Issuu

CONTENTS

09 EY is evaluating an internal spin-off 14 Love, financial fraud, smuggling and murder - the tragedy of Seth Abid’s family 19 Winter is coming for the startups Uzair Younus

20 Exhausting the taxed Ammar H Khan 21 Pakistani startups have raised $284mn in first half of 2022, but are expected to close the year at less than 2021

22 PIA bleeding millions paying rent for two A320s grounded for past nine months

24 Refineries respond to questions on importing Russian oil 28 A paw-trait of the pet food ban

Profit

31 Could Pakistan monetize volleyball?

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Editorial Last mile to the IMF Matters have advanced rapidly with the IMF since the government took the difficult decisions on the fuel price adjustments and the budget, although there is still more distance to cover before the deal is clinched. Some confusion has arisen in recent days around the remaining “prior actions” being demanded by the Fund, although a closer look shows that much of what needed to be done is now in the bag. In the interests of clarity, here is what the factual position looks like at the time of writing.

deep political differences across which these Messrs Jhagra and Ismail are speaking to each other. Both parties have valid points. Ismail has to get the Fund programme restarted on top priority whereas Taimur Jhagra has to safeguard the budgetary interests of his province. Both of them realize the severe constraints under which they have to work. There is little doubt that eventually they will come to a reasonable settlement and the MoU will be signed.

The review under negotiation currently combines the 7th and 8th reviews under the Extended Fund Facility signed in July 2019. The biggest prior action left to complete is the MoU between the federal and provincial governments on the surpluses that the latter are expected to run. This is a routine matter and happens every year. In the last review, documents of which were released in February 2022 under the previous government, this MoU was also required and the provincial surplus that was to be budgeted for FY23 was PKR 954 billion, far higher than the PKR 750 billion factored in the latest budget.

More troubling is the IMF’s refusal to see the urgency of the Pakistani request for programme resumption. Pushing the presentation of Pakistan’s case to the Board back to August gives the authorities here more time in which to come together around the requirements of the programme, but keeps the market uncertainty dangling for longer than it needs to.

At the moment the finance minister from Khyber Pukhtunkhwa province is raising objections and demanding that the federal government first honour the resource requirements of his province before he can commit to running the surplus that he will be required to under the fund programme. This too is routine. Mr Jhagra has raised his province’s objections every time he has been asked to sign this MoU to fulfill IMF requirements, making sure to put them on record before going on to sign. This time he is objecting to the lowering of the resources committed for the merged districts, asking for PKR 5 billion to continue rollout of the health card scheme for the merged districts, as well as a commitment from the federal government to pay the Net Hydel Profits that his province is owed. For the merged districts he says he required PKR 84 billion whereas the allocation he has been given is PKR 60 billion. For his part, Finance Minister Miftah Ismail wants greater visibility on how these funds are utilised. This issue need not become a sticking point, despite the

The other requirements, such as a “diagnostic assessment” of Pakistan’s anti-corruption framework and laws is not a big deal. All that the government is being asked to do is to form a task force to produce a report on the effectiveness of these laws. The formation of the task force can happen until December. Another item left on the table is the question of interest rates in the context of rapidly rising inflation. The latest Consumer Price Index reading at 21.3 percent is troubling and near historic highs. Given another fuel price adjustment on July 1, combining the impact of the Petroleum Development Levy and an increase in the import parity price, is likely to drive this figure even higher. Then come the power and gas price adjustments, so it is easy to see that we are far from the end of this inflationary cycle. The last time inflation shot up this fast (back in 2008) interest rates did not rise beyond 15 percent, even though average CPI inflation was targeted to be 20 percent by the end of FY09. Keeping the policy rate above CPI inflation should not be turned into a dogma. The main purpose of the fund programme is to contain the ballooning deficits on the fiscal and external side. A mild rate hike in this environment should be more than sufficient to achieve this.

The ambitious plan could see the Pakistan operations changing structure By Ahtasam Ahmad

uring the last week of May, news broke out about Ernst & Young’s (EY) plan to carve out its consultancy business into a separate Public listed Company. The ambitious plan of the Big Four accounting firm comes after sustained global criticism regarding independence of auditors being marred due to the conflict of interest arising between audit and consultancy services. If the plan is implemented, besides obvious repercussions on global services, Pakistan in particular would be impacted, say experts. “Reputed Audit practices, especially the Big four, give credibility to almost all companies in different sectors. What I have witnessed over the last decade is that foreign investors and multinationals are inclined towards these global practices because of their reputation. Deloitte leaving Pakistan was a big blow, simply because of the fact that there is one less company in the country that foreign investors can trust on,” said Muhammad Hava-

AUDITING

ris Arshad, a Senior Chartered Accountant and Audit Manager at PwC Pakistan. Multinational firms tend to prefer having a single audit firm that can audit their operations around the world, which is why accounting firms tend to be the most global organisations of professional services providers. Moreover, the credibility they add to a country’s corporate sector and the transfer of global technical expertise they bring to the local markets is invaluable. This impact would further be augmented by the fact that EY has two operations in Pakistan, the legacy partnership firm EY Ford Rhodes Sidat Hyder & Co and the Middle East operated EY Rapid Innovation Private Limited. Moreover, the industry is staff intensive with more than 3,000 white collar professionals being employed by the country’s Big Four (Now Big Three) firms alone. Majority of this staff is in audit practices given its laborious nature. The payscale amongst the permanent staff in these firms varies according to designation. In EY, for instance, the supervisory staff is paid between Rs60K to Rs100K while the

managerial staff is paid between Rs150K to Rs350K based on their experience. The salaries in the consulting functions are 10-20% higher compared to the audit practices. Pakistan, after the exit of Deloitte in 2020, is the second-largest economy after heavily-sanctioned Iran to not have all Big Four accounting firms. The next largest economy to not have all Big Four is Ethiopia, which is about one-third the size of the Pakistani economy. There are economies in other parts of the world that are one-hundredth the size of Pakistan that still have all of the Big Four firms supporting their corporate sector. Therefore, decisions impacting EY Pakistan hold immense importance for not only the existing clients of the firm but also the overall corporate environment and the investment climate of the country.

The Split

he proposal for restructuring is a strategic move by the accounting firm to liberate its consultancy business from regulatory require-

Reputed Audit practices, especially the Big four, give credibility to almost all companies in different sectors. What I have witnessed over the last decade is that foreign investors and multinationals are inclined towards these global practices because of their reputation Muhammad Havaris Arshad, a Senior Chartered Accountant and Audit Manager at PwC Pakistan

ments governing independence of firms that also provide audit services. The consultancy business is where the big bucks are for the global accounting firms including the Big Four; Deloitte, PwC, KPMG & EY. While audit is primarily a laborious task, as mentioned earlier, that involves loads of documentation and is not as rewarding as the consultancy assignments. The company plans to set up a listed entity for its consultancy business and the existing partners would be the majority shareholders in the proposed entity. Further, the partners would be earning windfall returns in the form of a one time compensation based on a multiple of their existing salaries. However, the standalone audit business would continue to operate under the current structure of global partnerships. The spinoff plan, to create a separate consulting entity, would be bad news for the audit partners and staff of the Big Four firm. As per the Wall Street Journal, the audit partners would receive windfall gains of around twice their existing salaries compared to consulting partners that can earn around seven to nine times of their existing salaries. Furthermore, the shares of the conceptualised public entity would be split into three parts; 70% with consulting partners, 15% with audit partners and 15% would be sold on the open market.

There is no confirmation yet on which service would form part of the audit practice, which earned around 35% of EY’s global revenues last year, and which one would be merged into the consultancy company. This is likely to be a complicated decision given that synergies, primarily, of knowledge and resource sharing between the departments add to the cost efficiencies of global accounting practices.

EY Pakistan

major upheaval at the global level would have a direct and a significant impact on the Pakistani operations. The unique structure of EY entities in Pakistan makes it even more interesting. The older firm, EY Ford Rhodes Sidat Hyder & Co operates under a partnership agreement between EY Global and Sidat Hyder & Co. The company has a very well-reputed practice in Pakistan specially for its consultancy services. The relatively younger firm, formed in 2019, EY Rapid Innovation Private Limited is an entity established by EY Middle East and North Africa (MENA) operations to provide support services for their multiple offices in the region. The rationale behind setting up the firm was to benefit from the labor arbi-

trage and to cut costs. This is a trend that is being adopted by other firms as well including PwC Pakistan which is contracting with multiple global offices for provision of the services of trained staff on remote outsourcing basis. The company that would be more affected by this split would be Ford Rhodes Sidat Hyder & Co as it has a well-established consultancy practice compared to Rapid innovation which is primarily engaged in audit services and is yet to launch a full-fledged consultancy wing. The consultancy departments of global Big Four practices are dominated by services including Mergers & Acquisitions as well project management and implementation services. However, the case is a bit different in Pakistan. The taxation and legal services take a lead when it comes to revenue generation. Amongst the highest billing partners across the Big Four offices in the country are those involved in provision of taxation services. But, in a global context, the Pakistan based partnerships are not significant. “The Big Four accounting firms don’t really get much out of Pakistan,” said Asad Ali Shah, in an interview with Profit back in 2021. “The biggest firm in Pakistan is AF Ferguson (PricewaterhouseCoopers Pakistan) and they have approximately Rs3 billion in revenues,

