Flour Mills Operations, Power Gen. Decreases, PIA Privatization, FATA Abbreviation Removed, IMF Delays Pak Aid, India Slashes Rice Prices.

TOPLINE

• The flour milling industry will resume normal operations after agreeing with the federal government on the withholding tax (WHT) mechanism announced in the budget. The Pakistan Flour Mills Association (PFMA) and the government decided that Section 153-A of the Income Tax Act will not apply to flour mills, which will now sell flour under a commission system.
• In June 2024, Pakistan's power generation dropped 1.9% year-over-year to 13,460 GWh, but increased 6.7% from May 2024. FY24 power generation fell 1.9% to 127,165 GWh due to slower economic activity and lower demand amid rising tariffs. Hydel power rose to 31%, RLNG to 19%, and coal remained at 16%. Nuclear, gas, wind, and furnace oil contributed 18%, 9%, 3%, and 2%, respectively.
• Pakistan International Airlines, with a Rs 55 billion deficit, Rs 200 billion in debts, and Rs 145 billion in assets, is set for privatization. The process has been delayed to October 1 due to bidder extension requests.
• The Senate Committee passed "The Elections (Amendment) Bill, 2024," removing the FATA abbreviation from Section 232 of the Election Act, 2017. Dr. Humayun Mohmand chaired the meeting, attended by key senators and officials.
• The IMF has not listed Pakistan's $7 billion, 37-month EFF arrangement on its executive board agenda through July 31, despite a staff-level agreement reached on July 12.
• India will lower the basmati rice export floor price to $800-$850 per ton and replace the 20% export tax on parboiled rice with a fixed duty to maintain market share against Pakistan. This follows export restrictions imposed to control local prices before general elections.

AGRI-UPDATES - COMMODITIES, POLICY & DEVELOPMENTS

• Cotton Prices Across Pakistan: Cotton rates vary across Pakistan: in Sindh, new cotton is priced between Rs 17,900-Rs 18,200/maund, and Phutti ranges from Rs 7,300-Rs 7,900/40 kg. In Punjab, cotton costs Rs 18,400-Rs 18,500/maund, while Phutti is between Rs 7,400-Rs 8,400/40 kg. In Balochistan, cotton is priced at Rs 18,000-Rs 18,100/maund, and Phutti ranges from Rs 7,300-Rs 8,100/40 kg. [BR]
• Flour Milling Industry Resumes Operations: The flour milling industry will resume normal operations following an agreement with the federal government on the withholding tax (WHT) mechanism announced in the budget. The Pakistan Flour Mills Association (PFMA) and the government agreed that Section 153-A of the Income Tax Act will not apply to flour mills, which will now sell flour under a commission system. [Dawn]
• Chicken Meat Prices Surge in Punjab: Chicken meat prices in Lahore and other Punjab cities have surged to Rs610-630 per kilogram, up from Rs555 on June 18. This increase reflects rising demand and feed costs. Prices had been under Rs400 per kilogram during Eid, but the recent spike highlights growing supply-demand imbalances. Despite stable mutton and beef prices, chicken remains a popular choice, adding pressure to supply chains. [The Nation] [Samaa]
• Pakistan Carpet Industry Crisis: Pakistan’s hand-knotted carpet industry is in crisis, with exports dropping to historic lows due to rising production costs and other challenges. After peaking at $276.82 million in 2005 and declining to $54 million by 2020, the industry has seen a modest recovery, reaching $87 million in 2023. [BR]
• Vegetable Exports Rise: Rs 5.76 billion was the export value of vegetables in June 2024, up 21.34% compared to Rs 4.75 billion in June 2023, according to the PBS. [ET]
• Opinion: Pakistan's Wheat Crisis - “The wheat market in Pakistan has faced scrutiny due to heavy taxpayer spending on Minimum Support Price (MSP) procurement, intended to stabilize prices. This policy has failed, benefiting mill owners and middlemen rather than small farmers and consumers. The sudden government exit from the market caused disruptions, with large reserves suppressing farm-level prices and allowing millers to exploit small farmers. Future government involvement should focus on strategic reserves for small farmers, while shifting to other crops like edible oil could reduce import burdens and ensure fair pricing.” - By Abedullah & Muhammad Faisal Ali [BR]

