Tuesday, September 26th, 2017
Home »Business and Economy » Pakistan » Brownfield status for DFML approved by AIDC
The Auto Industry Development Committee (AIDC) has reportedly approved Brownfield status for M/s Dewan Farooque Motors Limited (DFML) and rejected application of existing player M/s Al-Haj FAW Motors (Pvt) Ltd which sought Greenfield status, well-informed sources told Business Recorder. Presided over by acting CEO EDB, Sher Ayub Khan, to 24th meeting of AIDC was held after a lapse of almost one and a half years.

During a discussion on implementation of Auto Industry Development Plan 2016-21, it was shared that Indus Motors and Honda Car had started payment of late delivery charges at the rate of KIBOR+2 to those customers to whom delivery of vehicles was delayed beyond 2 months. IMC had started partial payment five years ago when there was no requirement from the government. However, M/s Pak Suzuki informed the committee that they were making deliveries on time and did not have to pay anything on this account. They however insisted that there should be a legislation to define and streamline the procedure of payments. They felt that the modalities of implementation of Auto Policy in this context needed a well-defined system.

The committee held a detailed discussion on the application of DFML which has applied for revival of manufacturing plant and requested for grant of Brownfield investment under ADP for production of Shehzore (LCV) and Ssangyoung (SUVs) vehicles. The committee was briefed that plant operations were shut down in October 2010. At the time of closure, the company had a few kits in stock. The company also had orders in hand for which it had received advance payment. In the 16th AIDC the company was granted approval to dispose of the pending inventory by producing and supplying vehicles limited to the number of CKD units available and discharge its liabilities. The committee members were further informed that during the period of limited production DFML did not have an agreement with the principal for further import of CKD so there were no prospects of business activation as such.

The sources said, since the Auto Policy 2016-21 clearly defined Brownfield projects as those projects that were closed down prior to July 01, 2013, expert opinion of the AIDC was sought whether DFML met the laid down criteria. The committee debated the issue at length. Some of the members fiercely contended that the company was in production during the period it used its CKD. However, at the end the committee unanimously agreed to the viewpoint that the utilization of CKD should be treated as disposal of assets and since the activity was never intended to be nor was approved by the 16th AIDC as an ongoing activity, it should not be interpreted as such. The committee unanimously approved the grant of Brownfield status to DFML.

According to sources, M/s Al-Haj FAW Motors (Pvt) Ltd, manufacturer of trucks, prime movers, light commercial vehicles and vans had also the applied for a Greenfield status to manufacture cars. EDB had sought advice from the committee keeping in view the investment categories ie Greenfield Investment or Brownfield Investment as provided in the new Auto Policy.

The committee was of the view that the policy in the present form and shape had no room for declaring an existing player Greenfield investment. Extending any incentive to Al-Haj FAW would require a change in the policy. This however, was not possible before two years when the policy could be reviewed and recommendations made to ECC for initiating any change. FBR's representative was quite vocal and took a firm stand on the M/s FAW proposal.

During a discussion on FTAs with Turkey and Thailand, Mashood Ali, Chairman of PAAPAM, and Shariq Suhail member executive PAAPAM shared their notes of the meeting in Bangkok with the part makers in Thailand. They explained that the Thai manufacturers were generally quite co-operative and understood Pakistan's position regarding the FTA. They agreed to visit Pakistan and evaluate opportunities of local manufacturing through joint ventures.

The committee appreciated the efforts of EDB to make business-to-business meeting at the two country level and emphasised the need to share information with the private sector, especially the stakeholders regarding any FTA talks. The development had created opportunities for Pakistani businesses to benefit from the trade opportunities that these talks offered. The committee members were of the view that this will increase the chances of success of the trade talks and benefit the country in the long run.

The sources further stated that the committee was briefed as a background to the issue that SRO 656(1)/2006 laid down as a mandatory requirement that OEMs manufacturing HCVs in the country had an in house E.D paint facility. However, in the Budget 2016-17 it was made mandatory for all car and LCV manufacturers too. The Japanese origin car manufacturers already had the facility. Now those LCV manufacturers who are lacking in this area are approaching EDB for some relaxation as establishing a facility requires time and investment. The EDB posed two questions to the AIDC committee members: (i) time period for which the requested relaxation can be provided; and (ii) can relaxation be provided to new investors applying under ADP 2016-21?

The committee agreed to grant relaxation upto June 30, 2018, to the existing players for putting up the E.D paint facility. However, a common understanding among the committee was that the new investors who were putting up the plant should be able to bring in the E.D paint facility as part of the project.

The AIDC members were briefed that EDB participated in 167th meeting of WP-29 in Geneva. The request for adoption of regulations has been submitted to Ministry of Industries and Production for final approval. Both PAMA and PAAPAM have supported adoption of standards. However, the committee members were quite upset by the way the things were being managed in this area. The members said that no discussion had taken place on the subject with the stakeholders. It was a specialised subject and industry needed information about how implementation would take place.

The acting CEO who was chairing the meeting decided that a meeting should be convened of the stakeholders and briefing on the subject be arranged. It was also decided that all future progress on the issue will be in close consultation with the industry.

The issue of establishment of Pakistan Automotive Institute (PAI) also came under discussion. It was shared with the committee that among other interventions ADP 2016-21 provides for establishment of Pakistan Automotive Institute (PAI) for planning and implementation of activities relating to the development of the automobile industry, particularly research, education and technical guidance relating to quality improvement, safety inspection and environmental preservation as well as development of a database covering technical information relating to the automobile industry. EDB was of the view that this could be achieved through the merger of the newly created PAI with Automotive Testing and Training Centre (AT&TC), a subsidiary of Pakistan Industrial Development Corporation, which is being considered for transfer to EDB. The consultant from Japan International Co-operation Agency (JICA) also shared his views and findings through a brief presentation on the subject.

The committee members were asked for their assessment mainly on two points. One, was there a need for testing and training? Second, what may be source of funding of such an institute? In response, the participants shared the history and their experiences of such institutions. While they agreed with the need for such an institution, they also expressed their apprehensions in light of a string of failures of such institutions. Mashood Ali, Chairman PAAPAM, emphasised the need for having a public- private partnership for giving such institutes any fair chance of success. It was decided that a broader discussion should be initiated on the subject.

The committee was presented an interesting case where two manufacturers seemed to have approval from the same Chinese principal for manufacturing almost the same product. M/s Regal Automobile Industries Limited (RAIL) had applied for Greenfield investment incentives under New Investment Policy of AIDP 2016-21for the production/assembly of Light Commercial Vehicles (LCV) and minivan/bus. M/s RAIL had a technology transfer agreement with DFSK Motor Co Ltd which is a subsidiary of Dongfeng Motor Corporation of China. M/s Tayyaba Motors who also had a manufacturing licence from EDB raised objection that since they already were producing the same vehicles M/s RAIL could not claim Greenfield status.

Since it was a matter of ascertaining facts, the committee members were generally of the view that EDB officials should get the required information like patents and confirmation from principals directly. Also they need to confirm if the product was in fact same or different. It was felt that decision if any would be possible only after committee had access to all the relevant facts.

the author

I did graduation from the Government Murray College Sialkot and MSc in Psychology from the University of Punjab. I am in journalism since 1990. I worked in Daily Nawa-i-Waqt as sub editor and staff reporter in Daily Pakistan and Daily Din prior to joining Daily Business Recorder. I have been associated with this newspaper since 2000 as staff reporter. Energy Sector, Commerce / Trade and Industries are key areas of my interest. I have also the credit of exposing number of scams like Rental Power Plants (RPPs), LNG, sugar import, etc.