Source: FInancial Times

the bulk of which goes to the partners and the local staff. And what little goes to the global firm, they have issues remitting the profits because of permissions needed from the State Bank of Pakistan, etc.” “The global firm makes money out of Pakistan in two ways: one, they help the local firm buy professional insurance against the risk associated with providing services. And secondly, they earn a management fee, which can be around 3% to 4% of revenue,” he said. In short, the firms are set up to benefit the local partnership much more than the global parent company, and yet the global parent company bears all of the risk that the local partners bear as well. “The global company has 100% of the risk of Pakistan. If something goes wrong here with an audit, they will take a hit on their reputation,” said Shah. Profit tried to reach out to EY’s local management as well the regional management in MENA. However, no response was received regarding the impact of the proposed restructuring arrangement. Sources in EY’s top management confirmed that there has not been any official communication regarding the plans to split departments, so far. They also stated that it is a high level plan and its implementation would be subject to approval of local authorities as well as the 13,000 partners across the globe. However, as per the Wall Street Journal, the details of the proposed restructuring plans have already been communicated to all the global partners through webcast by Global Chairman and Chief Executive Carmine Di Sibio. Further, a partner at the firm, on the condition of anonymity, told Profit, “The global firm’s relationship with the local partnership is strong. We are not just looking to maintain our footprint in the country, but are also evaluating opportunities to expand it. As far as the implications of the proposed split are concerned, they are not clear yet. Therefore, it won’t be appropriate to comment.” But, this is not the first time that EY Pakistan finds itself in a fix regarding plans of the global network to prevent reputational risk. Back in 2019, EY global was re-evaluating its relationship with its Pakistani partner Ford Rhodes Sidat Hyder, with a possibility of severing its ties with its local partner altogether. According to sources familiar with the matter, the cause of the re-evaluation was the results of an internal compliance audit of Ford Rhodes Sidat Hyder by Ernst & Young’s global offices, a routine practice designed to ensure that the firm offers consistent standards of work to its clients worldwide. Those compliance audits found significant

Source: Financial Times deficiencies within the practices of Ford Rhodes Sidat Hyder, and caused the re-evaluation to begin. However, assurances and future compliance with the SOPs mitigated the situation, and prevented any action from the global firm.

Lessons from the Past

onflict of interest regarding practice of the big accounting firms have been part of the debate for as long as one can remember. Particularly, around early 2000s the volatility amongst the members of the profession and specially the now Big Four practices was at its peak. Today we know the fab 4 of the accounting world as the Big Four, however, if we go down the memory lane the group of global accounting giants included a 5th member, Arthur Andersen. The firm had become a global giant by the time it entered its 88th year of operation in 2001. However, what came with such rapid growth was conflicting practices and internal tensions between the audit and consultancy function. It induced the firm into adopting dubious practices aimed at revenue maximisation through consultancy work earned at the expense of quality of the audit. These malpractices were caught by the US regulators in 2001 during the infamous scandal of American Energy Company, Ernon Corporation. The firm was subsequently banned, and slapped with heavy fines leading to cessation of operations in 2002. However, the firm’s consulting business broke off and started operating under the name of Accenture which has since grown to become one of the largest consultancy practices around

“The global firm’s relationship with the local partnership is strong. We are not just looking to maintain our footprint in the country, but are also evaluating opportunities to expand it.” Sources the globe. As per the Financial Times, EY’s strategy to split is partly inspired by Accenture’s success. During the same period when Arthur Andersen was being surrounded by controversies, three of the now Big Four firms, EY, PwC & KPMG sold their consultancy businesses to Capgemini, IBM, and Bearing Point. The move was to avoid conflict of interest especially in the case of auditing IT systems for which these firms were also implementing partners. The implications of EY’s move for its global network of firms is unclear. Further, going public in the current bearish market would mean that the consultancy spinoff might not be able to generate the targeted $10 billion in stock sales. However, if EY is able to see the plan through, other firms like Deloitte, PwC & KPMG might follow suit. n

AUDITING

COVER STORY

By Abdullah Niazi

n the 18th of June, police walked into the home of Farhah Mazhar. Save a few nervous-eyed servants, the home was empty. The police walked through to the bedroom of Farah where the bedsheets had been changed on a bloodsoaked mattress and a hurried, nervous, cover-up had taken place in a ransacked room. Outside in the backyard, two firearms had been buried in a shallow ditch. Farah herself was at a hospital - being declared dead of a gunshot wound to the abdomen. Her husband was nearly 8,000 miles away in the United States - escaping a financial fraud investigation of the National Accountability Bureau (NAB). Farhah had been taken to the hospital by her son Fahad Mazhar and a servant. At the hospital, Fahad had told the medico-legal officer and doctors that his mother had committed suicide. But as police soon started to uncover, Farhah Mazhar had not committed suicide. She had been murdered - shot in cold-blood by her own son. Fahad Mazhar had wanted to marry their house-maid Razia. An argument with his mother over the matter had escalated to a scuffle, which in the presence of firearms, had resulted in the gory incident. Thus came to an end the life of another of Seth Abid’s children. Farhah Mazhar was the daughter of the legendary gold smuggler who passed away last year. More than a decadeand-a-half ago, Farah’s brother and the heir to Seth Abid’s fortune, Seth Hafiz Ayaz Ahmad, had been gunned down by a lone-wolf security guard with a vendetta. How did this come to be the lot of the family of one of the richest men in Pakistan - a man who was famously once the largest property owner in all of Lahore? The tragedy of the house of the Seths is steeped in crime, passion, and a sense of divine judgement that would be befitting of the Bard. And all of it is entangled in the world of financial crime and high-stakes smuggling. Read more: Seth Abid: Pakistan’s ‘pious’ smuggler, mythmaker, and the last of the outlaws To understand all of it, we will need to go through the world of Seth Abid. We will need to travel through the high grasses of the Indian border near Kasur, from where he got his start smuggling gold, all the way to the high seas between the Gulf and the Karachi coast - which he eventually made his trademark smuggling route. But first, we must look at events closer to the present. And for that, we have to go back to 2017, when things really started going south for the now murdered Farhah Mazhar and her

family. When her husband, Mazhar Rafiq, ran away to the United States with more than a billion rupees to escape a NAB investigation.

The broker that broke trust

e’re going to get to Seth Abid, we promise you. But before we do that, let’s talk a bit about the stock exchange. In December 2016, something happened to the Pakistan Stock Exchange (PSX) that most Pakistanis did not even clock. A Chinese consortium won the bid for a 40% stake in the Pakistan Stock Exchange (PSX) with an amount of Rs8.96 billion or roughly $85.5 million, translating to Rs 28 per share. For anyone outside the ambit of the world of brokerage houses and stock investments it was a passing piece of news. For those knee deep in the world of the stock market, however, it meant big changes. You see, while you can make money off the companies listed on any given stock exchange, the stock exchange itself is also a business. Internationally, the ownership of major exchanges is a mixed bag ranging from publicly-traded companies to government ownership. But stock exchanges usually have CEOs, shares, business interests, and services that they offer in exchange for money. Stock exchanges allow investors and traders to make money by providing them a marketplace for trading securities. They also allow companies to raise money by listing different kinds of securities. For providing such services and marketplace, exchanges collect transaction fees from market participants and companies. Exchanges also offer various products and services used for trading and related activities - and they charge for all of them. In Pakistan, while it is tightly regulated by the securities and exchange commission, it is very much run with the purpose of profitability. That means when the Chinese Conglomerate, which includes companies like the Shanghai Stock Exchange, Shenzhen Stock Exchange, Chinese Financial Futures Exchange Company Limited, Pak-China Investment Company and Habib Bank Limited, bought a managing stake in the PSX, they came in with the intention of tightening how the PSX ship was run and making money off of it. That meant cracking down on the significant presence of financial crime on the stock exchange. The PSX itself is a relatively new concept. Up until 2016, stock trading on Pakistan was done on three different floors - the Lahore, Karachi, and Islamabad stock exchanges. In 2016, the government decided to merge the three through an act of parliament. Despite the merger, the PSX did carry forward some of the

baggage of the KSE, LSE, and ISE - all three of which were outdated, sluggish, and largely allowed traders to run rife and maintain very little oversight. So when the new Chinese management took over, heads began to roll. Within a couple of months of taking over, three major scams were uncovered by the new management’s watch dogs. Among them was MR Securities - a brokerage house owned by Mazhar Rafiq, who is the son-in-law of Seth Abid and the husband of the now deceased Farhah Mazhar.

