ECC likely to approve incentive package for petrochemical unit

* Unit will be established at Port Qasim n Initial investment is of 1.470 billion euros
* Tariff protection to be provided by amending FTAs

By Sajid Chaudhry

ISLAMABAD: Economic Coordination Committee (ECC) of the Cabinet today (Tuesday) is likely to approve incentive package for a petrochemical unit to be established at Port Qasim with an investment of 1.470 billion euros, official sources told daily Times Monday.

ECC meeting, first of the new fiscal year 2008-09, to be presided over by the Prime Minister Syed Yousuf Raza Gilani is scheduled at Karachi, provincial capital of Province of Sindh.

According to the official sources, a private company in collaboration with foreign invertors has proposed the government for setting up of petrochemical unit at Karachi and has demanded incentives as well as tariff protection.

According to the official sources, the company would invest Euro 470 million in first phase for producing Polyethylene (PE), Polypropylene (PP). In the second phase an investment of Euro 1 billion would be made to establish production facility of Naphtha Crocks and few other products.

The company has requested the government of Pakistan to allow this new industry a tariff protection of 20 percent against the imports of similar items in Pakistan, along with duty and tax-free import of plant, machinery and allied items.

The investor has asked the government to ensure 20 percent import duty gap between raw materials imported by proposed unit and final products imported in to Pakistan so that a reasonable tariff protection is available to the investor.

The Proposal, that would be considered in the ECC meeting today, also include that tariff protection should also be provided by amending Free Trade Agreement or Preferential Trade Agreement signed by Pakistan.

ECC would be given up date on Pakistan’s economic indicators especially during the tenure of the present government (March-June) period. Other issues that would also be considered in the meeting include Rs 30 billion R&D support for the textile sector, sugar, cement and wheat and wheat flour prices situation and their availability in all parts of the country.

Provision of electricity to the export oriented industries according to their requirement would also be reviewed. ECC is also expected to devise a mechanism for providing subsidy on items announced in the budget 2008-09. It is also expected to accord approval to the investment proposals of the local companies intending to invest abroad to broaden their operations.

As against the past practices, ECC meetings and federal cabinet meetings from now onwards would be convened at all provincial capitals to create harmony among all federating units.

Dr. Ishrat-ul-Ibad, Governor Sindh and Qaim Ali Shah, Chief Minister Sindh would also participate in the ECC meeting on special invitation.

http://www.dailytimes.com.pk/default.asp?p..._1-7-2008_pg5_7

Company-specific incentives proposed
Jun 17th, 2008 | By Sindh Today | Category: Business

ISLAMABAD : The Ministry of Industries and Production has proposed, to the Economic Coordination Committee of the Cabinet, a range of incentives that are company-specific. This is reminiscent of black cabs and agriculture tractors scheme announced in the budget presented by the Shaukat Aziz government which did not provide level playing field to others in the industry.

The proposals have been duly approved by Prime Ministers Advisor on Industries Manzoor Wattoo and Secretary Shahab Khawaja. Sources told Business Recorder that Trans Polymers Limited (TPL), a subsidiary of Trans Polymers Holding Limited, of UK, a private investment company representing various stakeholders including risk insurance companies, financial institutions, EPC contractors, technology providers, material suppliers and O and M contractors along with the power, desalination plant and project management consultants, has proposed to set up a polyethylene (PE) plant at Port Qasim, Karachi.

According to the proposals, first plant would come into production in next three to four years. A Naphtha Cracker will be established at the site to produce Polypropylene (PP) and other monomers. TPL has provided financial structure of the project, the first phase of which covers the establishment of PE plant costing 470 million euro.

This would include the cost of plant and machinery, cryogenic facilities, pre-production cost and the cost on power generation, desalination plant and working capital etc with the debt equity ratio of 60:40. The next phase would include establishment of Naphtha Cracker and PP production facilities, costing around one billion euro.

TPL has indicated the name plate capacity for PE production as 310,000 tons annually, with the flexibility to go up to 400,000 tons, through further investment and 300,000 tons for PP.

