BR Research met with Mian Muhammad Mansha - the country's prominent industrialist and entrepreneur. Following is the edited transcript of a very candid conversation with him.
BR Research: What in your view is the biggest challenge that the country faces right now?
Mian Muhammad Mansha: People in power and people with any kind of authority should realise that the main reason why we keep getting into this extreme turmoil every now and then is because we are not creating jobs. With no significant jobs being created in the country along with immigration hurdles and some kind of turmoil anticipated in the Middle Eastern countries, we really need to put our house in order. And not only that, internally, we face a couple of severe challenge; the issue of the IDPs during the ongoing war against terrorism along with the energy shortages in the country has severely undermined our front.
The direction is clear: we need to fight terrorism; we need to deregulate the economy; otherwise we have turmoil on our hands.
BRR: Since independence we see the country's focus shifting from the West to the Middle East whether its remittances or trade. Do you see any kind of diversification opportunity for Pakistan's private sector?
MMM: An interesting thing from my recent trip to Afghanistan was that the Afghans are ready to build dams with us on River Kabul, a 700-kilometre long river that starts in Afghanistan and ends in the Indus River near Attock in Pakistan. This presents a unique and a very lucrative opportunity to us especially when Pakistan faces water issues from its other neighbouring country - India, and American having realised against using force. Here, it must be noted that Pakistan will face serious water crisis if it does not seize the opportunity right now.
Moreover, Afghanistan is a very important mineral-rich and transit country that takes us to Uzbekistan, Turkmenistan, Kazakhstan, and even China. Not only can we get peace dividend from it, but an opportunity to do business as Afghanistan needs rebuilding.
Things are looking up in Iran as well. It is a greatly misunderstood country because of sanctions and other stresses. Last year, Iran produced 800,000 cars - more than double of what is produced in Pakistan. The country has 97 percent literacy rate with functioning democracy.
When Iran opens, the potential is huge. We would like to wait before we open a bank in Iran with the sanctions and everything. But we have started planning. We are also in touch with the Afghan officials for a bank in Afghanistan. We have also applying for a bank in India.
BRR: What is you view of energy sector and other PSEs?
MMM: We seem to be in a muddle going from oil to coal to gas. Mind you, there is no easy solution to the energy conundrum. Oil prices have come down, and so have other commodities like gas and coal. Oil is not going to go up to the previous high levels in years to come. We should seize the advantage of low commodity price environment and put our house in order.
The only way to get out of this mess is to first privatise the Discos. Karachi had the worst electricity system 10-15 year years ago, but today K-Electric is a success story which we need to somewhat replicate in other Discos of the country. The main hindrance in such reform-oriented steps is a segment of population that does not want to work on merit.
Similar is the case of railways. The significance of revenues from the railways can be seen from the fact that the difference in the budget in Joint India Parliament before partition was met by Indian Railways. We really have to do a lot of work in railways, but it's not impossible. Why can't we have a pipeline in replacement of trucks carrying oil from Karachi to Lahore? Why can't we have a track that can made into one company, which is what is happening in UK? Our Freight transport via railways, which sponsors the passengers business, has almost ended in Pakistan.
Why can we have companies competing for railway tracks? Why this all is not happening is because of vested interests. We should not rule any one constituency; there are crooks in all public sector organisations who do not want to let go the money they are minting illegally.
BRR: On Discos privatisation, do you think we have the right people to run these organisations?
MMM: why do we always think that we don't have people to run organisations and people with experience? There are good people in every company and management will come from within once privatised. All you need to do is incentivize the management. Regardless of all the criticism, the end result of the privatisation by Margaret Thatcher where she gave the management the incentive to participate in the buyouts is that UK is one of the fastest growing economies in Europe, and there might be a talk about UK's economy taking over Germany!
BRR: Do you plan to buy any of the Discos?
MMM: It is an open option, and we will look into it. But that does not mean I propose the privatisation of Discos because I plan to buy any. I am not buying any of the Discos right now. There are ten Discos, and privatisation of these state-owned enterprises will benefit the country's lingering energy crisis.
BRR: On power generation, why have coal-fired power projects been shelved after all the hype they created?
MMM: These projects have been shelved partly because of the circular debt. The energy sector payables are back to the levels from which they were settled in 2013. Since coal-fired power plants are highly capital intensive and they have environmental concerns, finding financing was always a challenge and the problem compounded by continuous building of circular debt.
The other issue, for projects close to load centers, was always the railways. We might see coal power plant in Port Qasim in Karachi, but those in Punjab and other parts of the country have been shelved. All claims like environmental degradation and cost of rail infrastructure are only secondary and have very little to do with these projects not materialising. I believe that the key concerns here are again the intention and the vested interests. We have double line till Multan, and new tracks are required Multan onwards, which will not be Rs 200 billion as generally claimed cost of rail infrastructure for carrying imported coal from Karachi to Punjab.
So the reason of coal projects being shelved in Punjab has more to do with ill-intentions in PSEs and not the financial close or the cost.
BRR: What is your view and interest in the much talked about LNG projects?
MMM: LNG is a viable projects and it should be brought into the country. We are in need of energy from all kinds of resources. Gas is a viable option as prices are coming down now.
But I have done my calculations and I still think that coal is cheaper than LNG. In today's price, coal-based tariff would be somewhere around Rs 7 per kilowatt hour compared to the recently announced upfront tariff for LNG-based plants of Rs 8.85 per kilowatt hour.
BRR: Any plans to invest in the LNG sector?
MMM: I am very disillusioned with the situation of the circular debt, so I am not convinced with entering the power sector again anytime soon.
BRR: What will the government have to do with the circular debt?
MMM: There is a long-term solution and a short-term solution. The long term solution entails the privatisation of Discos. The short-term solution was very simple: When oil price came down drastically Narendra Modi since coming to power increased the taxes twice. Though we have also increased taxes recently, we should not have passed on the decrease in oil prices to this extent. The government should have trapped this windfall and sorted out its finances once and for all. This would have given the government the fill to clear the circular debt.
BRR: How do you see relations with India taking shape?
MMM: The dust is settling down. With the regional elections over in India and Narendra Modi's aggression looking to tame down, the time is coming once again that we will sit down to improve our commercial relations.
BRR: What work is actually being done with China apart from signing plentiful MOUs?
MMM: The Chinese are very interested in Pakistan. This Gwadar corridor will be a great thing for both countries.
BRR: Any noteworthy projects in cement, textile or retail? How do you see the exchange rate situation?
MMM: Our retail Plaza is going very well. The structure will be ready by April, while the project would commence in a year's time. In cement, we are planning of setting up the biggest plant in the country's history in Hub, which will bring about 8000 tons in capacity in addition to our existing 15,000 tons a day. The biggest issue facing the textile business in the country is the power shortage, while other factors are part of the business cycle.
While the government's increase in Petroleum GST makes sense, the regulatory duty on the import of furnace oil does not; furnace oil is no luxury item. It just makes power production more complex and less credible.
The appreciated currency is hurting the textile industry. It should be a free float.