The anatomy of a fraud

hat did Mazhar Rafiq do? It was pretty simple actually. There were no elaborate ponzi schemes and no hacks or high-stakes heists. Rafiq simply preyed on those that knew and trusted him, and then very quietly ran away with more than a billion rupees worth of their investments when the new PSX management came knocking on his door. As the son-in-law of Seth Abid, he had a certain amount of social capital. And more than social capital, he had the illusion of wealth about him. Rafiq drove around in fancy cars, he vacationed abroad with his family, and he was fond of hosting. His wife Farhah was a formidable lady. A person close to the couple, and also one of the victims of the scam that Rafiq ran, described her as hard-nosed with an air of power about her. “She walked, talked, and acted like the daughter of Seth Abid. She was self-assured, stiff-necked, and outspoken,” they said. “I remember being at a function with Farhah where Moin Akhtar was performing. In his classic style, Akhtar began to mimic the pashtun singer Attaullah Eesakhelvi. Farhah got so mad she stood up and began telling Moin Akhtar to stop making fun of a national asset. It was a private function, so everyone including Moin Akhtar knew who she was. Her reaction was a bit over the top but her voice was calm and the silence in the event hall was deadly. That was the measure of the woman.” Together, Mazhar Rafiq and his wife Farhah made a formidable couple that ran in high-end circles of senior corporate executives and business people. His brokerage house had started as a small operation. Mazhar was not a particularly smart investor or expert of the stock exchange, but he was a smooth talker. He convinced a large base of his own friends and acquaintances to park their investments with him at MR Securities. “Mazhar’s whole schtick was convincing people that they would not lose their money because he was a believer in safe investments. He would say it was better to invest large sums

of money in safe investments like government bonds rather than less money in riskier ventures. A lot of the people he convinced were his friends and in the same age-group approaching middle-age. They had savings and many of us parked all of them with Mazhar,” says another victim that was close with Mazhar and the deceased Farhah. This was a common theme from the victims of Mazhar’s fraud. Most of them were investing a large chunk of money, they were investing it with the knowledge that others like them had done so, that Mazhar’s company was successful. “Nobody even thought that he would run away with the money. After all, why would Seth Abid’s son-in-law need to run away with anyone’s money,” says the earlier mentioned victim. But that is exactly what Mazhar did. In fact, his fraudulent activities had been going on for many years. Remember how we mentioned earlier that the PSX had carried forward some of the baggage from the lawless times of the Lahore, Karachi, and Islamabad exchanges? In 2015, Mazhar Rafiq had actually been aided by Lahore Stock Exchange front line regulator and Chairman Khalid Mirza in avoiding an inquiry into his brokerage house. These kinds of assists from friends, however, could not last very long. Around late 2016, some of the investors in MR Securities were looking to get their spoils and pull out of the venture. Initially, they were not worried when Mazhar delayed returning the money or tried very hard to get them to keep their money parked with him. When the investors persisted and Mazhar did not come through with the goods, the first signs of trouble began to appear. And right on the heels of this, the new Chinese management at the PSX was sniffing out a new fraud every second day. In February 2017, Mazhar’s phone suddenly went off. Investors tried to contact him but he simply left a message to all of them - he was making himself unavailable to his clients and that he was under investigation by the SECP. This naturally caused his investors, many of whom had not known about this, to panic. However nothing could work, because a week before all of this came to light, Mazhar Rafiq had fled the country and gone to the United Kingdom. He had locked his office, destroyed evidence, and run away with his clients’ shares and cash in his custody. What unravelled from this point onwards was a mess to put it mildly. The SECP blamed the administration of the PSX, which said in turn that they had just taken control of the situation and it was because of the oversight of the new management that MR Securities along with MAM and AJW were also apprehended. Mazhar Rafiq’s brokerage house had been, as the SECP explained, had been

In Pakistan, while it is tightly regulated by the Securities and Exchange Commission, it is very much run with the purpose of profitability. That means when the Chinese Conglomerate, which includes companies like the Shanghai Stock Exchange, Shenzhen Stock Exchange, Chinese Financial Futures Exchange Company Limited, Pak-China Investment Company and Habib Bank Limited, bought a managing stake in the PSX, they came in with the intention of tightening how the PSX ship was run and making money off of it involved in off-system, illegal, ‘badla’ financing. Badla trading involves buying stocks with borrowed money with the stock exchange acting as an intermediary at an interest rate determined by the demand for the underlying stock and a maturity not greater than 70 days. Essentially, it is a system in which a brokerage house gives a loan to an investor wanting to invest in certain stocks if that investor does not have enough money at the time. For example, X has bought a stock and does not have the funds to take delivery, he can arrange a financier through the stock exchange ‘badla’ mechanism. The financier would make the payment at the prevailing market rate and would take delivery of the shares on X’s behalf - meaning that they owned the shares. Mazhar Rafiq did this illegal practice to death, both for third parties that approached him and directly with some unknowing clients of his own. It ended up with him having complete ownership of the shares of his clients. In this way, his victims were also victims of a system at the PSX that allowed stockbrokers to hold custody of clients’ shares and cash. All in all, Mazhar Rafiq managed to flee the country with cash and shares worth over PKR 1.2 billion - leaving saving-less more than 600 families, some of which included senior citizens, widows and terminal patients. But what led the son-in-law of one of the richest men in Pakistan to swindle his clients out of that much money? Was it simply greed, or was it because the house of the Seth was in disarray and Mazhar was trying to fend for himself and his family.

The weight of the Seth

et us, for a moment, step back from the financial crimes of Mazhar Rafiq and his MR Securities and look at the bigger picture. The life and times of Seth

Abid have been chronicled by this publication in a detailed obituary published last year. But to put it briefly, the Seth came from nothing. Born to a family of traders in the business of transporting animal hides in Kasur, little is known about his early life. Originally, however, the family had been from Calcutta, and had links to the gold trade in Delhi. The family narrowly avoided the violence of partition, and in 1950 Seth Abid’s father moved his family to Karachi and re-entered the gold business. As it turned out, the newly-born Pakistan had no gold mines but still had a huge cultural appetite for gold. With their family links in Calcutta and Delhi, Seth Abid’s father put him under the wing of seasoned smuggler Abid Bhatti, who took the young man on trips through the tall grasses of Kasur between the India and Pakistan border smuggling gold. Seth Abid soon made a name for himself, and when the border became more tightly regulated he switched to smuggling gold from the gulf through sea routes. His life is storied to say the least and mythicised to put in bluntly. From smuggling nuclear equipment to kidnapping Benazir Bhutto, the myths around the Seth’s life grew and the fantastical stories around him turned him into a near mythical Robin Hood figure. Of course, there was only so much gold smuggling that could be sustained over time. Over the decades, as the coast became tighter and the Pakistan Navy and Coast Guard exerted more control on smuggling, Seth Abid had shifted his business interest from smuggling to real estate. Eventually, Seth Abid diversified and became one of the most influential real estate developers in the country. While the story may have started with gold, this is where it would end. It was also through this route that his family met its first tragedy. His son, Seth Ayaz Ahmad, was a real estate prodigy and had run many successful projects for his father.

COVER STORY

Read more: Seth Abid: Pakistan’s ‘pious’ smuggler, mythmaker, and the last of the outlaws In 2006, Seth Hafiz Ayaz Ahmad was travelling to inspect a real estate project owned by his father Seth Abid. Seth Ayaz had long been the golden son of the Gold King of Pakistan. He had, of course, not gone through the christening of bullets and high-speed chases that his father had seen in his decades of smuggling gold into Pakistan. While he may not have had a storied life like his father, he was competent and his path to taking over Seth’s business was a clear one. Most of Seth Abid’s children were born deaf, a disability that led to Seth Abid to found the Hamza Foundation for deaf and dumb children. The only child other than Ayaz that was not differently abled was Farhah Mazhar, who was married and well taken care of by Seth Abid. Farhah and her husband could not conceive children of their own, and while they adopted two sons and a daughter, Seth Abid was very clear that Seth Ayaz would replace him as the head of the family. That is until he was mowed down in a hail of bullets. The official reports say he was killed by a lone-wolf security guard suffering from schizophrenia at the real estate project he went to inspect. Others have whispered that Ayaz’s death was a hit-job — an old enemy coming for payback or a rival party vying for control. Whatever it was, Seth Abid was not the same man from that day forward. “Ayaz’s death broke Seth Abid. The father and son were close. They were always side by side and discussing business. In fact, Seth Abid was supposed to be with his son that day, but a last minute change of plan meant he went alone. After that, he withdrew from life. He stopped taking an interest in the family, in the business, and in other matters. He was still very much around, but old-age and his son’s death took all ambition out of him,” says one family friend that was close to Seth Abid. From that day onwards, Seth Abid let go. His formerly neatly trimmed beard became unkempt, his public appearances grew rarer and rarer, and in one of his last photographed appearances, he met Prime Minister Imran Khan looking frailer than ever before. As Seth Abid slipped to old age and personal tragedy, his attention towards his daughter and the rest of his family waned. It was at this time that his son-in-law, Mazhar Rafiq, began becoming bolder regarding financial decisions. One particular sticking point, for example, was a large tract of land nearly six acres in size that Seth Abid had given his daughter in the middle of Defence Housing Authority in Lahore - right next to the housing society’s W block. As explained by a source in NAB, the land was worth a lot of money, particularly be-

Around late 2016, some of the investors in MR Securities were looking to get their spoils and pull out of the venture. Initially, they were not worried when Mazhar delayed returning the money or tried very hard to get them to keep their money parked with him. cause DHA wanted control of it so they could expand. Mazhar Rafiq wanted to sell that piece of land, and even though Seth Abid was against it he continued to strike deals. This, of course, is one explanation - the one given by those once close to Seth Abid. That he had withdrawn from the world and that a bad-egg son-in-law used his name and status to swindle people out of their hard earned money. Some of the investors whose money Mazhar ran away with claim that the story is very different. “I have thought from the very beginning that Seth Abid was involved. The way Mazhar Rafiq ran away, it could not have been without the help of someone influential like Seth Abid. There had also been serious allegations that MR Securities was actually being used by Seth Abid to launder a lot of his black money,” says one of the earlier mentioned sources who was also a victim of Mazhar Rafiq.

