Oodles of investment money to buttress bilateral ties
Riyadh has always provided support whenever Islamabad faced economic challenges
PHOTO: FILE
ISLAMABAD:
Saudi Arabia has always kept close business and economic ties with Pakistan and upcoming investment of billions of dollars will give a fresh impetus to the decades-long partnership between the two countries.
The new investment is critical for Pakistan’s economy as the Pakistan Tehreek-e-Insaf government has been striving since coming to power about six months ago to stimulate heavy foreign investment into the country. The economic partnership between Pakistan and Saudi Arabia is not new, it has a history spread over decades.
As Pakistan faced deep economic challenges at regular intervals, Saudi Arabia has always provided vital economic cushion to cope with the crises. This has come in the form of investments, loans, aid and manpower import.
Between 1973 and 1980, Pakistan received a loan of $502 million at critical junctures to meet international obligations. In 1998, when Pakistan faced an economic crisis after the international community imposed crippling economic sanctions in the wake of nuclear tests, Saudi Arabia extended a helping hand by offering a free oil supply facility worth $4.5 billion. That facility constituted 23% of Pakistan’s total oil imports.
Pakistan received 80,000 barrels per day (bpd) for two years and later got 40,000 bpd, which helped ease pressure on the balance of payments.
Saudi Arabia also came for Pakistan’s rescue after a devastating earthquake in the country’s north in 2005, with an aid package of $573 million for relief and rehabilitation efforts. In that regard, Saudi Arabia established an organisation called “Saudi Public Assistance for Pakistan Earthquake Victims”.
Later, when major floods devastated many parts of Pakistan in 2010, Riyadh announced another aid package of $105 million and became the largest international donor to Pakistan.
Over the past few years, Saudi Arabia has been offering financial bailouts to Pakistan for balance of payments support and has deposited millions, even billions, of dollars in the State Bank of Pakistan (SBP) to boost the foreign currency reserves. In 2009, it deposited $200 million with the SBP and in March 2014 gave $1.5 billion as a gift to lessen pressure on the balance of payments.
Recently, it has again come forward and has deposited $3 billion with the SBP for bolstering the foreign exchange reserves. In addition to this, it has agreed on an oil credit facility of $3 billion for the next three years.
Apart from the financial bailouts, Saudi Arabia has also given soft loans to Pakistan. In 2009, a $100-million credit facility was provided for urea import from the kingdom. Similarly, it gave a soft loan of $80 million for the construction of Neelum-Jhelum hydroelectric power project.
In February 2014, during the visit of then Crown Prince Salman bin Abdul Aziz, both the countries inked agreements on new soft loans for Pakistan. Under this arrangement, the kingdom provided $125 million for urea import from a Saudi company. Moreover, a soft loan of $58 million was made available through the Saudi Fund for Development of Pakistan for the Golen Gol hydroelectric power project in Chitral.
Manpower, trade and investment
Remittances have been a major source of foreign currency for Pakistan and in this area too Saudi Arabia has played a prominent role as millions of Pakistanis are based in the kingdom.
In the 1960s, when a boom in Saudi Arabia’s oil industry created employment opportunities in scores of sectors like the construction industry, Saudi Arabia turned focus to Pakistan and invited skilled and unskilled manpower.
Pakistan has since exported skilled, semi-skilled and unskilled workers to the kingdom, which has been an attractive destination for Pakistani workforce because of being a Muslim country and also due to the presence of holy sites in Makkah and Madina.
Pakistani expatriates are working in Saudi Arabia’s construction, services and oil industries among others. Between 1971 and 2005, 2.8 million Pakistani workers went to Saudi Arabia for employment and in 2018, their total number was estimated at 5.3 million, making a significant contribution to the economy of Saudi Arabia and sending billions of dollars in remittances to Pakistan. They contribute around $4 billion in remittances per annum.
Saudi Arabia has also been a key trade partner of Pakistan due to oil imports and the trade has been in favour of the former. In 2013-14, total trade volume between the two countries stood at $5,084 million, of which exports from Pakistan were calculated at $505.4 million against imports of $4,578 million.
