

–Strategic Sale–Strategic Sale– IPO– IPO–Secondary Offering

Power –Karachi Electric Supply Corp–Kot Addu Power Co

–Strategic Sale– IPO

Fertilizer –Pak Saudi Fertilizer–Pak Arab Fertilizer–Pak American Fertilizer

–Strategic Sale–Strategic Sale–Strategic Sale

Key Recent Privatisations

To date the current government has realised over US$5.3bn

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Strong Privatisation Pipeline – Upcoming PrivatisationsSector Company Name Status Total

AssetsUS $ MM

Net ProfitUS $ MM

Oil & Gas – Oil & Gas Development Co– Pakistan Petroleum– Pakistan State Oil – Sui Northern Gas Pipelines– Sui Southern Gas Co– PARCO

– Secondary / GDR offering; Strategic Sale

– Strategic Sale– Strategic Sale– Strategic Sale– Strategic Sale– Strategic Sale

1,909.61

529.81

1,169.52

1,084.61

628.01

N/A3

549.51

143.71

125.42

45.91

16.91

N/A3

Financial Institutions

– National Investment Trust– Habib Bank– State Life Insurance– United Bank – SME Bank

– Sale of management rights– IPO (10%)– IPO (10%)– IPO (up to 10%)– Strategic Sale

N/A3

8,814.91

2,200.31

5,784.11

N/A3

N/A3

160.781

2.21

99.11

N/A3

Power – Jamshoro Power Co– Faisalabad Electric Supply

Co– Peshawar Electric Supply Co– Kot Addu Power Co

– Strategic Sale– Strategic Sale– Strategic Sale– Secondary Offering

N/A3

464.31

N/A3

612.21

N/A3

31.861

N/A3

134.11

Fertilizer & Chemical

– Lyallpur Chemicals & Fertilizers

– Hazara Phosphate

– Strategic Sale– Strategic Sale

N/A3

N/A3N/A3

N/A3

Engineering

– Heavy Mechanical Complex– HEC– PMPS– Pakistan Steel

– Strategic Sale– Strategic Sale– Strategic Sale– Sale of management rights

N/A3

N/A3

N/A3

598.71

N/A3N/A3

N/A3

2.31

Minerals

Tourism/ Restaurants

– Salt mines– Coal mines

– Pakistan Tourism Motels

– Strategic Sale– Strategic Sale

– Sale

N/A3

N/A3

N/A3

N/A3

N/A3

N/A3

Source: Annual Reports 1. End of FY05 All figures converted at the rate of US $ 1 = PKR 60

2. End of FY06

3. N/A – Not Applicable or Unlisted Companies

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Investment Policy & Opportunities

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Liberal Investment PolicyEqual treatment of local & foreign investors

All economic sectors open to foreign investors

Foreign equity upto 100% allowed

No Government permissions required

Attractive incentives package

Remittance of capital, profits, royalty, technical & franchise fee allowed

Network of Export Processing Zones / Industrial Estates

Import of raw material for export manufacturing zero-rated

Bilateral Agreements :

Investment Protection 47 Countries

Avoidance of Double Taxation 52 Countries

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Legal Protection To Investments

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

– Protection of Economic Reforms Act, 1992

Salient Features– Equal treatment of local & foreign investors– Protection of agreements– Full repatriation facilities– Remittance by foreign employees allowed– Fiscal incentives for investment shall continue for the term – Specified & shall not be altered to the disadvantage of

investors

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Attractive Regulatory Environment - Liberalization Accelerating Investment Activity

– Liberalization and privatisation have played a key role in increasing investment activity– Investment as a % of GDP rose to 18% in FY06– FDI as a % of GDP rose to 2.7% In FY06

Source: SBP Website – Net Inflow Of Foreign Private Investment (Jul-June 2006)The FDI numbers include privatization proceeds but not portfolio flows

Total Foreign Direct Investment

322 368 680 7501,161

1,981363

1,540

470117

118 199

0

500

1000

1500

2000

2500

3000

3500

4000

FY00 FY01 FY02 FY03 FY04 FY05 FY06

US$ M

n

Greenfield Investment Privatization Proceeds

470322

485798

949

1,524

3,521

Total Foreign Direct Investment

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Source Million $ Leading Sectors Million $

U.A.E. 2,067.8 Communication 2,714.2

USA 1,619.0 Financial Business 1051.8

Saudi Arabia 348.2 Oil & Gas & Petro Ref 1163.9

Norway 431.0 Power 448.6

UK 739.8 Trade 279.0

Others 2,071.2 Others 1,619.5

Total 7,277.0 Total 7,277.0

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Total Foreign Investment Inflows (2001-06)

Source : SBP Website – Net Inflow Of Foreign Private Investment (2001-2006); Total Foreign Investment Flows = Foreign Direct Investment + Portfolio Flows