About that murder

o here is where we are in February 2017. Mazhar Rafiq, the son-in-law of Seth Abid, has run away with his investor’s money and is not planning on returning. His wife and their three adopted children are still in Pakistan, where they are facing a grilling by NAB and the local police. His wife, Farhah Mazhar, is protected to a great extent by the influence that her father Seth Abid still wields. Despite this, a humiliating journey begins. Mazhar Rafiq’s picture and ID card are printed in newspapers, he is decried by the SECP, and his victims are assured by the regulator and the stock exchange that they will be compensated and that Rafiq will be extradited and brought back to Pakistan for justice. Affectees went to NAB and the PSX to record their claims. “Sometime later, the affectees were informed by the PSX that the total verified claims amounted to PKR 1.2 billion and the process of recovery and refund would start soon. Regrettably, very little progress has been made so far and the affectees continue to suffer in agony about the fate of their investments,” wrote Naveed Ather Sheikh, a victim of Mazhar Rafiq’s fraud, in a letter to the editor published in Dawn in June 2021 after the death of Seth Abid.

“As regulators and guarantors, both the Securities and Exchange Commission of Pakistan (SECP) and the PSX failed in their duty to safeguard the interests of the investing public. So far, a miniscule compensation of about two per cent of the approved claim amount has been made by the PSX to the affectees out of its investor protection funds. More than two years have passed since this last update. No progress has been made so far while the affectees continue to suffer in agony.” “Things started to fall apart quite quickly. Farhah bore the social backlash of her husband’s crimes while he was out in the UK and unable to return. She continued to claim her innocence but suddenly the family was carrying the mark of this issue. Their financial situation did not particularly deteriorate, but within each other a lot of scuffling began to arise. It was also around this time that Fahad Mazhar began an affair with his household maid, as the police are now claiming, and which culminated in this tragedy.” A police spokesperson has confirmed to Profit that they have not spoken to Mazhar Rafiq regarding his wife’s murder and that a financial angle to the crime is not being considered. “Fahad Mazhar tried to portray the whole story as a suicide, however, it was his brother who lived seperately with his own family who told us there had been issues between Farhah Mazhar and her other son. We are not sure whether Farhah Mazhar was shot accidentally during a scuffle or as part of a plan, but the evidence very strongly points towards it being a crime of passion.” This, of course, does not change the fact that the fate of the Mazhar family was tossed on its head after the exposition of the financial crimes of Mazhar Rafiq. The family underwent great stress, became social pariahs in a lot of their circles, and particularly after the death of Seth Abid in January 2021 were left entirely rudderless. While the murder was definitely personal business, the entire lives of Seth Abid and his family have been covered top-to-bottom in what seems to be a neverending cycle of crime, violence, and huge sums of money. It is a stark if gory reminder that the business of money can be a dangerous one, and that the implications of the financial very regularly bleed into the personal. And it is as much a tragic anecdote as it is a lesson. n

TEXTILES COVER STORY

OPINION

Ammar H. Khan

Exhausting the taxed

already paying taxes incentivizes staying out of the system, and reallocation of capital towards the informal economy, rather than investing in the formal economy. Such reallocation of capital has an inadvertent and unfortunate impact on overall investment in the economy, and further weakens the ability of the state to expand the tax net. It also weakakistan has had a consistently low tax-GDP ratio ens the ability of the state to effectively leverage fiscal policy, as any for decades, staying below peer countries and barely impact of changes in tax code does not really ripple throughout the touching 12 percent in a boom year, only to fall back economy, and only affects the formal economy. to single digit as the boom turns into a bust. Due to Contrary to experience in other peer and developed markets, a worst in class tax-GDP ratio, Pakistan continues the tax policy is also skewed towards consumption, and incomes, to grapple with perennial fiscal deficits, which are rather than capital. Most taxes collected in Pakistan are on the funded through borrowing, eventually crowding out private sector basis of consumption, making the regime largely regressive, and credit, and hurting formation of formal capital in the economy. anti-poor. The remaining taxes collected are a mix of corporate Availability of tax amnesty schemes every few years also sets a taxes, and income taxes, mostly deducted at source. Due to a precedent that it is perfectly fine to avoid paying taxes, because regressive regime, corporatization in the country has slowed down, there will always be yet another amnesty scheme through which as it is more tax efficient to conduct business as a sole proprietor, one can pay only a fraction of undeclared capital, and magically or as a partnership, rather than as a corporate. The incentives are become a taxpayer. In the presence of such distortion, there exists such that income accumulated in the informal economy eventually little incentive for anyone to pay taxes, unless the same is collected results in accumulation of capital outside the formal economy, forcefully on the basis of consumption, or through taxing the which is never really taxed, unless through an amnesty. As capital already taxed. accumulates tax free, the overall size (including both formal and The recent imposition of super tax is an extension of bad informal) continues to grow, but is never really taxed. In the tax policy decisions that have been taken over the years, whether country, there is no taxation of long-term capital accumulation, that was imposition of tax on withdrawal of cash (which resultwhether that be in real estate, agricultural land, or any other asset ed in an unintended consequence of a perpetual and permanent class. This ensures that accumulation of capital is done in asset increase in cash in circulation), or whether it was availability of classes which are untaxed, further restricting the ability of the state various amnesties during last few years, or simply continuation of to expand its tax net. one-time super taxes for years at stretch. In such an environment The tax policy in the country requires a re-think. The same of uncertainty, it is difficult for capital allocators to plan for tax has been said and discussed innumerable times, but the only way efficiently, whether on an entity level, or even on a household level. out of a perennial fiscal deficit is a re-think of the tax policy which The uncertainty in the policy regime which largely targets those increases the overall tax-GDP ratio, and that cannot be done by taxing existing taxpayers more. It can only be done by bringing in more sectors and asset classes under the tax net, and by reducing the size of the informal economy. Economies across the spectrum of development have succeeded in doing the same, so there is nothing out of the ordinary here. There needs to be a shift from conThe writer is an sumption and income oriented taxes to capital oriented taxes, particularly through bringing in more capital in the independent formal economy. Deployment of capital in the formal economy needs to be incentivized, rather than be disincenmacroeconomist and tivized. Current taxation structure actively discourages incumbents from operating in the formal economy. Such energy analyst. an incentive structure needs to change. Taxation targets should be set in real terms, and relative to the size of the economy, rather than nominal terms, wherein inflation does most of the work. The policy needs to be progressive, and pro-investment, rather than being regressive, and anti-investment.

COMMENT

OPINION

Uzair Younus

Winter is coming for the startups

220 million people, most of them under the age of 30, and a dramatic increase in internet connectivity is a no-brainer when it comes to disruptive potential. As a result, sectors ranging from e-commerce to edtech began seeing immense investor interest. Younger graduates, connected to the rest of the world and keenly aware of the power of the digital inter is coming. We know what’s revolution, began to believe in entrepreneurship. Gone were the days coming with it.” This line from the teleof college graduates aspiring to join large multinationals in search of a vision show Game of Thrones, which is cushy job and nice perks. This new generation of Pakistanis, like their based on the iconic book series written peers around the world, wanted to disrupt things and get rich while by George R.R. Martin, is a classic. It doing so. sums up the global economic environment, particularly as it relates The acquisition of Careem by Uber was a major inflection to the funding outlook for technology startups. point, showcasing that there was a way to exit and realize gains in For the last few years, money has been cheap, leading to a drathe region; a similar even occurred in India, where Walmart acquired matic upsurge in risk capital sloshing around the world. But as the Flipkart. This interest reached a fever pitch in 2021, with startups era of cheap money comes to an end, growth capital is drying up, raising $350 million in 2021, a fivefold increase from 2020, according to forcing entrepreneurs to become more disciplined in their approach. research conducted by invest2innovate. While this may cause some volatility and angst in Pakistan’s budBut this rapid growth in investment flows and the dramatic exding startup ecosystem, it will be a good thing for the industry to go plosion in Pakistan’s startup scene had a downside as well. With the through this cycle. world drowning in cheap capital, investors became less disciplined. The era of cheap capital meant that the financial industry, Rather than critically assess opportunities and conduct robust due from the bond market to venture capitalists, was reaching for yield. diligence of the founders who were pitching to them, they began to Developed markets had only a finite set of opportunities and as valhave FOMO – fear of missing out. uations went through the roof, investors began scouring the globe The ability to easily raise money fueled a “grow at all costs” menfor better opportunities. tality among founders, meaning that burning cash to show growth, As a result, risk capital, which was primarily seeking busieven if it was unsustainable, became the motto for some. Since money nesses with exponential growth potential, began finding its way kept being cheap, undisciplined startups burnt cash to show growth, into emerging and frontier markets. More attractive markets like leading to even higher valuations and more access to funds. The frenzy Brazil and India were the first ones to experience the influx. But as became a vicious cycle, until central banks around the world, includopportunities dried up, investors began looking at markets like Paing the U.S. Federal Reserve, took away the punchbowl. kistan which had been undervalued and overlooked for a prolonged In the last few weeks, we have seen stories of various startups period. cutting their operational and staffing footprint. This interest was further reinforced by a vibrant Pakistani They have been forced to realize that the good times may be over diaspora, particularly in the United States. Sensing an opportunity and that growing with discipline, not growth at all costs, is going to in Pakistan, foreign investors, initially led by the diaspora, began draw investors. Compounding the problem is the economic crisis in to seek opportunities in Pakistan. After all, a population of over Pakistan, where the purchasing power of ordinary citizens has been drastically cut by a rapidly depreciating currency and rising inflation. This has made the Pakistan growth story that much harder to sell, especially to global investors feeling the squeeze due to a tightening environment in developed markets. The writer is Director of To some, this may seem like the end of the world. But it isn’t. The technology sector around the the Pakistan Initiative world is facing these headwinds and more mature markets have historically emerged stronger from these at the Atlantic Council, a crises. For Pakistani founders, it is important to dig deep during these trying times and focus on making Washington D.C.-based their core business leaner and meaner. Startups who are not up to this task will wither away and die, but think tank, and host of the this trauma will only strengthen the ecosystem and make other businesses more disciplined. podcast Pakistonomy. He Pakistan’s economy will eventually stabilize, its middle class will recover, and the digital revolution tweets @uzairyounus. will only gain pace. Technology-led disruption is one of the only ways to reorient the economy and alter the status quo. In these trying times, the startup ecosystem’s participants should stay strong and carry on.