ENERGY - WEATHER, WATER & POWER

• City Weather Update: Showers & High Humidity - Many city areas experienced intermittent showers on Monday, with high humidity and a slow return of the sea breeze. The maximum temperature was 37.6°C, and relative humidity at 5 p.m. was 79%. Chief Meteorologist Dr. Sardar Safaraz noted that a low-pressure area over Gujarat and the Arabian Sea had started moving away, allowing the sea breeze to return. [Dawn]
• Zardari Urges Karachi Flood Strategy: President Asif Ali Zardari urged the Sindh government to adopt a sustainable, long-term strategy for managing sewage and stormwater in Karachi, based on international best practices, to prevent urban flooding. He made these remarks during a meeting at Aiwan-e-Sadr focused on addressing urban flooding, environmental degradation, and promoting sustainable water resource development. [BR] [Dawn] [ET]
• Punjab Solar Project Raises Concerns: Punjab's new solar project aims to provide solar units to around five million users, but experts warn it may lead to higher bills for non-solar consumers due to increased capacity charges. This provincial initiative diverges from the federal policy, which prefers retaining users on the national grid. [ET]
• New Gate at Sukkur Barrage Under Testing: A new gate, Gate-47, installed at the Sukkur Barrage on Saturday is currently undergoing a test run. It will be opened for downstream flow of Indus waters once the test is completed satisfactorily. The gate, made by Karachi Shipyard and Engineering Works (KS&EW), replaces a section washed away on June 20, along with six other damaged gates. [Dawn]
• PIA Set for Privatization: Pakistan International Airlines (PIA), facing a net deficit of Rs 55 billion with Rs 200 billion in debts and Rs 145 billion in assets, is set for privatization, according to a parliament panel. The privatization process has been delayed due to requests for an extension from potential bidders, with a new bidding date suggested for October 1. [BR] [BR] [ET]
• World Bank Recommends PIU: The World Bank has asked the Power Division to establish a Project Implementing Unit (PIU) to manage the daily affairs of Private Sector Participation (PSP) in power Distribution Companies. This proposal was communicated to Minister for Power Sardar Awais Leghari, following the government's request for technical assistance on June 13, 2024, which the World Bank has agreed to support. [BR]
• FY24 Power Generation Breakdown: In June 2024, Pakistan's power generation dropped 1.9% year-over-year to 13,460 GWh, but increased 6.7% from May 2024. FY24 power generation fell 1.9% to 127,165 GWh due to slower economic activity and lower demand amid rising tariffs. Hydel power rose to 31%, RLNG to 19%, and coal remained at 16%. Nuclear, gas, wind, and furnace oil contributed 18%, 9%, 3%, and 2%, respectively.  [BR] [Dawn] [Dawn] [ET]
• IPC Re-Established for NHP: The federal government has re-established the Inter-Provincial Committee (IPC) to find a solution for Net Hydel Profit (NHP) payments to provinces. The committee will review the Kazi Committee Methodology (KCM) amid concerns that the proposed Rs 600 billion annual payment to KPK is unsustainable, and the issue was recently postponed from the Council of Common Interests (CCI) meeting agenda. [BR]

PAKISTAN - ECONOMICS, POLITICS & SECURITY

• Senate Passes Election Bill: Khan Withdraws Bail Petitions - The Senate Standing Committee on Parliamentary Affairs passed "The Elections (Amendment) Bill, 2024," which removes the FATA abbreviation from Section 232 of the Election Act, 2017. Imran Khan's legal team withdrew petitions for pre-arrest bail in the May 9 riots cases, including the burning of Jinnah House and other sites, after the Lahore High Court questioned their relevance given Khan's current arrest status. [BR] [Dawn]
• Operation Azm-e-Istehkam Clarified: The military clarified on Monday that Operation Azm-e-Istehkam is a counter-terrorism campaign, not a military operation like past operations such as Zarb-e-Azb and Rah-e-Nijat. DG ISPR Lieutenant General Ahmed Sharif Chaudhry stated that a strong lobby is opposing the success of the National Action Plan (NAP). [ET]
• IMF Delays EFF Arrangement: The International Monetary Fund (IMF) has not listed Pakistan's 37-month Extended Fund Facility (EFF) arrangement, worth about $7 billion, on the agenda for its executive board meetings scheduled through July 31. Despite reaching a staff-level agreement on July 12, the arrangement is not included in the meetings scheduled for July 24, 26, 29, and 31. [BR]
• Chaman Border Reopens, Entry Denied: Despite the Chaman border crossing reopening over the weekend, Pakistani traders and workers are reportedly being denied entry to Afghanistan based on their national identity documents. The reopening followed negotiations with sit-in protest leaders, who had agreed to allow border crossings using national identity cards. [Dawn]
• 150,000 Retailers Registered as Taxpayers: Finance Minister Muhammad Aurangzeb announced that over 150,000 retailers have been registered as first-time taxpayers. He also highlighted a 30% increase in tax collection for fiscal year 2024 compared to the previous year during a Zoom meeting with Fitch Ratings representatives. [BR] [ET]
• Pakistani Rupee Depreciates to Rs 278.30 - The Pakistani rupee depreciated by Rs 0.17 to close at Rs 278.30 against the US dollar in the inter-bank market on Monday. This decline follows a previous closing rate of Rs 278.13 and is attributed to increased dollar demand for imports and ongoing foreign currency purchases by the central bank. [ET]
• PSX Adopts One-Share Lot System: The Pakistan Stock Exchange (PSX) has transitioned to a One-Share Lot system for transactions, aligning with international best practices. This change replaces the previous varying lot sizes of 20, 50, 100, and 500 shares, aiming to enhance investor convenience and streamline market transactions. [BR] [ET]

