Bailout: IMF offers $ 5.3 bn to boost Pakistan economy

Updated 08 July 2013
0

Bailout: IMF offers $ 5.3 bn to boost Pakistan economy

ISLAMABAD: Pakistan has asked for a new bailout loan from the International Monetary Fund to boost its ailing economy, settling on an initial package of $ 5.3 billion following weeks of talks with a visiting IMF delegation.
The request marks a step forward for Pakistan’s new Prime Minister Nawaz Sharif as he tries to find ways to fix the country’s finances and show his commitment to restructuring its moribund economy.
But it also highlights a sense of urgency for Pakistan where the central bank has only about $ 6.25 billion left in reserves, enough to cover less than six weeks of imports.
“This is a Pakistan-designed program. It includes bringing the fiscal deficit to a more sustainable level,” Jeffrey Franks, the regional adviser to the Fund on Pakistan, said.
“The overall focus of the program is to boost economic growth so there is a better life for vulnerable Pakistanis.”
Lodging a loan request is the first step in a potentially long process that will involve Pakistan committing to reforms, particularly on broadening its narrow tax base and cutting subsidies, which lenders say benefit mainly the rich.
Pakistan had originally asked for a $ 7.2 billion program but settled on $ 5.3 billion after the talks. Speaking alongside Franks in Islamabad, Finance Minister Ishaq Dar said he hoped the IMF would raise its offer following further consultations with senior Fund officials in the United States.
Franks said he expected Pakistan to reach a budget deficit target of 6 percent of gross domestic product as part of the three-year bailout loan program, down from 8.8 percent of GDP in 2012-2013.
The country has already once averted a balance of payments crisis in 2008 after securing an $ 11 billion IMF loan package. But the IMF suspended the program in 2011 after economic and reform targets were missed.
Again, chronic gas and electricity shortages, violent crime and a Taleban insurgency have all hampered growth and contributed to falling foreign investment. The $ 230 billion economy grew 3.6 percent in the last fiscal year, below a target of 4.3 percent and well below growth rates of around 9 percent seen 10 years ago.
Renewed anxiety over the nuclear-armed nation’s struggling economy is one of the many challenges facing its new government.
With reserves shrinking by around $500 million a month and many Pakistanis angry over unemployment as well as high food prices and crippling power cuts, Sharif is keen to be seen as decisive and capable of overhauling the economy.
Unemployment is officially at 6.3 percent but is probably much higher.
The new government has already made some steps toward reforms and has set an ambitious deficit target of 6.3 percent of GDP for its 2013/14 although some analysts say it might be hard to meet.
It also plans a new energy policy to tackle power cuts, which frequently last 12 hours a day and have devastated the economy and fueled unrest in parts of the country.
“We think Pakistan is committed to fixing its economic problems,” Franks said.
“It is evident from the fact that policies are already under way.”
Islamabad already has a punishing schedule of repayments to the IMF from its previous loan agreement, which have put pressure on the rupee and raised concerns of a full-scale balance of payments crisis.


Exxon faces setback in Iraq as oil and water mix

Updated 20 April 2018
0

Exxon faces setback in Iraq as oil and water mix

  • Exxon’s talks with Iraq on water project hit problems
  • Losing the contract could deal a blow to Exxon’s broader Iraqi plans

LONDON: Talks between Exxon Mobil and Iraq on a multibillion-dollar infrastructure contract have reached an impasse, Iraqi officials and two industry sources said, in a potential setback to the oil major’s ambitions to expand in the country.

More than two years of negotiations on awarding the US firm a project to build a water treatment facility and related pipelines needed to boost Iraq’s oil production capacity have hit difficulties because the two sides differ on contract terms and costs, the officials and sources told Reuters.

Unless the differences can be resolved, the project could be awarded to another company in a tender, the officials said, without elaborating on the points of dispute.

Losing the contract could deal a blow to Exxon’s broader Iraqi plans, as it would be handed rights to develop at least two southern oilfields — Nahr Bin Umar and Artawi — as part of the deal.

Exxon declined to comment.

Further delays to the project could also hold back the oil industry in Iraq, OPEC’s second-largest producer; the country needs to inject water into its wells or risk losing pressure and face severe decline rates, especially at its mature oilfields. As freshwater is a scarce resource in Iraq, using treated seawater is one of the best alternatives.

The Common Seawater Supply Project (CSSP), which would supply water to more than six southern oilfields, including Exxon’s existing West Qurna 1 field and BP’s Rumaila, was initially planned to be completed in 2013 but has now been delayed until 2022.

“The CSSP would be expensive and challenging but there’s opportunity here (for Exxon) ... to get access to resources on a very large scale and to achieve something and really make a difference to its own business,” said Ian Thom, principal analyst at consultancy Wood Mackenzie.

Many of the world’s biggest oil companies, such as BP, Total, Royal Dutch Shell and Eni, have operations in Iraq, where a low-return environment and strict contract terms have squeezed returns in recent years.

With total oil production at West Qurna 1 at around 430,000 bpd, Exxon’s presence in Iraq is small compared with dominant player BP whose Rumaila oilfield accounts for around a third of the country’s total production of about 4.4 million bpd.

While the Texas-based firm is looking to grow in Iraq, its geographical focus remains on the Americas, including US shale fields and Brazil, in contrast to rivals such as France’s Total and Italy’s Eni who have been significantly expanding their activities in the Middle East in recent years.

The talks between Iraqi authorities and Exxon are still ongoing, according to the industry sources and officials from the Iraqi oil ministry.

However the state-run Basra Oil Company (BOC), which is overseeing the project, said it could now tender the project this month in a parallel process with the aim of completing a first phase by 2022.

“We have this one approach but we can have another approach as well,” Abdul Mahdi Al-Ameedi, head of the Iraqi oil ministry’s licensing and contracts office, told Reuters.

Iraq chose Exxon to coordinate the initial studies of the CSSP in 2010. At the time, Baghdad aimed to raise its oil production capacity to 12 million barrels per day (bpd) by 2018, rivalling Saudi Arabia. That target has been missed and been cut to 6.5 million bpd by 2022 from around 5 million bpd now.

Negotiations with Exxon fell through in 2012 due to red tape and cost disputes. In 2015, the company re-entered talks with the oil ministry, this time in partnership with China’s CNPC and with the CSSP folded into a much bigger development project known as the Integrated South Project. 

CNPC did not reply to a request for comment.

For Iraq, going down the non-Exxon route raises two major concerns: How to integrate the project between the water treatment facility and the oilfields and how to finance the project, Thom said.

Two Iraqi oil sources told Reuters that taking the non-Exxon path would raise financing concerns for Iraq.

Projected costs of the scheme have not been disclosed, but engineering studies have put the cost of treating 12.5 million bpd of seawater transported to six oilfields at $12 billion.

The capacity has been revised downwards, with the first phase set to have a 5 million bpd of water, and in the second phase an additional 2.5 million bpd of water will be added for additional fields.