“W

COMMENT

For startups, winter may already be here

By Taimoor Hassan

tartups in Pakistan have raked in a total of $284.89 million in disclosed funding across 45 deals in the first six months of 2022, according to Profit’s research of data from insights firms i2i Ventures, DataDarbar, and Crunchbase. This investment in the first 6 months of the ongoing year is 182% higher than the first six months of the last year. (Note: 24SEVEN’s $6 million pre-Series A raise, which was raised earlier but announced on July 1, has been included in the total number for the first six months of this year) Despite this, amid a global funding crunch, they are most likely to close the year with less funding collected than in 2021. Till June 2021, Pakistan’s startups had raised $101 million in funding across 33 deals, according to data from i2i Ventures. The bulk of the funding in the ongoing year has come into B2B startups Bazaar, Dastgyr, Retailo, and Jugnu, which announced raking in $70 million, $37 million, $36 million, and $22.5 million, respectively, contributing more than half (58% or $165.5 million) towards the total funding raised till June this year. After the B2B startups, sizeable funds have been raised by Abhi Finance ($17 million), NayaPay ($13 million), Truck It In ($13 million), MedznMore ($11.5 million), SadaPay ($10.7 million) and Bykea ($10 million). The remaining 31 deals are all under $10 million. There are four big deals in this equation, and they are either Series-A or Series-B raises, which are understandably very large in amount because of the scale of operations at these stages. However, most of the seed stage and pre-Series A stage startups from last year have not announced any raise so far. According to i2i’s deal-flow tracker, 46 startups were at the seed stage last year and five startups were at pre-Series A stage. Out of these 51 startups, only 3 Series A announcements have been made so far of Jugnu, Retailo, and Dastgyr. According to Crunchbase, one out of two (50%) seed-stage startups makes it to Series A stage. The ratio right now is abysmal, with only 5% of the startups from last year making it to the Series A stage. This only confirms that fundraising right now is difficult. There are still six months to go before the end of the year and the aforementioned startups could be announcing Series A investments but it is almost certain that not most of them would be

announcing such raises. The market downturn is actually getting intense and the situation is only going to get worse, which would have prompted startups to wait it out. Profit has earlier covered at length the funding crunch that has hit global markets, which has also impacted the ability of Pakistani startups to raise funds. Being a frontier market, only crumbs will be reaching startups in Pakistan. But $271 million in funding in six months is an impressive number. Considering that the expectation in Pakistan’s VC circle was that in 2022, the final tally would hit $750 million mark for the entire year, because of the great momentum and attention from foreign investors last year. So how have the startups been able to raise this funding apparently during a funding crunch? The answer to the question above is that the funding was not entirely raised during the investment shortfall this year. Fundraising can be a lengthy process, with startups continuously engaging with investors, and closing deals as they come. Investors put money in tranches. An investor could be releasing the funds for a startup in October whereas the next investor would release funds in December. The funding round could be announced when the target for the raise is achieved. Some of the startups that have announced big rounds this year, we’re in the process of raising new funds since last year. For instance, Dastgyr had reportedly been in talks with Veon Ventures since December last year, and Bazaar, too, reportedly signed the term sheet with Tiger Global sometime in December 2021. So if startups have announced their fundraising this year, this does not necessarily mean that they raised all of it during this year. They could have been negotiating with investors prior to when things went down south in the US market and announced when it is officially now a bear market, creating a wow moment in the process. So what is the situation like now? If a startup like Bykea scraps fundraising efforts because the terms are not favorable for startups right now, things are headed towards the worst. On June 15, 2022, the US Fed increased interest rates by 0.75 basis points, its

biggest interest rate hike since 1994, to fight inflation. The consequence of this would be that more money would be parked in the banks and less would be available for investment. Whatever crumbs were available for investment in Pakistani startups, there is going to be a shortfall of that as well in the days to come, except for Pakistani startup founders. The equation is simple. There is a lot of dry powder that is waiting to be invested. It’s just that investors would want to invest in less risky assets. So even if a Pakistani startup is able to access investors that are willing to invest, they would offer investment at terms highly unfavor-

able for the startup. So startups here can either accept harsh terms or wait it out while trying to become sustainable on their own. Whatever the case, the fundraising is going to go down and by the time this year ends, the overall raise is going to be substantially less than what was expected on the back of strong momentum from last year. Kalsoom Lakhani, co-founder, and general partner at i2i, expects that startups might close the year at $350 million, which is about $30 million less than what was raised during the last year. Khurram Zafar, the managing partner at 47 Ventures, also predicts that Pakistan will close the year at about $350 million. According to Faisal Aftab, co-founder and managing partner of Zayn Capital, the funding slowdown is going to get worse. According to his estimates, about $30-50 million can come into Pakistan’s startups in the next 6 months in the current situation. This would bring the final count for 2022 to $300-320 million for the complete year. The amount would be about $6080 million short compared to last year’s funding, and less than half of what was the expected target for fundraising this year. n

Redelivery of the two aircrafts has faced continuous delays because of negligence and travel restrictions

By Abdullah Niazi akistan International Airlines (PIA) is currently paying a cumulative $600,000 monthly rental fee for two Airbus A320 planes that have been parked in Jakarta for the past nine months and are not being used

by the national air carrier. The rent of each plane is $295,000 a month. Subsequently, the PIA has ended up spending millions of dollars on the two planes because of a serious delay in the redelivery process of the planes – after the company that leased PIA the planes claimed that the PIA had replaced parts in the plane and had

not conducted a vital ‘C Check’ before returning the planes. As of now, the PIA has not paid any of this money since the payments will be made in the final settlement with the lessor. In conversations with Profit, a PIA spokesperson has admitted that there has been a delay in redelivery and that the PIA has been paying the $295,000 rental fee even though they are not using the planes. The spokesperson blamed covid, travel restrictions, and a legal dispute in the middle for the delay. Sources close to the matter have also claimed that PIA employees have been taking junkets to Jakarta where they are staying free of cost on taxpayers dime. The PIA, however, has clarified that supervisors need to be sent to Jakarta to keep an eye on repair-work on the planes because they are being undertaken by a third party contractor. It is worth mentioning that the PIA is the single-biggest loss making enterprise owned by the government of Pakistan and has already been bleeding billions of rupees every year. It faced losses of Rs 50 billion during the calendar year in 2021 – up by 47 percent compared to the Rs 34.6 billion in losses it incurred in 2020. The total accumulated losses of PIA have been rising and stand in the range of Rs 400 to Rs 500 billion.