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Top Investing Countries (2001-06)

–Current, Value in Million US$, Percentage

Others, 2071, 29%

UAE, 2067, 28%

USA, 1619, 22% UK, 739, 10%

Norway, 431, 6%

Saudi Arabia, 348, 5%

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Leading Sectors (2001-06)

–Current, Value in Million US$, Percentage

Communications (IT & Telecom),

2714, 38%

Oil & Gas (Exploration),

1163, 16%

Financial Business, 1051,

14%

Power, 448.6, 6% Trade, 279, 4%Chemical, 226,

3%

Other, 1393, 19%

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Source Million $ Leading Sectors Million $

U.A.E. 1,424.5 Communication 1,937.7

USA 516.7 Financial Business 329.2

Saudi Arabia 277.8 Oil & Gas & Petro Ref 312.7

Norway 252.6 Power 320.6

UK 244 Trade 118.0

Others 805.4 Others 502.8

Total 3,521.0 Total 3,521.0

16

Total Foreign Investment Inflows (2005-06)

Source : SBP Website – Net Inflow Of Foreign Private Investment (Jul-June 2006); Total Foreign Investment Flows = Foreign Direct Investment + Portfolio Flows

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Top Investing Countries (2005-06)

–Current, Value in Million US$, Percentage

Others, 635, 18%UAE, 1424, 40%

USA, 517, 15%UK, 244, 7%

Norway, 252, 7%

Saudi Arabia, 277, 8%

Switzerland, 171, 5%

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Leading Sectors (2005-06)

–Current, Value in Million US$, Percentage

Communications (IT & Telecom),

1937, 43%

Oil & Gas (Exploration),

313, 7%

Financial Business, 392, 9%

Power, 320, 7%Other, 1393, 31%

Trade, 118, 3%

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Investment Highlights: Compelling Economic Proposition

• Rising disposable income • Growing population• Compelling size of middle class• Asset values rising• Rising remittances

Accelerating Accelerating ConsumerismConsumerism

• Low cost raw materials & manpower

• Educated work force• Pro investment policies• Improving infrastructure • Entrepreneur culture• Stable exchange rate

• Comparable advantage• Favorable geographical location• Corporates globalizing• Low tariff regime

Growing Trade Growing Trade IntensityIntensity

Surging Domestic & Surging Domestic & Foreign InvestmentForeign Investment

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Yazd

Kabul

Delhi

Patna

Herat

Kashi

UrumqiAlmaty

Lahore

JaipurKanpur

Nagpur

Frunze

Masqat

Mashhad

Lucknow

Benares

Zahedan

Karachi

Amritsar

Calcutta

Dushanfe

Qandahar

Toshkent

Abu Zaby

Samarkand

Ashkhabad

Islamabad

New Delhi

Kathmandu

Hyderabad

Ahmadabad

Rawalpindi

Faisalabad

China

India

Iran

Kazakhstan

Pakistan

Afghanistan

Oman

Uzbekistan

Turkmenistan

Nepal

Kyrgyzstan

Tajikistan

United Arab Emirates

Jummu & Kashmir

(Disputed Territory)

At The Center of Asian Growth

Booming East Asia

Capital &

energy surplus Middle East

Pakistan becoming Asia’s trade, energy and transport corridor

Pakistan

Land locked energy

rich Central Asia

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Oil & Gas

Priority Sectors

• Offshore & onshore exploration

• Refining

• Pipelines

• Storages

• Call centers

• Cell phone

• E-Commerce

• Software

• IT Parks

IT & TelecomPower

• Hydel

• Thermal

• Coal

• Solar

• Wind

• Biogas

• Coal

• Granite

• Marble

• Semi-precious stones

• Copper

• Rocksalt

Mining

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• Ports

• Roads

• Urban Mass Transport

• Water supply & sanitation

• Housing

• Desalination

• Hotels

• Resorts

• Theme parks

• Cultural tourism

• Entertainment centres

Infrastructure Tourism

• Value added textiles & leather• Electronics• Sports & surgical goods• Furniture• Gemstones & jewelry• Food Processing

SMEs

• Agri-business

• Corporate farming

• Fruits & vegetables

• Livestock & dairy

• Fisheries

• Cool chains

• Storages

• Seed production

Agriculture

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Priority Sectors

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Chemicals Engineering Privatization

• Pesticides• Dyes• Agro Based• Mineral Based• Synthetic Fiber• Pharmaceuticals• Petrochemical Complex/ Naphtha Cracker

• Light & Heavy Engineering• Automobiles[

• Auto parts• Agriculture Machinery• Steel Production• Textile Machinery

• Oil & Gas

• Infrastructure

• Power

• Industry/ Real Estate

• Banking

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Priority Sectors

38

Pakistan - Home To Over 600 Foreign Companies

Deutsche Bank

ZTE