Official documents, exclusively obtained by Business Recorder, show that the CCoI was informed that ICI had established a PTA project in Bin Qasim, Karachi, in late 1990s with an investment of $830 million. In 2009, the PTA project was acquired by Lotte, Korea. Tariff protection of 15 percent was allowed to the project for 10 years, along with other concessions, on import of plant and machinery. The new owners have since invested approximately $50 million on a captive power plant with a capacity of 50 MW, which would enable KESC to divert 35 MW of electricity to other consumers.
The plant will also have surplus capacity of 10-12 MW that can be transferred to the national grid. Lotte Korea has also acquired Kolson Food, and is expanding its activities to other sectors too, such as engineering and construction.
Lotte (Korea) has a $400 million expansion plan on the anvil, which also includes setting up a second PTA plant, thereby enhancing the annual production by 1.3 to 1.5 million tons. Pakistan currently imports around 150,000 tons of PTA annually and it is expected that imports could increase to about 400,000 tons per year by 2014.
It was further stated that PTA tariff was slashed by 50 percent to 7.5 percent in 2008, despite the fact that the National Tariff Commission (NTC) had recommended 10 percent tariff. The tariff was again revised down in 2010 to only 3 percent by the ECC, despite the fact that the NTC had recommended 4 percent tariff.
According to BoI, in a recent development, import of PTA has been allowed from India through land route, which could adversely affect the profitability of the country's only PTA industry. Accordingly, the current PTA tariff has placed the industry under serious threat and could force the owners to shelve the expansion plan and to re-locate the new plant elsewhere. It was stated that the PTA is a highly capital-intensive industry, and its viability requires adequate protection, even in developed economies.
Pleading the case of PTA, the BoI had argued that leading textile economies like China and India, despite attaining economies of scale, continue to protect their PTA investment through adequate tariff regimes. Under this scenario, no local or foreign company was likely to invest in this sector unless the government rendered substantial tariff protection. Cost of PTA production in Pakistan is 3-4 percent higher as compared to China and India. Therefore, the PTA industry requires a high level of protection as compared to China and India. In view of comparative tariff structure of 6 percent and 5 percent in China and India, respectively, BoI recommended that present 3 percent tariff may be increased to the previous level of 7.5 percent to be competitive with the regional economies.
During ensuing discussion, the CCoI was informed that tariff protection to the above-mentioned plant had already been extended twice, beyond original period of ten years. Any further protection to PTA industry would adversely affect the entire textile industry. Under the existing tariff regime, tariff protection to PTA industry should have been zero. Instead, it is still enjoying 3 percent protection at the cost of textile industry. The CCoI was also informed that in January 2010, National Tariff Commission (NTC) had prepared a detailed report on tariff rationalisation for the entire industry. The matter was discussed threadbare in ECC meetings more than once and the ECC constituted a committee under the Deputy Chairman of Planning Commission to further discuss NTC's report and formulate recommendations. It was also opined that there was need for close co-ordination among all relevant Ministries/ Divisions, Departments and Provincial Governments to get a complete picture of projects involving foreign investment. There was also a need to monitor all such projects. Need for strengthening of Board of Investment was also stressed.
The Prime Minister observed that tariff rationalisation had already been discussed for more than once by the ECC. He directed that if a matter had already been considered by a forum, and decision taken, it should not be brought to another forum, whether higher or equivalent, as it is a waste of time. He further directed holding meetings of the CCoI on quarterly basis.
After detailed discussion on the proposal, the CCoI decided that it should be considered by the Committee constituted by the Economic Co-ordination Committee of the Cabinet under the Deputy Chairman of Planning Commission vide its decision dated 20 July 2010.
The committee also decided that mechanism for close co-ordination between relevant Ministries/ Divisions, Departments and Provincial Governments may be developed by the Board of Investment to ensure liaison in matters relating to foreign investment. "In future, if a matter has already been considered by a forum, and decision taken, it should not be brought to another forum, whether higher or equivalent," the documents concluded.