Explain-it-like-I’m-five

n 2015, Pakistan leased two Airbus A320 planes for a period of six years. The planes were leased at a monthly rent of nearly $550,000 according to a spokesperson of the PIA – which includes rent for the plane, maintenance costs, as well as insurance. For the next six years, the planes flew as part of PIA’s fleet registered as planes APBLZ and APBLY. Now, this is a regular practice for the PIA. Most of the planes that we have are older models that have been leased from companies. The two A320s in question, for example, had their first test flights in France in 2006. They were then flown for a while as part of AirAsia – the Malaysian multinational air carrier. In 2015, when the planes had already been flown for a decade, they were leased by the PIA. Now, the way airplane rentals works is that once a deal is over, the planes have to be returned in the exact same condition they were delivered in. That means they have to be refurbished, all of the original parts need to be intact,

Normally, the PIA has leased planes that are so old that they simply buy them off the original company they leased them from. In this case, the company that owned the planes did not want to sell the planes – even though the PIA made an offer. “We tried to buy the planes but then the company said they needed them so it was time for redelivery,” says the PIA’s spokesperson and the plane has to be returned spick and span. Normally, the PIA has leased planes that are so old that they simply buy them off the original company they leased them from. In this case, the company that owned the planes did not want to sell the planes – even though the PIA made an offer. “We tried to buy the planes but then the company said they needed them so it was time for redelivery,” says the PIA’s spokesperson. Now, to be fair to the PIA the redelivery process is not a simple one. It can at times take up to a few months, and until it is complete the airline that leased the planes is expected to continue paying rent for the plane minus its maintenance cost since the plane is grounded. When it was time to return the plane, the PIA asked the company to come and inspect the A320s in Pakistan. However, because of Covid travel restrictions and security issues, the company asked that the inspection be conducted by a third-party mutually hired by the two and FL Technic was chosen for this job – a global provider of aircraft maintenance, repair and overhaul services, headquartered in Vilnius, Lithuania. The plane was taken to Jakarta, where it was thoroughly inspected. According to our source, the plane did not undergo a C Check before leaving – which is a vital inspection. When it got to Jakarta, it became clear that the plane would require repairs. The plane arrived in Jakarta via Kuala Lumpur on September 19th 2021 via ferry. In the nine months since, the plane has still not been fixed. “We had initially asked that the team come to Pakistan to inspect the plane but then because of travel restrictions and security concerns Jakarta was chosen. There is an engineering facility there and we have been paying the rent for the plane but nothing else – the parking fee is covered.”

According to a different source that spoke to Profit, the parking fee is not free but has been covered as part of the money that is being paid to FL Technic and to the engineering facility in Jakarta. “This entire fiasco is bleeding PIA dry right now. We are paying half a million dollars a month for planes we are not even using. And that too at such a critical time. On top of this PIA employees are going around to Jakarta on junkets with their families in tow. It is criminal” The PIA, on the other hand, admits that there has been a delay but says there is an explanation. “For the first four months from September 2021 to December 2021, there was a legal payment dispute that was going on during that time. After that, the dispute was resolved amicably. Since then, there have been further delays because of covid restrictions. Yes, it is late and we are paying this money but it is necessary. PIA is holding up its end of the bargain,” says their spokesperson. However, even if we assume that for the first four months no payments were being made because of the legal dispute, in the five months since the PIA has bled upwards of $3 million just on paying the rent for two planes they are not using. If they have been paying for those first few months as well, the total amount spent is over $7 million. “As far the junkets are concerned, PIA does have to send a supervisor to watch over the work FL Securities are doing and all of that is covered under our contract with them,” says the PIA spokesperson. The spokesperson has later added that no payment has been made as of yet in this regard to the company from which the planes have been leased. Any amount arising in terms of rental shall be adjusted in the final statement with the lessor. n Additional reporting by Ariba Shaid.

Refineries respond to questions on importing Russian oil Providing public relief through import of Russian oil unlikely to be feasible

By Asad Ullah Kamran & Ahmad Ahmadani

n separate letters on Friday, oil refineries responded to the Ministry of Energy on the question whether it is possible to import Russian crude, Profit has learnt. In a letter written by the Ministry of Energy on the 27th of June, managing directors of four refineries were asked to conduct a detailed analysis into the option of importing Russian crude oil along with recommendations and submit responses in this regard by June 28. The companies responded in a letter of their own addressing the issues and processes involved in importing Russian oil. The Ministry of Energy had highlighted five key parameters, cover the basic elements involved in importing oil, to be covered in the analysis by the refineries.

Technical Suitability

he most fundamental question that has been asked before as well, is whether or not Russian oil is technically suitable to be refined.

According to the letter written by PRL in response to the Ministry of Energy, it evaluated major Russian blends and summarised that only three blends were suitable given the configurations of refineries. According to PRL Sokol, which is essentially a light and sweet crude, Sokol has a larger proportion of intermediate distillates and a lower proportion of fuel oil. If Sokol were to be compared to other available grades, it would be PRL’s first choice of crude. Espo is a medium-light mix with a somewhat sweeter crude. The only drawback is the increased amount of fuel oil it requires, and getting rid of it will always be a difficult chore.The Ural blend, however, is a combination of heavy, light, and sour crudes. It will be challenging for the refiner to fulfil the required product sulphur standard due to the higher sulphur content. Additionally, this crude has greater levels of fuel oil, which will always make product disposal challenging. According to PARCO’s answer, preliminary technical evaluations show that some Russian crude grades are technically appropriate for processing at MCR in the region of 15% to 30% of the crude oil mix by substituting some of the existing grades.

The structure of National Refinery Ltd. lubricant refineries limits the range of feedstock, according to the letter sent to the Ministry of energy. They have occasionally tried in vain to find an alternative feedstock to Arabian light crude, which works with the refinery’s design. Cnergyico analysed various blends based upon the refinery configuration, and provided a table that gives detailed information. The table is provided below ranked based on most suitable to least suitable.

Quantity and Grades

ith regards to the quantity and grades of the crude, given the information and other accessible data, as well as the fact that Urals has a sulphur content of no more than 1.4–1.6%, all of the aforementioned Russian crudes may be processed in PRL at a blend ratio of 75% Sokol, 50% ESPO, and 35% Urals, respectively. Sokol crude is preferred by PRL. But after assessing the subject crude’s economic feasibility in contrast to other crudes that PRL is already processing, a final decision on its

the national carrier’s tentative price for freight from Russia’s KOZMINO load port to Karachi is $8.00 per barrel. Similar to this, it takes around 22 days to go by sea from KOZMINO port to Karachi. According to PARCO’s study, it would be necessary to make alternative transportation arrangements through a supplier or trader because the national Crude Oil Transportation Carrier (PNSC) is not allowed to call on Russian ports. In comparison to existing freight of $0.8–1 million per ship from Middle Eastern ports, the transportation freight for imports from Russian ports is anticipated to be in the region of $3-3.5 million per ship. The usual sailing time from Middle Eastern ports is roughly 4 days, according to NRL’s letter, but the projected journey time (one way) would be about 20 days without knowledge of the port of cargo leaving from Russia. Moreover, the route is probably going to go through conflict areas (the black sea). Cnergyico also highlighted the same facts as the other refiners stated that the travel time from ports in Russia is very long, this would make it somewhat difficult to adjust to variations in demand. Furthermore they highlighted that apart from the higher freight costs, it might be economically and physically impossible to import from Russia. This is further complicated by the fact shipping companies are staying away from Russian ports as well for fear of sanctions. acquisition will be taken. However, according to PARCO, the maximum of one or two cargoes of 70,000 MT can be handled at MCR on a monthly basis. Additionally, because the majority of Russian crude oils are heavier than our imported grades, they may be processed by substituting for Arab Light crude oil in order to regulate the product mix. According to the NRL’s statement, they have a long-term contract with Saudi Aramco and are sustaining the present demand from lubricant refineries. The letter noted that until the techno-economic analysis indicates differently, NRL may not be able to process any additional crude. Cnergyico highlighted the grades as well as the requirements for the 13 blends it has evaluated based on the configuration of the refinery.

Transportation/ Freight Analysis

significant portion of PRL’s crude oil is imported from the Middle East, where shipping prices range from $1 to $1.50 per barrel. While

Payment Methodology

RL raised concerns over the payment mechanism needed to entertain Russian oil imports and said in its letter that payments would require a verified Letter of Credit (L/C) in USD from a first-rate bank. However, it is important to note that Pakistani banks are unwilling to open LCs for crude oil of Russian origin for fear of sanctions and the precarious economic situation domestically. Similarly, PARCO stated that Russian businesses might not take payment in US dollars. Therefore, a payment system between Pakistan and Russia will need to be developed, and local banks will need to be encouraged to accept payments in rubles and to expedite the transfer of cash. According to NRL’s analysis, import L/ Cs are currently not being validated by foreign banks due to country risk. However, the government can set up a workable payment scheme. This however is easier said than done based on the current financial pressure being exerted on Russia.

Cnergyico also highlighted the same issues as done by the other refineries. The primary concern for local banks is sanctions based on interactions with Russian financial institutions. The matter is further aggravated by the fact that as the global economy is heading towards a recession, banks have also adopted a more risk averse approach.

Existing Commitment with Arab Gulf region

ccording to term contracts with ADNOC, ARAMCO, and KPC, PRL has already committed to importing 1.2 million MT or 9.0 million barrels per year from the Arab Gulf region. After meeting its present obligations under its crude oil term contracts, PRL may consider processing an extra 300,000– 400,000 MT annually. PARCO has long-term contracts that commit to lifting 110.000 barrels per day (06 cargoes per month), with Saudi Aramco and ADNOC, While the term contract with KPC is also being finalised for upliftment based on necessity. PARCO can additionally handle the acquisition of Russian origin crude oil without jeopardising their current commitments since Russian origin crude oil can only be processed in a specific quantity (15-30%), for a specific amount of time. However, in the medium to long term, PARCO suggested that it would need to lower their contractual volumes in order to regularly uplift Russian oil. The only long-term supplier to NRL is Saudi Aramco, from which we import the Arabian light crude oil needed for their lubricant refineries. Additionally, the government and the Saudi Arabian government have an SFD agreement. Cnergyico in its letter explained that uplifted quantities are a combination of both term contracts and spot cargoes based upon market conditions for each quarter. They clarified that they did have capacity to process Russian crudes based on the analyses provided in their letter to the Ministry of energy.