However, the trade volume came down to $3,519.20 million in 2017-18. Bilateral trade stood at $1,990.46 million in July-January of the current fiscal year against $1,924.27 million in the same period of previous year. Owing to the recent fast growing ties, the trade volume is likely to pick up pace.
Pakistan’s main export goods include textile, rice, honey, mangoes, mutton, beef, spices, fruits, vegetables, light engineering goods, leather products and chemicals. On the other hand, its major import items include crude oil, petrochemicals, plastic and plastic products, organic chemical products, fertilisers, aluminium and its products, precious metals, steel castings, rubber and paper.
Saudi Arabia has long been a leading investor in Pakistan. Its investment stood at $263.11 million in December 2015. During the visit of crown prince Salman bin Abdul Aziz in February 2014, avenues for expanding Saudi investment in varying sectors such as oil and gas, mining, energy, IT, telecommunication, food and agriculture were explored.
Pakistan has invited Saudi business community to invest in the country as it offers an attractive 37% annual dividend on foreign investment.
In a bid to institutionalise economic cooperation and strengthen mutual coordination and linkages, the Pak-Saudi Joint Ministerial Commission (JMC) was established in May 1974. JMC is at the core of efforts to expand commercial cooperation between the two countries. Ten sessions of JMC have been held in Riyadh and the last one was organised in April 2014.
Both sides discussed new opportunities for cooperation in scores of fields as Pakistan sought Saudi investments in infrastructure building, trade, banking, information technology and telecommunication.
Pakistan has valued its relations with Saudi Arabia because Riyadh has a unique and central position in the Muslim world. Following the visit of Saudi crown prince in 2014, its investment in Pakistan increased, which reached $421.4 million in 2016.
New era
With the arrival of Crown Prince Mohammad bin Salman, the two countries are poised to sign billions of dollars worth of agreements. These include the setting up of Aramco oil refinery in Gwadar.
Saudi Aramco has a long history of achievements and it will establish its footprint in Pakistan by setting up a refinery with production capacity of 250,000 to 300,000 bpd.
Aramco traces its beginning to 1933 when a concession agreement was signed between Saudi Arabia and Standard Oil Company of California. A subsidiary company, California Arabian Standard Oil Company, was created to manage the agreement.
After surveying Saudi deserts, drilling for oil exploration began in 1935. Crude oil production of Aramco (Arabia American Oil Company) reached 500,000 bpd in 1949. Next year, the company completed the 1,212km Trans-Arabian Pipeline (Tapline) - the longest in the world. Tapline linked eastern Saudi Arabia with the Mediterranean Sea, sharply cutting the time and cost of oil export to Europe.
After two years of exploration in shallow Arabian Gulf waters, Aramco discovered Safaniyah field in 1951. It proved to be the world’s largest offshore oilfield. Later in 1958, Aramco’s crude oil production crossed 1 million bpd. By 1962, in another major milestone, the crude oil output touched 5 million bpd. And by 1971, the shipment of crude oil and petroleum products from the Ras Tanura Marine Terminal surpassed one billion barrels per year for the first time.
In 1973, the Saudi government bought a 25% interest in Aramco and increased it to 60% the following year. In 1980, the Saudi government raised its stake to 100%.
Later, the Saudi Arabian Oil Company (Saudi Aramco) was officially established - a new company set up to take over all responsibilities of Aramco, with Ali Al-Naimi becoming its first Saudi president in 1984.
In the following year, Saudi Aramco began its transformation from an oil-producing and exporting company to an integrated petroleum enterprise, with the creation of Star Enterprises in 1989 - a joint venture with Texaco in the United States. This would evolve to become Motiva, initially a partnership with Texaco and Shell, which in 2017 progressed to Saudi Aramco being the sole owner of North America’s largest single-site crude oil refinery at Port Arthur, Texas.
Throughout the 1990s, it gradually extended ties and partnerships across the world, making several international investments and starting with the purchase in 1991 of 35% interest in SsangYong Oil Refining Company in South Korea.
The expansion continued in 1994 when the company acquired 40% interest in Petron Corporation, the largest crude oil refiner and marketer in the Philippines. Again in 1996, it made more investments in Europe by purchasing 50% shares in privately held Greek refiner Motor Oil (Hellas) Corinth Refineries SA and its marketing affiliate, Avinoil Industrial Commercial and Maritime Oil Company SA.