At present, annual country demand of PE is around 270,000 tons, which is met through imports. PE is subject to 5 percent customs duty, which is in place since 2005-06. Industries Ministry is of the view that oil refineries in Pakistan produce around 0.8 million tons Naphtha (feedstock) which is exported at nominal value due to absence of cracking facilities in the country.

With the increasing use of polymers in the country, Pakistan spent over $1 billion on import of polymers last year. Almost all monomers/co-polymers are obtained from Naphtha through a cracking process which is highly expensive and technology-intensive. Besides the polymers, commonly known as BTX (benzene, toluene & xylene) are also obtained from Naphtha cracking process. BTX is extensively used in paint, textiles, dyes and a range of other chemical products.

TPL has proposed customs duty protection on PE at 20 percent for at least 3 years after coming into production, followed by 15 percent for 5 years and then 10 percent onward. As for PP, TPL has requested for duty protection of 15 percent for 5 years and 10 percent onwards, as it would come into production. It has also asked for duty/tax-free import of plant and machinery, catalysts and raw material ie ethylene.

The company has further demanded upward revision of import duties on PE and PP in the FTAs concluded so far, ie with SAFTA and Malaysia. The companys argument, sources said, is that most of the polymers and chemical industry in the country already enjoy minimum of 10 percentage point protection between the inputs and the output such as PVC (Poly Vinyl Chloride), HIPS (High Impact Polystyrene) and PET (Poly Ethylene Teraphthalate) Resin, etc.

There is apprehension that upward revision of tariff from the present 5 percent to 20 percent or 15 percent would lead to high cost of production in the sectors where PE is commonly used as packing material for textile, clothing, packing of fertilisers, food products, manufacturing of auto and household products which altogether cover 50 percent of total country consumption of PE.

Higher duty, as demanded by TPL on PE or PP, may therefore constrain the user industry, which may render the industry uncompetitive, the Ministry opined. Industries Ministry, which is the author of the proposals, is of the view that a package of incentives, including tax holidays, should be offered for such medium to high technology and high capital-intensive projects.

According to the package, the Ministry has recommended duty-free import of Ethylene, catalysts, additives, etc, used in the production of PE. Duty- and taxes-free import of new plant and machinery, including equipment and related components for the establishment of cryogenic storage facilities and infrastructure.

Upward revision of customs duty from 5 percent to 10 percent for 10 years from the commencement of production of PE and similar duty structure for PP once its local production starts was also part of the summary, sources added. The Ministry has further said that the protected duty of 10 percent will be withdrawn after three years of commencement of commercial production of polyethylene, if the demonstrable work on the second phase ie Naphtha Cracker and PP, is not commenced. Business Recorder, 2008

http://www.sindhtoday.net/business/5481.htm

Move to contain flour prices: 3,000MW to be added to national grid




By Shamim-ur-Rehman & Parvaiz Ishfaq Rana

KARACHI, July 1: The Economic Coordination Committee (ECC) on Tuesday decided to release wheat to deficient areas and approved import by the private sector to bring parity in prices.

Prime Minister Syed Yousuf Raza Gilani, who presided over the ECC meeting at the Governor’s House here, directed the ministry of food to take immediate measures in consultation with the provincial governments to streamline flour prices, especially in the wheat-deficient areas.

The chairman of the Federal Board of Revenue informed the committee that the total tax collection had crossed the Rs1,000 billion mark by June 30.

The meeting was assured by the minister for water and power and the Planning Commission’s deputy chairman that there would be no loadshedding after next year because the government had made arrangements to feed more than 3,000MW to the national grid.

Mr Gilani ordered the formation of a committee comprising the ministers for finance and water and power, the deputy chairman of the Planning Commission and the secretary for water and power to look into problems being faced by people.

The ECC was informed that the gap between imports and exports had narrowed down because of plugging of non-essential expenses and incentives.

It was told that skyrocketing prices of petroleum, edible oil and food items had shrunk fiscal space and led to inflationary trends.

The ECC approved the summary of an incentives package of the industries ministry for investment in petrochemical, naphtha cracker, polyethylene and polypropylene.
It was informed that there were sufficient stocks of sugar and pulses in the country.