Conclusion

s things stand, it is highly implausible both economically and physically to procure Russian oil. Even though the public is in angst with the latest hike in fuel prices, procuring oil from Russia is not practical enough to ease the pressure on fuel prices or save the government any significant foreign exchange. n

Navigating the bar on imported pet feed in Pakistan By Shahab Omer

here is a large shop in DHA, Lahore, chock-a-block with imported pet food and a steady stream of customers. All looks well. There seems to be no sign of the ban on imported pet food by the federal government just weeks ago. Other markets in Lahore, Islamabad and Karachi also appear to have lots of imported pet food in stock. In fact, a cursory glance at the racks selling animal feed will have one confused. This is a far cry from the loud protests carried out by pet food traders and owners in Lahore on June 6, demanding the government lift this ban. Pet parents believe that without the availability of imported food, the health of their pets will suffer greatly, and those part of the pet food industry are scared the industry has been doomed.

Profit has set out to both investigate and to understand the issue. Where is this imported food coming from, what are the advantages and disadvantages of selling imported pet food locally, and how will this ban impact the pets’ breeding business are questions being asked. “In the days of lockdown, pet food imports had a significant impact after which importers started buying large quantities of stocks,” says the owner of the shop in Lahore, explaining the wide array of imported foods in his store. But despite this apparent abundance, he adds that there is not much left in the market. “The focus of the customers is mostly on three to four imported brands. In order to sell the remaining imported brands, we have to convince customers,” he explains, talking of those brands that were not in high demand in pre-Covid days, and have, therefore, been left

behind in the markets. Similarly, Rana Mubeen, a wholesaler dealing with both imported and local pet food in Samanabad, said that since the demand for imported pet food has increased significantly now many shopkeepers are even selling it in black. “We have been doing this business for the last 10 years. There is no wholesale market for this food and since it is imported and not labeled with a price, it is subject to the duties imposed on it, and its price in the international market. The price is also determined within the local market but varies from shop to shop,” he said. “Royal Canin’s pet food is in high demand at the moment, followed by Taste of the Wild, Mera, Pedigree and many more. Pet food is not imported from just one country. If I talk about their prices, the bag of puppy food of Royal Canin which was available for PKR 1,800 two years ago has now gone up to

PKR 3,000. In fact, shopkeepers have a big hand in raising prices. When news of a ban on the import of pet food came, the shopkeepers amassed a big stock and many pet owners took the big stock to their houses. Now due to higher prices, there is some reduction in demand. Customers who come to me now demand alternative pet food and sometimes buy local pet food or food imported from China.” But he talks of complaints about animals getting stomach infections from these customers, and that most seasoned pet owners still prefer to buy European pet food. Profit also reached out to Tahir Bajwa, a major importer of pet food and president of the Pet Food Importers and Distributors Association of Pakistan. Bajwa believes that the pet food business has grown so much in Pakistan in the last three years that the field has now become an industry. “We are the wholesalers, and the demand for local food is very low in our market which is the largest pet food market in Pakistan located in Model Town, Lahore. Now there are many reasons why this is so. The first reason is that the highest demand for dog food comes from kennels and breeders. Since they are in the business of buying and selling

animals and breeding, their preference is to buy puppies and dog food that will make the puppy grow very fast with extreme quality. Now our local industry does not produce this quality food at all,” he explained. Buyers who are convinced to sell local food in their shops will always complain of customer dissatisfaction later on, he added. When Bajwa was asked why people buy local food if the quality is not good, he referred to general ignorance in the matter. “We have a common belief that the food a cat or a dog eats with gusto is fine. But this is not the case. Dogs usually eat whatever they can find, but the cat is very delicate and sensitive in this matter. Pet food made in Pakistan and pet food imported from China or Thailand have the same quality in this regard,” he said. The Season Group of Companies’ pet food in Pakistan, was not very successful in the beginning, he added. “Then they added a fragrance to cat food that was imported from China and was a cat’s favorite. Now cats eat that food with great pleasure but it has no result.” He also says that the company actually has its own raw material for pet products but no one can be sure of the quality. “Ingredients are also written on dog or cat food packets

from China and Thailand, but in reality, it is something else. My own dogs died from eating Chinese food.” Bajwa further explained that the blame for the increase in prices of imported pet food in the last two years, is not to be placed on the importer. “Our profit margins are very small as importers,” he explains, adding that pet food “has unfortunately been placed in the categories of luxury items. Its import taxes and duties determine its value.” However, Wasif Ali, an official of Seasons Group of Companies, clarified to Profit that the quality of locally manufactured pet food is by no means low. “We have a perception that there is nothing better than imported food but I will not comment on any imported food. The quality of these can be very good or very bad but if I talk about my company’s dog and cat food then its quality is very good and since the ban on imported food our demand has also increased. Our food is tested regularly and we also give our customers an open offer that they can have this food quality tested from anywhere if they want,” he said. When Ali was asked if the increase in demand would also affect the prices of local

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food, he replied that it could be so because some of the vitamins and ingredients used in food have to be imported. “We haven’t raised our dog and cat food prices in a long time, but obviously if the ingredients are expensive, then we have to raise the price a little bit,” he maintained. Similarly, Ahmed Khan, owner of local puppy and dog food, d’Amigo, which was recently launched in the Pakistani market, told Profit that the reality is that the quality of local dog food and imported dog food cannot be compared with each other. “This does not mean that the dog food we produce is of low quality. The fact is that we are new players in the market and the companies that produce imported dog food are decades old. People have come to trust them, and of course the quality of this food has also improved with the passage of time. But if we talk about Pakistan, where was the practice of imported dog food or cat food 15 or 20 years ago? People used to feed their pets chicken, beef, bread, yogurt and vegetables and the health of the pets of that time was undoubtedly enviable. Then, with the passage of time, packaged dog and cat food came into vogue. People thought that maybe feeding this food could improve the quality of dogs and cats, and meet their nutritional needs.” “This idea is not wrong,” he says “because packaged foods contain multivitamins and other essential nutrients for pets.” Now, with the ban, prices of imported food have gone up by 50% in the last two years. “In comparison, if we talk about local food, the ingredients are not less in it, the quality is also good and the price is also very low. I don’t know if pet food sellers have more profit in selling imported food or in selling local food but I do know that our local shopkeepers are helping us to market our products,” he said. Khan also said that if imported food is to be completely discontinued, local food producers might also increase its price keeping in view demand, and because of rising prices in general. What is helping the situation though, is that new pet food manufacturing companies are coming up in the country, so competition will lead to competitive prices. Having said that, he is of the view “that while people will reduce their purchases of pet food and start feeding their pets chicken or homemade food… prices will definitely change in the coming days as the cost of production of the product we are selling in the market has also increased. So maybe in the coming days its price will have to increase a little bit.” When asked if the prices in the local industry would reduce if the ban on imports of imported pet food was lifted, Khan predicted that this would increase competition even

more and the local industry would focus on further improving its quality. “Consider for yourself that local food is much cheaper in price than imported food, and there is no veterinarian who would say that feeding local food to animals will harm their health. In a competitive race, low cost is very important,” he said. However, Muhammad Bilal, a veterinarian practicing in Lahore, believes that while imported dog breeds may require puppy food to some extent in childhood, that does not mean survival is not possible without it. “It is worth noting that dog and cat food is now available at many veterinary clinics,” he says, adding that a veterinarian who sells both imported and local food in his clinic will do so to earn a profit from the sales. “Many distributors also come to our clinic and encourage us to display dog and cat food but we do not,” he reveals, but they avoid doing so because of fear of defamation on social media in case the food doesn’t yield desired results. Another aspect is that most of the problems in puppies are due to an upset stomach or viral infections, he says, and so they forbid feeding any kind of dog or puppy food. For example, vets or breeders will recommend Nestle’s Cerelac and boiled rice for puppies (puppies aged between 35 to 70 days). Some only recommend boiled boneless chicken, and some yogurt and vegetables. Every puppy is different in size, nature and structure, so it cannot be said that a puppy cannot survive unless it eats dog food (whether it is imported or local). Therefore, he seems to believe that there is no point to the general lament. “If there is no dog or cat food available in the market, it does not mean that pets will die. It is just that pet owners will have to work harder to prepare food at home. And as for the ingredients, believe me, the multivitamin syrups or capsules that we use for ourselves can also be given to animals which have very good results. In our country, 80% of the medicines used in veterinary medicine are the same ones that are prepared for humans or children,” he said. On the other hand, Imtiaz Shah, chairman of the Pakistan Kennel Club (PKC), and a well-known dog breeder, believes that the breeder’s business depends heavily on imported dog food. “Look, whether it is a dog breeder or a cat, whatever litter a breeder has from his animal is its production. Now, to improve the quality of its production, he needs puppy or kitten food, which is not yet made in Pakistan. Be it Seasons Group’s dog or cat food or d’Amico’s dog food, believe me, we have tested all the samples and the quality is not good for anyone. The problem with imported dog breeds is that we can’t feed their puppies