INTERNATIONAL - MARKET, POLITICS, SECURITY & DEVELOPMENT

• Israel Genocide: Thousands of Gazans fled an Israeli-designated humanitarian zone Monday after the army ordered them to leave and warned of an imminent operation in response to rocket attacks.  Israeli Prime Minister Benjamin Netanyahu was on his way to Washington to deliver a crucial speech at what he said was a time of “great political uncertainty”, following US President Joe Biden’s decision not to seek re-election. [BR] [Dawn] [ET]
• Pentagon's 2024 Arctic Strategy: The Pentagon's 2024 Arctic Strategy, released Monday, outlines plans to enhance U.S. military readiness and surveillance in the Arctic due to increased interest from China and Russia and new risks from accelerating climate change. The strategy aims to prevent the Arctic from becoming a strategic blind spot as melting ice makes the region more accessible both economically and militarily. [BBG]
• Dhaka Curfew Amid Protests: Security forces patrolled Dhaka under a government-imposed curfew to control student-led protests against a public sector hiring system. The unrest followed a Supreme Court ruling to remove most job allocations for families of 1971 war veterans, leading to clashes, internet shutdowns, and military deployment. Prime Minister Sheikh Hasina blamed political opponents for the violence and stated the curfew would be lifted once conditions improved. [BR] [Dawn] [ET] [BBG]
• Kyiv Secures Debt Restructuring Deal: Kyiv announced a preliminary deal with international creditors to restructure over $20 billion in government debt, providing Ukraine some financial relief amid its ongoing war with Russia. The agreement, reached just before the August 1 deadline for freezing repayments on international bonds, is crucial for Ukraine's reliance on international aid for military and government spending. [BR]
• India to Cut Basmati Rice Export Floor Price: India is set to cut the floor price for basmati rice exports and replace the 20% export tax on parboiled rice with a fixed duty. The minimum export price for basmati rice is expected to drop to $800-$850 per ton from $950 to help retain market share against Pakistan. This move follows various export restrictions imposed in 2023 and 2024 to control local prices ahead of the general elections. [PT]
• China Cuts Key Interest Rates: China unexpectedly lowered a key short-term policy rate and benchmark lending rates on Monday to stimulate growth amid a weak economic outlook. This move follows disappointing second-quarter economic data and a recent plenum meeting of top leaders, as the country contends with deflation, a prolonged property crisis, rising debt, weak sentiment, and increasing trade tensions over its export dominance. [BR]
• Harris Seeks Democratic Nomination: US Vice President Kamala Harris moved quickly to secure the Democratic presidential nomination on Monday after President Joe Biden, 81, dropped out of the race. Harris, 59, was set to speak at the White House at 11:30 a.m. ET, her first public remarks since entering the race. Her campaign officials and allies have been actively lobbying delegates for her nomination in the upcoming Democratic Party convention. [BR] [Dawn] [ET] [ET] [ET]
• Oil Prices Decline: Palm Oil Rises - Oil prices fell for the second session, with Brent crude at $82.16 per barrel and US West Texas Intermediate at $79.79 per barrel, both reaching one-month lows. This decline came as investors concentrated on rising stockpiles and weak demand. Meanwhile, the benchmark palm oil contract for October delivery on the Bursa Malaysia Derivatives Exchange rose 27 ringgit to 3,988 ringgit ($852.50) per metric ton, marking its highest close since July 5. [BR] [BR]

OPINION(S) & REMAINDERS

• Sindh's Climate Resilience Urgently Needed: Sindh has faced severe climate-related challenges, including devastating floods and intense cyclones, notably in 2010 and 2022. These events have affected millions and underscore the urgent need for proactive climate resilience measures. [ET]
• PTA's New Tariff Regulations: The Pakistan Telecommunication Authority (PTA) has introduced the "Tariff for Cellular Mobile Telecommunication Services Regulations, 2024," requiring licensees to maintain pricing flexibility while protecting consumer interests and avoiding cross-subsidization of other services. These regulations apply to all Cellular Mobile Licensees in setting retail tariffs for licensed services. [BR]
• 2023 Census Highlights Population Challenges: The 2023 population census findings, released on July 18, confirmed existing troubling trends in population growth. While not surprising, these results highlight the urgent need for comprehensive policy interventions to address demographic challenges that are worsening the country's economic issues. [BR]
• Pakistani Climbers Reach Gasherbrum-II Summit: Despite harsh weather, 11 climbers, including a three-member Pakistani team, reached the summit of Gasherbrum-II, at 8,035 meters. Pakistani climbers Iftikhar Ahmed Shah, Izhar Ali, and Shah Doulat achieved this on Monday, with Shah becoming the first from Sindh to summit the peak. [Dawn]
• Opinion: Challenges Facing the Tractor Industry - “It is about time the Ministry of Finance, Government of Pakistan, took note of the alarming situation and advised FBR that there should not be any conditionality on tractor purchase, and ensured an efficient process to claim refunds so that the agriculture sector and tractor industry may avail the benefit of reduced sales tax rates and play their due role in the national economy.” - By Malik Muhammad Iqbal [BR]