According to sources, there were dissenting views among the ministers about a summary on duty drawback for textile exports, presented by Textile Industry Minister Ahmed Mukhtar, which was based on export volume and slabs.

On the intervention of the prime minister, a decision on the issue was deferred for 15 days.

Prime Minister Gilani sought a list of small and medium enterprises in the textile industry, which were believed to be about 98 per cent of the sector.

There was a proposal to extend research and development (R&D) support to textile exports for 90 days or till a decision was reached on the formula of duty drawback.

The value-added textile sector has opposed the slab-based formula for giving duty drawback on export volume, terming it discriminatory and saying that it would destroy small and medium manufacturers-cum-exporters.

The sources said the ECC also allowed R&D claims to be acceptable as per the commerce ministry’s SRO of 2005, which gave the last date as June 30.

The State Bank had changed the date to June 25 through a circular, which had created resentment among textile exporters.

The ECC decided to constitute a new committee to formulate the duty drawback formula for textile exports, the sources said.

It approved, in principle, the import of wheat through Gwadar Port if the port authorities gave an assurance that facilities existed for handling a large quantity of imported wheat.

http://www.dawn.com/2008/07/02/top1.htm

Company-specific incentives proposed
MUSHTAQ GHUMMAN
ISLAMABAD (June 18 2008): The Ministry of Industries and Production has proposed, to the Economic Coordination Committee of the Cabinet, a range of incentives that are company-specific. This is reminiscent of 'black cabs' and agriculture tractors scheme announced in the budget presented by the Shaukat Aziz government which did not provide level playing field to others in the industry.

The proposals have been duly approved by Prime Minister's Advisor on Industries Manzoor Wattoo and Secretary Shahab Khawaja. Sources told Business Recorder that Trans Polymers Limited (TPL), a subsidiary of Trans Polymers Holding Limited, of UK, a private investment company representing various stakeholders including risk insurance companies, financial institutions, EPC contractors, technology providers, material suppliers and O and M contractors along with the power, desalination plant and project management consultants, has proposed to set up a polyethylene (PE) plant at Port Qasim, Karachi.

According to the proposals, first plant would come into production in next three to four years. A Naphtha Cracker will be established at the site to produce Polypropylene (PP) and other monomers. TPL has provided financial structure of the project, the first phase of which covers the establishment of PE plant costing 470 million euro.

This would include the cost of plant and machinery, cryogenic facilities, pre-production cost and the cost on power generation, desalination plant and working capital etc with the debt equity ratio of 60:40. The next phase would include establishment of Naphtha Cracker and PP production facilities, costing around one billion euro.

TPL has indicated the name plate capacity for PE production as 310,000 tons annually, with the flexibility to go up to 400,000 tons, through further investment and 300,000 tons for PP.

At present, annual country demand of PE is around 270,000 tons, which is met through imports. PE is subject to 5 percent customs duty, which is in place since 2005-06. Industries Ministry is of the view that oil refineries in Pakistan produce around 0.8 million tons Naphtha (feedstock) which is exported at nominal value due to absence of cracking facilities in the country.

With the increasing use of polymers in the country, Pakistan spent over $1 billion on import of polymers last year. Almost all monomers/co-polymers are obtained from Naphtha through a cracking process which is highly expensive and technology-intensive. Besides the polymers, commonly known as BTX (benzene, toluene & xylene) are also obtained from Naphtha cracking process. BTX is extensively used in paint, textiles, dyes and a range of other chemical products.

TPL has proposed customs duty protection on PE at 20 percent for at least 3 years after coming into production, followed by 15 percent for 5 years and then 10 percent onward. As for PP, TPL has requested for duty protection of 15 percent for 5 years and 10 percent onwards, as it would come into production. It has also asked for duty/tax-free import of plant and machinery, catalysts and raw material ie ethylene.