meat and if the weather in Pakistan is taken into account, even an adult dog or cat cannot be fed beef in the summer,” he explained. The issue of the burden of tax falling solely on the importer is yet another troubling aspect for the business. When questioned about breeders who sell dogs at high prices, evading taxes, Shah emphatically denied it being so. “There are approximately 40-45 dog and cat food importers in Pakistan and more than 150 types of food are imported into Pakistan. The importer then puts the entire tax burden on the buyer or the pet owner,” he says. Therefore, in a way, the breeder is paying all kinds of taxes on the purchase of dog or cat food. Secondly, there are more than a thousand kennels registered in our club. Dog breeding is an industry all over the world but it is not the same here, as yet. We strongly support the idea that if someone is making money from dog breeding, they should also pay taxes, but it is also important that the government give it industry status,” he added. When Shah was asked if the ban on dog food would affect breeders’ businesses, Shah replied that in Pakistan, just like when there is news of a petrol price hike, people line up at petrol pumps, in this case too, breeders and pet owners stockpiled for six months when news of the ban spread. “They still have the stock,” he adds. However, another dog and cat breeder, Hamza Khan, disagrees and believes that overall inflation and the rise in the price of pet food have affected the breeders’ business. “Until last year, people were more inclined to keep pets. We are dog and cat breeders. We have rare breeds of dogs including German Shepherd, Labrador, Rottweiler, Dober Man, Siberian Husky. Similarly, we breed different breeds of cats. Last year the price of long coat pedigree puppies ranged from PKR 80,000 to PKR 120,000 and this year we sold better quality puppies for only PKR 60,000 to PKR 70,000. Because every customer said that their [puppies and kittens] food and vaccinations have become expensive. The Labrador puppy used to sell for PKR 25,000 to PKR 40,000 but is now being sold in the market for RS 10,000. Some breeders have started distributing cats for free because they can’t afford it themselves and the customer is not ready to buy. Business slows down a bit in the summer, but people’s purchasing power is also declining,” he said. People used to give chicken to their pets as an alternative to imported food but that too, has become expensive now. Oatmeal, rice, vegetables, yogurt, milk, bread - everything is expensive now. Inflation has had a major impact on this business and will continue to do so in the future.

Could Pakistan monetize

Profit report

volleyball?

n August 2021, Pakistanis were on the edge of their seats. Thousands of miles away in Tokyo Japan, Arshad Nadeem from Mian Channu was going to throw the most important javelin of his entire life. Two Pakistanis came painfully close to a place at the winner’s podium at the

2021 Tokyo Olympics. Arshad Nadeem finished fifth in the javelin throw and Talha Talib from Gujranwala finished fifth in the weightlifting category. Pakistan as a country has one sports obsession - cricket. Fans of the game are diehard, talent comes in a continuous stream, and the sport has been successfully monetised. The problem is that it is just cricket that has reached that status. Formerly popular sports like hockey, and globally popular sports like football have all languished in Pakistan with

SPORTS MANAGEMENT

the country not performing well and in turn players being regularly disheartened because of a lack of opportunities. What the 2021 Olympics proved, however, was that if the stakes are high enough there is more than a good chance of people all across Pakistan having their eyes glued to television screens and filling stadiums to watch Pakistani athletes throw javelins or lift weights. With the interest definitely there in other sports, is there a way to get people invested in a sport other than cricket, and make money along the way? Perhaps the one sport that is the top contender to go the route of cricket in Pakistan is volleyball. The six-a-team net-sport has a unique place in Pakistan’s sporting scene. For starters, our national team is one of the most unpredictable volleyball nations of Asia. The team’s growth has never been consistent, mainly due to financial reasons. The team mostly plays inside Asia, and there is very little regulated competition within Pakistan and unlike in large volleyball playing nations Pakistan does not have its own league. However, a step may just have been taken towards making this a reality. The Pakistan Volleyball Federation has recently entered into a partnership with Engro to launch the Engro Volleyball Development Program. Under the program, the vision is to eventually get Pakistan to have broad representation in the Olympics and other major events. With countries like India and China playing against Pakistan, a lot of interest can be developed in the game. Currently, volleyball is a sport that has a very popular local circuit with players in small cities being celebrities in a very similar fashion to how tape ball cricket leagues and players also thrive in small cities with large tournaments being organised. This is particularly true in the KP region, where volleyball tournaments are a massive source of entertainment. Essentially, the raw materials for making volleyball a popular sport that also plays its players and patrons well are all there. What is needed is concentrated effort towards developing talent and promoting the game. Pakistan’s Iranian coach Rahman Mohammadirad pointed out in an interview that Pakistan needs much better facilities and equipment for volleyball training purposes. If the infrastruc-

ture is boosted it will also help the country to host international volleyball events. That is why the PVF’s partnership with Engro could prove fruitful. To mark the launch of this program, a signing ceremony and press conference were held at a local hotel in Lahore. The occasion was attended by PVF Chairman Chaudhary Muhammad Yaqoob, and PVF President Ch Iftikhar Ahmed, Engro Corporation President & CEO Ghias Khan, Engro Fertilizers VP Manufacturing Syed Shahzad Nabi, and Engro Corporation Head of Marketing & Communications Umber Ansari, among other officials of Engro and the PVF. At the launch, the two sides announced that as part of the development program, Engro will assist the PVF in setting up a National Training Camp, including the appointment of qualified foreign coaches. Regional training camps will also be established at different places in the country to facilitate the local talent for its grooming. These training camps and competitions of the Pakistan national team against strong foreign teams will enable PVF to develop a team of talented athletes who may represent Pakistan in international competitions, such as the Olympics, World Championship, and World League. “Our partnership with the Pakistan Volleyball Federation marks a new chapter in the development and promotion of volleyball in the Country. The Pakistan Volleyball Team has shown its mettle time and again and beaten top ranked teams such as China, Korea, Thailand, India and even Japan,” said Ghias Khan – President & CEO of Engro Corporation. The program could be a catalyst for the sport if it manages to provide access to the best-in-class coaches and training practices. This is also the aim of the PVF, whose Chairman, Chaudhary Muhammad Yaqoob, said that the collaboration could be a gamechange. “Pakistan Volleyball Federation in collaboration and support of Engro Corporation has planned to develop volleyball at grass-root level to make it even more popular and spread it in all nook and corners of the country. We have a common dream to take the Pakistan team to World Olympics 2028 in Los Angeles by moving up gradually from Asia to global level. On behalf of the Pakistan Volleyball Federation, I am extremely grateful to Engro and Mr. Ghias Khan for his generous help and support to this game of the masses. n

IMF bailout conditional to Nawaz Sharif remaining in London, PM reveals

Prime Minister Shehbaz Sharif on Tuesday said that he was informed by Finance Minister Miftah Ismail that Pakistan could receive $2 billion from the International Monetary Fund (IMF) after the final condition of ensuring former premier Nawaz Sharif remaining in London is met. While addressing the ‘Turnaround Pakistan’ conference organised by the Ministry of Planning and Development, PM Shehbaz said that the country had met all other conditions with just the small matter of making the Pakistan Muslim League-Nawaz (PML-N) supremo stay in the United Kingdom the only clause remaining. “Miftah Ismail relayed a message in the morning saying that

SATIRE

we will hopefully be receiving not $1bn from the IMF, but $2bn, and all we have to do is ensure that Nawaz Sharif remains in London,” the premier revealed. “Miftah Ismail also said that the IMF wants Ishaq Dar to remain in London, to which I replied, ‘no, it does not’” Shehbaz added. The premier stressed the need for all quarters to work towards self-reliance, which guarantees political and economic independence. I am working day and night to ensure self-reliance, along with political and economic independence, for myself,” the PM said. “But of course, it’s easier said than done.”

Dar sahab can come and take the easy decisions now that I’ve taken the difficult ones: Miftah

Finance Minister Miftah Ismail on Monday said that Pakistan Muslim League-Nawaz (PML-N) senior leader Ishaq Dar can return to the country and make the easy moves now that all the tough ones have been made. Talking to The Dependent, Miftah said Dar’s return to the country would not bother him and he would be happy to relinquish his position since that is what he was tasked to do all along. “I’d welcome Dar sahab coming back to take the easy decisions, now that I’ve taken all the difficult ones,” Miftah said in an exclusive interview.

“Of course, this is not to deny that he took the decisions taken so far as well, only that they were supposed to be pinned on me according to the plan,” the finance minister added. Further emphasising his reverence for the senior party leader, Miftah Ismail said that Ishaq Dar is his elder and worthy of all the respect. “But, at least, he’s not my elder brother. Some of our party leaders have had to sacrifice their own existence because their elder brother has had political mood swings over the decades,” the finance minister maintained.

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