Pakistan and Saudi Arabia will sign an agreement to install the Saudi Aramco oil refinery at the oil city located in Balochistan’s Gwadar district during the visit of Crown Prince Muhammad bin Salman.
Saudi Energy Minister Khalid al-Falih has already visited Pakistan and inspected a piece of land in Gwadar before inking a memorandum of understanding for setting up the $10-billion oil refinery at the deep-sea port, which is also the ending point of the China-Pakistan Economic Corridor (CPEC) project.
Annual demand for petroleum products in Pakistan is forecast to reach 50 million tons in 2030 based on annual GDP growth of 5% due to CPEC-related activities. Current demand for petroleum products is estimated at 29.6 million tons.
In 2029-30, the demand-supply gap for petrol and high-speed diesel has been estimated to grow to 14 million tons and 16 million tons per annum respectively against the current deficit of 5 million tons and 4 million tons. The Aramco oil refinery in Pakistan will help to meet the growing demand for oil following rapid industrialisation under CPEC.
Pakistan and Saudi Arabia are set to sign seven memoranda of understanding (MoUs) for investment of around $21 billion in different sectors of the economy including the setting up of Aramco oil refinery during the crown prince’s visit. A Saudi delegation comprising 600 to 700 delegates, including 40 private-sector investors, will look for opportunities of investment in Pakistan.
Saudi Arabia will invest in petrochemicals, tourism, mines and minerals, hospitality services, oil refinery, renewable energy and power plants. Saudi Arabia is looking to buy the liquefied natural gas (LNG)-based power plants set up by the previous government of Pakistan Muslim League-Nawaz (PML-N). It wants to take over control of these plants and invest $2 billion.
Investment in renewable energy
In 2002, the Saudi Arabian government decided to increase the role of private sector in the Saudi economy by opening up production of electricity and desalinated water for private-sector investors.
Recognising the opportunity that this significant policy shift offered, Acwa Holding - representing Abunayyan Trading Company and Abdulkadir Al Muhaidib & Sons Co - along with the Mada Group for Industrial and Commercial Development formed a joint venture under the name of Acwa Power Projects in 2004. The latter was the forerunner of present-day Acwa Power, which was subsequently founded in 2008.
Pakistan has a huge potential for renewable energy. The Pakistan Tehreek-e-Insaf (PTI) government is working on a policy to offer incentives for investment in clean energy. The government plans to raise the share of renewable energy in the overall energy mix to 20% by the year 2025 from the existing 4% and to 30% by 2030.
The expected investment from Saudi Arabia in renewable energy will be encouraging for Pakistan to improve the energy mix. Acwa Power will sign a deal with a Pakistani company for pouring capital into wind and solar power plants.
Saudi Fund for Development
The Saudi Fund for Development (SFD) is working to rehabilitate infrastructure in areas affected by natural and man-made disasters to improve people’s access to socio-economic services and civic amenities. Its partnership with the United Nations Development Programme (UNDP) is crucial to improving sustainable development in Pakistan.
The Saudi fund is supporting the UNDP and the government of Khyber-Pakhtunkhwa in rehabilitating the damaged community infrastructure such as link roads, street pavements, irrigation and drainage channels, small bridges and culverts in the Swat district. It has allocated $11.667 million for the purpose.
The UNDP’s work is made possible by the personal, financial and professional commitment of organisations like the SFD. It is actively engaged in an array of development partnerships with a wide range of stakeholders, both national and international, working together in all phases of the development cycle, from programme design, implementation, review and revision, to lessons learnt and best practices.
Partners like SFD play a crucial role in promoting and financing strategies that will help Pakistan achieve its national development goals.
Saudi-Pak Industrial and Agricultural Investment Co
It is a private limited company established in 1981 and converted into a public limited company in 2008. It is a joint venture between governments of Pakistan and Saudi Arabia with paid-up capital of Rs6.6 billion and 50% shareholding each.
A development finance institution (DFI), regulated by the SBP, the Saudi-Pak Investment Company has a diverse product range to cater to growing needs of its corporate customers in the private and public sectors. The product mix and services include project finance, short-term loans, direct equity investments, term finance certificates, non-funded commitments, syndication, trusteeship, consultancy services and financial arranger/adviser.
the writer is a staff correspondent
Saudi Arabia has always kept close business and economic ties with Pakistan and upcoming investment of billions of dollars will give a fresh impetus to the decades-long partnership between the two countries.