The company has further demanded upward revision of import duties on PE and PP in the FTA's concluded so far, ie with SAFTA and Malaysia. The company's argument, sources said, is that most of the polymers and chemical industry in the country already enjoy minimum of 10 percentage point protection between the inputs and the output such as PVC (Poly Vinyl Chloride), HIPS (High Impact Polystyrene) and PET (Poly Ethylene Teraphthalate) Resin, etc.

There is apprehension that upward revision of tariff from the present 5 percent to 20 percent or 15 percent would lead to high cost of production in the sectors where PE is commonly used as packing material for textile, clothing, packing of fertilisers, food products, manufacturing of auto and household products which altogether cover 50 percent of total country consumption of PE.

Higher duty, as demanded by TPL on PE or PP, may therefore constrain the user industry, which may render the industry uncompetitive, the Ministry opined. Industries Ministry, which is the author of the proposals, is of the view that a package of incentives, including tax holidays, should be offered for such medium to high technology and high capital-intensive projects.

According to the package, the Ministry has recommended duty-free import of Ethylene, catalysts, additives, etc, used in the production of PE. Duty- and taxes-free import of new plant and machinery, including equipment and related components for the establishment of cryogenic storage facilities and infrastructure.

Upward revision of customs duty from 5 percent to 10 percent for 10 years from the commencement of production of PE and similar duty structure for PP once its local production starts was also part of the summary, sources added. The Ministry has further said that the protected duty of 10 percent will be withdrawn after three years of commencement of commercial production of polyethylene, if the demonstrable work on the second phase ie Naphtha Cracker and PP, is not commenced.

http://www.brecorder.com/index.php?id=7571...m=&supDate=

Pakistan

With a population of around 175m, which is growing annually at 2.2%, Pakistan offers the second largest domestic market in South Asia after India. Figures from the Asian Development Bank show that per capita income had risen fairly steadily in the previous two decades to reach Pakistani Rupee26 231 (US$475) in 2002.

However, economists point out that Pakistan lags behind countries with comparable per capita income on most social indicators. For instance, the literacy level in Pakistan is only 44% compared with an average 64% for comparable countries. Poverty is a major issue as around 33% of the population is estimated to be poor. Importantly, the differences in per capita income across various regions in Pakistan have persisted or widened over the years, says the World Bank.

But the reforms initiated by President Pervez Musharraf after he came to power through a military coup in October 1999 have earned kudos for the country.

According to Moody's Investors Service, a positive turnaround has taken place in the Pakistani economy over the past five years. The agency assigned a B2 rating to Pakistan's 5-year Eurobond issue in early February. This issue marks the country's return to the capital market since it restructured all previous eurobonds and floating rate notes at the insistence of creditors in December 1999.

Moody's also pointed out that the economy had responded positively to macroeconomic reform and stabilisation. The country had seen an improvement in its liquidity position thanks to ample external assistance, faster export growth and a pickup in overseas workers' remittances during the past two years.

But Pakistan is also besieged by a number of structural problems. Moody's says that public debt is still quite high and living standards are relatively low when compared with other countries in the same rating category as Pakistan. Even after the debt relief obtained in recent years, interest payments and defence spending consume over half of government revenue, restricting its ability to redress persistent poverty and underdevelopment.

These concerns have been echoed by many other international agencies. Last year, the International Monetary Fund stressed that further reforms were needed to improve governance and reduce corruption, including the enactment of effective anti-money laundering and bankruptcy legislation.

Other worries include the political future of the country following repeated assassination attempts on the president, two of which took place in December 2003.

A stable political environment is an essential prerequisite not only for the economy but also to sustain peaceful relations between Pakistan and archenemy India. There are plenty of areas, including chemicals, where the two countries can work together.

Normal relations between Pakistan and India would go a long way towards boosting bilateral trade currently estimated at around US$200m, although informal trade is estimated at US$1.5-2.0bn. Much of the trade is said to take place indirectly through third countries such as Dubai. Informal exports from India include tyres, chemicals, machinery, cement and tea while synthetic fibre, chemicals and food items figure on the Pakistani export list.

