India, Pakistan may shake hands on electricity, hydrocarbons

Written by Arun S | New Delhi | Updated: May 26 2014, 20:27pm hrs
FlagThe Pakistani proposal is to import 200 million cubic feet per day (mmcfd) of LNG from India.
New Delhi and Islamabad, thanks to their newfound bonhomie following Pakistan premier Nawaz Sharif accepting the invite to attend the swearing-in ceremony of Narendra Modi as Indian prime minister, are looking to seal a deal soon in trade in electricity and hydrocarbon products.

The move is against the backdrop of bilateral trade between the two countries crawling: It was just $1.8 billion during April-December last fiscal and the ambitious target of $6 billion for the financial year must have been missed by a wide margin, although disaggregated data is yet to be out.

The move for a deal in India-Pak trade in electricity and hydrocarbons is in addition to speeding up of opening of branches of Indian and Pakistani banks in each others territories and boosting infrastructure development at the border for trade facilitation, official sources told FE.

Talks will soon be held to ink a pact on export of liquefied natural gas (LNG) from India to Pakistan via a pipeline through the Wagah border.

Negotiations are currently deadlocked on the issue of the price at which India will export the item as Pakistan feels that Indias offer price is too high.

The Pakistani proposal is to import 200 million cubic feet per day (mmcfd) of LNG from India.

India itself imports LNG at $14 per mmBtu and therefore is quoting around $21 per mmBtu for sale to Pakistan consumers after taking into account duties, transportation charge and local taxes. However, Pakistan is pitching for a maximum price of $17 per mmBtu.

On electricity trade, the talks are stuck on technical issues, the sources said. There is also an offer from the World Bank to finance a project to transfer at least 500 MW of power to Pakistan from India initially and then upgrade it to 1200 MW.

On the issue of bank branches, Indias Punjab National Bank, which was founded in Lahore (Pakistan), and SBI are keen to open branches in Pakistan, while Pakistans Muslim Commercial Bank and Commercial Bank of Pakistan want to start branches in India.

Pakistan has already indicated its readiness to grant India non-discriminatory market access (NDMA) similar to Most Favoured Nation (MFN) status where India will be treated on an equal basis with Pakistans other trading partners and had said it was waiting for the new government to take charge in India to announce the details. India had given MFN status to Pakistan in 1996 itself. Soon both countries will bring out a time line to reduce duties on a small list of sensitive products, the sources said.

One sector which India is keen to focus on is automobiles and auto-components. The sources said the plan is to make the South Asian region, including Pakistan, a major sourcing hub for the Indian automobiles sector and build value chains. Simultaneously, India is hoping to get market access in Pakistan in the sector and compete with Chinese products. The sources said Pakistani auto sector is in favour of gradual relaxation of duty curbs in the protected sector.

According to a study by the think-tank ICRIER, the significant performance improvement in Pakistans motor cycle industry, among other factors, can be attributed to the opening up of Pakistans market to imported Chinese components. Thus there is a case for Pakistan to further liberalize its auto sector. Currently, there is hardly any direct trade in auto components between India and Pakistan and most of the trade is routed via Dubai, according to the Automotive Component Manufacturers Association of India, ICRIER said.