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Foreign interest transforming auto landscape


4/9/2017
ISLAMABAD: The Board of Investment (BoI) has received two formal applications from prospective investors to set up auto assembly plants in Pakistan in the greenfield category of the Automotive Development Policy 2016-21, a senior official told Dawn.
 
The BoI has received a comprehensive business plan from Lucky Cement for setting up an auto plant in partnership with South Korean carmaker Kia Motor. It involves a total investment of Rs28.45 billion.
 
As per the proposed plan, 100 acres of land near Port Qasim have already been purchased for the project. Its production will start in June 2018. The proposed investment is projected to create employment for 2,000 people.
 
In the first phase, the production capacity will be 25,000-30,000 units per year, which will be completed in 2018-19. In the second phase, the production capacity will be enhanced to 50,000 units per year along with an increase in the localisation of components by 2023. The company will start in-house manufacturing of auto parts by 2025-26.
 
The BoI has received another application from Haier Pakistan for setting up a plant in collaboration with Chinese automaker Foton to manufacture light and heavy-duty trucks in Lahore. In the case of Foton, the source said the application did not have investment and production details. “We have sent them a letter to seek details,” the source said.
 
The new investors will not only set up their production plants in Pakistan, but also import other materials from abroad at less than the usual price.
 
As part of the auto policy, the government allowed the prospective investors to import 100 vehicles of the same variant in the completely built up (CBU) form at 50 per cent of the prevailing duty for test marketing after the project’s groundbreaking.
 
According to the source, instead of submitting a business plan, the local partner of Foton has submitted an application that seeks the import of 100 vehicles of the same variant in the CBU form.
 
Hyundai, which is another South Korean automaker, also plans to set up a car assembly plant in Pakistan in collaboration with Nishat Mills. The two companies have signed a memorandum of understanding (MoU) to establish a greenfield project for the assembly and sales of both passenger and commercial vehicles.
 
“We have not received any formal application from Nishat Mills so far,” the source in the BoI said.
 
Renault-Nissan has also shown interest in Pakistan’s automobile sector. “We have informally received information that the auto giant decided last year to set up a plant in Pakistan,” the BoI official said.
 
Similarly, Italian car manufacturer Fiat is also looking at Pakistan as a possible investment destination, the official said. “So far, no formal word in black and white has been received from the automaker,” the official said.
 
Pakistan offers several incentives to investors in the greenfield category for a period of five years.
 
Investors can import the plant and machinery without duty to set up an assembly and/or manufacturing facility on a one-time basis. Investors enjoy a 10pc concessional rate of customs duty on non-localised parts against the usual duty of 32.5pc. The concessional rate of customs duty on localised parts is 25pc against the usual rate of 50pc for a period of five years for the manufacturing of cars and LCVs.
 
Similarly, the import of all parts – both localised and non-localised – at the prevailing customs duty applicable to non-localised parts for the manufacturing of trucks, buses and prime movers is available for three years.
 
The current policy for the motorcycle industry will continue without any change.
 
The existing automakers also intend to expand their production capacity and come up with new models. “We have received requests from three existing players – Dewan, Suzuki and FAW – seeking greenfield facilities on the introduction of new models,” the official said.
 
The issue was earlier raised in the auto policy committee, which referred it to the auto industry development committee. It did not support any amendment to the existing policy to provide similar incentives to the existing players.
 
The auto industry development committee will meet on April 11. It will also review the request by the commerce ministry to allow a duty cut on the imports of auto parts under the proposed free trade agreements (FTAs) with Turkey and Thailand.
 
Turkey and Thailand have linked the finalisation of the proposed FTAs with drastic cuts in the import duty on auto parts.
 
“We decided at the time of the formulation of the new policy that greenfield concessions will be offered to new entrants only,” an official of the Ministry of Industries and Production told Dawn. “I don’t see any logic in changing this policy now,” he said, adding that the import duty cut on auto parts will send a negative signal to prospective investors.
 
According to the official, Pakistan has failed to benefit from FTAs so far. “We are encouraging imports through these preferential treaties and have compromised the revenue collection,” the official added.
 
Source: Dawn