The new investment is critical for Pakistan’s economy as the Pakistan Tehreek-e-Insaf government has been striving since coming to power about six months ago to stimulate heavy foreign investment into the country. The economic partnership between Pakistan and Saudi Arabia is not new, it has a history spread over decades.
As Pakistan faced deep economic challenges at regular intervals, Saudi Arabia has always provided vital economic cushion to cope with the crises. This has come in the form of investments, loans, aid and manpower import.
Between 1973 and 1980, Pakistan received a loan of $502 million at critical junctures to meet international obligations. In 1998, when Pakistan faced an economic crisis after the international community imposed crippling economic sanctions in the wake of nuclear tests, Saudi Arabia extended a helping hand by offering a free oil supply facility worth $4.5 billion. That facility constituted 23% of Pakistan’s total oil imports.
Pakistan received 80,000 barrels per day (bpd) for two years and later got 40,000 bpd, which helped ease pressure on the balance of payments.
Saudi Arabia also came for Pakistan’s rescue after a devastating earthquake in the country’s north in 2005, with an aid package of $573 million for relief and rehabilitation efforts. In that regard, Saudi Arabia established an organisation called “Saudi Public Assistance for Pakistan Earthquake Victims”.
Later, when major floods devastated many parts of Pakistan in 2010, Riyadh announced another aid package of $105 million and became the largest international donor to Pakistan.
Over the past few years, Saudi Arabia has been offering financial bailouts to Pakistan for balance of payments support and has deposited millions, even billions, of dollars in the State Bank of Pakistan (SBP) to boost the foreign currency reserves. In 2009, it deposited $200 million with the SBP and in March 2014 gave $1.5 billion as a gift to lessen pressure on the balance of payments.
Recently, it has again come forward and has deposited $3 billion with the SBP for bolstering the foreign exchange reserves. In addition to this, it has agreed on an oil credit facility of $3 billion for the next three years.
Apart from the financial bailouts, Saudi Arabia has also given soft loans to Pakistan. In 2009, a $100-million credit facility was provided for urea import from the kingdom. Similarly, it gave a soft loan of $80 million for the construction of Neelum-Jhelum hydroelectric power project.
In February 2014, during the visit of then Crown Prince Salman bin Abdul Aziz, both the countries inked agreements on new soft loans for Pakistan. Under this arrangement, the kingdom provided $125 million for urea import from a Saudi company. Moreover, a soft loan of $58 million was made available through the Saudi Fund for Development of Pakistan for the Golen Gol hydroelectric power project in Chitral.
Manpower, trade and investment
Remittances have been a major source of foreign currency for Pakistan and in this area too Saudi Arabia has played a prominent role as millions of Pakistanis are based in the kingdom.
In the 1960s, when a boom in Saudi Arabia’s oil industry created employment opportunities in scores of sectors like the construction industry, Saudi Arabia turned focus to Pakistan and invited skilled and unskilled manpower.
Pakistan has since exported skilled, semi-skilled and unskilled workers to the kingdom, which has been an attractive destination for Pakistani workforce because of being a Muslim country and also due to the presence of holy sites in Makkah and Madina.
Pakistani expatriates are working in Saudi Arabia’s construction, services and oil industries among others. Between 1971 and 2005, 2.8 million Pakistani workers went to Saudi Arabia for employment and in 2018, their total number was estimated at 5.3 million, making a significant contribution to the economy of Saudi Arabia and sending billions of dollars in remittances to Pakistan. They contribute around $4 billion in remittances per annum.
Saudi Arabia has also been a key trade partner of Pakistan due to oil imports and the trade has been in favour of the former. In 2013-14, total trade volume between the two countries stood at $5,084 million, of which exports from Pakistan were calculated at $505.4 million against imports of $4,578 million.
However, the trade volume came down to $3,519.20 million in 2017-18. Bilateral trade stood at $1,990.46 million in July-January of the current fiscal year against $1,924.27 million in the same period of previous year. Owing to the recent fast growing ties, the trade volume is likely to pick up pace.
