June 1, 2003	Sunday	Rabi-ul-Awwal 29, 1424

KARACHI, May 31: With the Federal Budget 2003-04 just around the corner, analysts are coming up with their forecasts about the likely measures in various sectors.

Fertilizer: “The upcoming budget is likely to be a non-event for the sector as no measure will directly impact the performance of the sector”, says Mohammed Sohail, head of research at brokerage InvestCap. But he adds that efforts to support the agriculture sector in its first budget by the political government could provide some good news for the urea producers.

Tasneem Shabbir, analyst at brokerage KASB, agrees that the budget is likely to have a neutral impact over the fertilizer sector. “On the negative side, the disclosure of subsidies and price reduction would put pressure on the manufacturers’ current and future profitability”, she says, adding that the possibility of increase in support prices of agricultural products and higher credit allocation for farmers was likely to generate positive sentiments for the sector.

A key expectation from the budget for the fertilizer sector would be the quantification of total gas subsidy and its disclosure in the budget. She says that the government has been tight lipped on the issue, but it looks like the ministry would highlight the subsidy under strong pressure from the IFIs which want the government to at least start quantifying this subsidy. “Though the industry and government have no consensus on one figure, we believe that the subsidy figure may be around Rs20 billion per year”, says the analyst at KASB.

Automobile sector: Arshad Arif, head of research at KASB observes that not much of a change is expected from the current shape of the auto sector in the budget.

He predicts that the government would keep lowering duties on all categories of vehicles, which might lead to slight reduction in prices of cars (two of the three major manufacturers announced cut in car prices on Saturday).

Secondly, Arif said that the government would also be reiterating its commitment that it would be seeking further extension from WTO for the implementation of TRIMS for the auto sector. Thirdly, the ban on import of second hand cars was likely to remain in place.

Khalid Iqbal Siddiqui at InvestCap asserts that local car manufacturing is one of the most heavily protected industrial sectors in the country. He says that currently there is a 30 per cent import duty on CKD kits and 75 to 200 per cent on different completely build units (CBU). “A 5 per cent reduction in import duty on CKD kits, coupled with reduction in import duty on CBU is expected in the budget”, he says.

Cement: Analyst Sarwat Fatima at KASB believes that cement would be the most exciting sector in the forthcoming budget. Key expectations include a gradual removal of central excise duty on cement, at which the government has already hinted. At present, CED of Rs1,000 per ton is charged on cement and the government plans to phase it out over next five years with Rs200 per ton every year. “In our view, this reduction is likely to be announced in the budget and government would want cement manufacturers to reduce their prices for end consumers”, says the analyst, who also does not expect the government to levy GST on cement bricks or come up with any statement on the recent revival of cement cartel.

PSF sector: Analysts at InvestCap expect the government to reduce import duty on PSF and its raw materials without adversely affecting the protection of the sector vis-a-vis imports. Currently, PSF, PTA and MEG attract import duty at rates of 20, 15 and 10 per cent, respectively. “We believe that the government may once again go for a phased reduction by reducing import duties on the three items by 5 per cent”, says the analyst.

Telecom sector: Analysts at KASB do not foresee “much excitement” in the budget for the telecom sector. They say that the real thrill in the sector is likely to begin after the launch of deregulation policy, expected in the first quarter of FY2004. “However, we believe that the government may come up with a statement in the budget on this policy”, says the analyst, adding that meanwhile no change was foreseen in current tax structure in the telecom industry, where the government was likely to continue its strategy to provide relaxations to the private sector to exploit the tremendous potential in this sector.

Power sector: Analyst Murad Ansari, who follows the power sector for KASB also does not expect a great deal of excitement in the budget for this sector as a whole. He notes: “However, Wapda and KESC are expected to be covered in the entire financing plan of the government. First the government is likely to take a full hit into its current year’s accounts regarding the current year’s losses of the two companies. Second, the next year’s budget will have a significantly higher allocation for the two companies, which the government has been claiming to restructure in the next financial year. “In our opinion, Independent Power Producers (IPPs) will be the major beneficiaries of any such development”, says the analyst.