Pakistan’s main export goods include textile, rice, honey, mangoes, mutton, beef, spices, fruits, vegetables, light engineering goods, leather products and chemicals. On the other hand, its major import items include crude oil, petrochemicals, plastic and plastic products, organic chemical products, fertilisers, aluminium and its products, precious metals, steel castings, rubber and paper.
Saudi Arabia has long been a leading investor in Pakistan. Its investment stood at $263.11 million in December 2015. During the visit of crown prince Salman bin Abdul Aziz in February 2014, avenues for expanding Saudi investment in varying sectors such as oil and gas, mining, energy, IT, telecommunication, food and agriculture were explored.
Pakistan has invited Saudi business community to invest in the country as it offers an attractive 37% annual dividend on foreign investment.
In a bid to institutionalise economic cooperation and strengthen mutual coordination and linkages, the Pak-Saudi Joint Ministerial Commission (JMC) was established in May 1974. JMC is at the core of efforts to expand commercial cooperation between the two countries. Ten sessions of JMC have been held in Riyadh and the last one was organised in April 2014.
Both sides discussed new opportunities for cooperation in scores of fields as Pakistan sought Saudi investments in infrastructure building, trade, banking, information technology and telecommunication.
Pakistan has valued its relations with Saudi Arabia because Riyadh has a unique and central position in the Muslim world. Following the visit of Saudi crown prince in 2014, its investment in Pakistan increased, which reached $421.4 million in 2016.
New era
With the arrival of Crown Prince Mohammad bin Salman, the two countries are poised to sign billions of dollars worth of agreements. These include the setting up of Aramco oil refinery in Gwadar.
Saudi Aramco has a long history of achievements and it will establish its footprint in Pakistan by setting up a refinery with production capacity of 250,000 to 300,000 bpd.
Aramco traces its beginning to 1933 when a concession agreement was signed between Saudi Arabia and Standard Oil Company of California. A subsidiary company, California Arabian Standard Oil Company, was created to manage the agreement.
After surveying Saudi deserts, drilling for oil exploration began in 1935. Crude oil production of Aramco (Arabia American Oil Company) reached 500,000 bpd in 1949. Next year, the company completed the 1,212km Trans-Arabian Pipeline (Tapline) - the longest in the world. Tapline linked eastern Saudi Arabia with the Mediterranean Sea, sharply cutting the time and cost of oil export to Europe.
After two years of exploration in shallow Arabian Gulf waters, Aramco discovered Safaniyah field in 1951. It proved to be the world’s largest offshore oilfield. Later in 1958, Aramco’s crude oil production crossed 1 million bpd. By 1962, in another major milestone, the crude oil output touched 5 million bpd. And by 1971, the shipment of crude oil and petroleum products from the Ras Tanura Marine Terminal surpassed one billion barrels per year for the first time.
In 1973, the Saudi government bought a 25% interest in Aramco and increased it to 60% the following year. In 1980, the Saudi government raised its stake to 100%.
Later, the Saudi Arabian Oil Company (Saudi Aramco) was officially established - a new company set up to take over all responsibilities of Aramco, with Ali Al-Naimi becoming its first Saudi president in 1984.
In the following year, Saudi Aramco began its transformation from an oil-producing and exporting company to an integrated petroleum enterprise, with the creation of Star Enterprises in 1989 - a joint venture with Texaco in the United States. This would evolve to become Motiva, initially a partnership with Texaco and Shell, which in 2017 progressed to Saudi Aramco being the sole owner of North America’s largest single-site crude oil refinery at Port Arthur, Texas.
Throughout the 1990s, it gradually extended ties and partnerships across the world, making several international investments and starting with the purchase in 1991 of 35% interest in SsangYong Oil Refining Company in South Korea.
The expansion continued in 1994 when the company acquired 40% interest in Petron Corporation, the largest crude oil refiner and marketer in the Philippines. Again in 1996, it made more investments in Europe by purchasing 50% shares in privately held Greek refiner Motor Oil (Hellas) Corinth Refineries SA and its marketing affiliate, Avinoil Industrial Commercial and Maritime Oil Company SA.
Pakistan and Saudi Arabia will sign an agreement to install the Saudi Aramco oil refinery at the oil city located in Balochistan’s Gwadar district during the visit of Crown Prince Muhammad bin Salman.
Saudi Energy Minister Khalid al-Falih has already visited Pakistan and inspected a piece of land in Gwadar before inking a memorandum of understanding for setting up the $10-billion oil refinery at the deep-sea port, which is also the ending point of the China-Pakistan Economic Corridor (CPEC) project.
Annual demand for petroleum products in Pakistan is forecast to reach 50 million tons in 2030 based on annual GDP growth of 5% due to CPEC-related activities. Current demand for petroleum products is estimated at 29.6 million tons.
In 2029-30, the demand-supply gap for petrol and high-speed diesel has been estimated to grow to 14 million tons and 16 million tons per annum respectively against the current deficit of 5 million tons and 4 million tons. The Aramco oil refinery in Pakistan will help to meet the growing demand for oil following rapid industrialisation under CPEC.
Pakistan and Saudi Arabia are set to sign seven memoranda of understanding (MoUs) for investment of around $21 billion in different sectors of the economy including the setting up of Aramco oil refinery during the crown prince’s visit. A Saudi delegation comprising 600 to 700 delegates, including 40 private-sector investors, will look for opportunities of investment in Pakistan.
Saudi Arabia will invest in petrochemicals, tourism, mines and minerals, hospitality services, oil refinery, renewable energy and power plants. Saudi Arabia is looking to buy the liquefied natural gas (LNG)-based power plants set up by the previous government of Pakistan Muslim League-Nawaz (PML-N). It wants to take over control of these plants and invest $2 billion.
Investment in renewable energy
In 2002, the Saudi Arabian government decided to increase the role of private sector in the Saudi economy by opening up production of electricity and desalinated water for private-sector investors.
Recognising the opportunity that this significant policy shift offered, Acwa Holding - representing Abunayyan Trading Company and Abdulkadir Al Muhaidib & Sons Co - along with the Mada Group for Industrial and Commercial Development formed a joint venture under the name of Acwa Power Projects in 2004. The latter was the forerunner of present-day Acwa Power, which was subsequently founded in 2008.
Pakistan has a huge potential for renewable energy. The Pakistan Tehreek-e-Insaf (PTI) government is working on a policy to offer incentives for investment in clean energy. The government plans to raise the share of renewable energy in the overall energy mix to 20% by the year 2025 from the existing 4% and to 30% by 2030.
The expected investment from Saudi Arabia in renewable energy will be encouraging for Pakistan to improve the energy mix. Acwa Power will sign a deal with a Pakistani company for pouring capital into wind and solar power plants.
Saudi Fund for Development
The Saudi Fund for Development (SFD) is working to rehabilitate infrastructure in areas affected by natural and man-made disasters to improve people’s access to socio-economic services and civic amenities. Its partnership with the United Nations Development Programme (UNDP) is crucial to improving sustainable development in Pakistan.
The Saudi fund is supporting the UNDP and the government of Khyber-Pakhtunkhwa in rehabilitating the damaged community infrastructure such as link roads, street pavements, irrigation and drainage channels, small bridges and culverts in the Swat district. It has allocated $11.667 million for the purpose.
The UNDP’s work is made possible by the personal, financial and professional commitment of organisations like the SFD. It is actively engaged in an array of development partnerships with a wide range of stakeholders, both national and international, working together in all phases of the development cycle, from programme design, implementation, review and revision, to lessons learnt and best practices.
Partners like SFD play a crucial role in promoting and financing strategies that will help Pakistan achieve its national development goals.
Saudi-Pak Industrial and Agricultural Investment Co
It is a private limited company established in 1981 and converted into a public limited company in 2008. It is a joint venture between governments of Pakistan and Saudi Arabia with paid-up capital of Rs6.6 billion and 50% shareholding each.
A development finance institution (DFI), regulated by the SBP, the Saudi-Pak Investment Company has a diverse product range to cater to growing needs of its corporate customers in the private and public sectors. The product mix and services include project finance, short-term loans, direct equity investments, term finance certificates, non-funded commitments, syndication, trusteeship, consultancy services and financial arranger/adviser.
the writer is a staff correspondent