Some economists have also cautioned that claims of a full recovery of the Pakistani economy could be a little premature. Their main concern is whether Pakistan will be able to cope with a poor agricultural season and/or a drop in textile exports post-2005 when textile quotas are phased out. Agriculture accounted for nearly 25% of GDP in 2002 while cotton yarn, thread and cloth accounted for around 22% of total exports.

Turning to petrochemicals, despite the promise of a growing domestic market the industry has yet to take off in a big way. Requirements for most of the products are currently met through imports. Polyvinyl chloride (PVC), purified terephthalic acid (PTA), polystyrene (PS) and polyethylene terephthalate (PET) are among the major petrochemicals that are produced locally.

Sohail Amin of SaSa & SaSa estimates that annual demand for polyethylene (PE), polypropylene (PP) and PVC is 230 000 tonne, 160 000 tonne and 65 000-70 000 tonne respectively. A second industry source believes that the market for all of these products totals 500 000-600 000 tonne/year.

PVC demand is met by local producer Engro Asahi, a joint venture between Engro Chemical, Asahi Glass and Mitsubishi Chemical of Japan. The company operates a 100 000 tonne/year plant near Karachi.

In PE and PP, major market participants include Sabic, Equate, PCC Iran, ExxonMobil and Reliance Industries. Reliance is active mainly in PP as direct imports of only this polymer are allowed from India. Imports of other polymers have to be routed through a third country. There is talk that Pakistan will soon allow direct imports of PE, although it is not clear when this will take place.

Amin points out that the polymer trade is dominated by traders who account for nearly 70% of the imports. Only major end-users in the raffia sector prefer to import directly. And traders are said to be essential to reach local processors. Many foreign companies have reportedly failed in their endeavors to establish a direct link.

The polymer processing and import business is concentrated in and around Lahore and Karachi. There is a small requirement from Baluchistan and Peshawar. Small processors located in this area also ship finished products further north to as far as Tashkent in Uzbekistan.

Polymer imports currently attract a basic import duty of 20%. Traders importing material also pay a sales tax of 15% and an advance income tax of 6%. Clearing and handling charges amount to around 8%.

Amin says that Pakistan is bound to further reduce the basic duty. The country currently has three slabs for customs duties - 20%, 10% and 5%. But the government has applied to the WTO (World Trade Organization) to change the slabs to 15%, 10% and 5%.

Polymer demand has been stagnant for the past few years mainly because Pakistan lost the Afghani market, points out Amin. Previously, a small volume of polymers was imported into Pakistan for further shipment to Afghanistan and even Iraq. But now Iranian material is said to reach Afghanistan over the land border.

But Amin expects growth to pick up this year given the country's robust economic performance, a decline in interest rates, a booming stock market and a pick-up in construction activity. Growth in PP is likely to be faster than PE as the government has started advocating the use of PP woven sacks for packaging of rice and wheat. The government has now made it mandatory for 40% of rice and wheat packaging to be in PP woven sacks, up from the earlier requirement of 20%. Cement is currently packed in paper bags but this industry is likely to move to woven sacks in the future.

Pakistan's dependence on imports has raised interest in some quarters for a cracker project. National Refinery Ltd (NRL) and Pak Arab Refinery (Parco) had commissioned a study for a cracker complex last year that would be mainly based on naphtha obtained from local refineries (ACN 20 October 2003). Besides PE, PP and monoethylene glycol, the project could include PVC, PS and chloralkali. No time frame has been set for the for the project, the viability of which is in question given the small domestic market and the ambitious plans of Iran, Saudi Arabia and also India.

'A cracker doesn't make sense given the cracker and polymer expansion plans in the Middle East. After all, it takes only around two and a half days to ship product from Iran to Pakistan,' points out Amin.

But projects that are likely to go ahead in Pakistan include Pakistan PTA's plan to debottleneck its 400 000 tonne/year PTA plant by 25 000 tonne/year by 2005. A PTA project makes sense given the expansions that polyester companies have planned. One of them is Dewan Salman Fibre, which has identified a 70 000 tonne/year polyester project at Hattar in northwestern Pakistan for commissioning in 2005.

http://www.icis.com/Articles/2004/02/13/55...he-shadows.html

This is all nonesence, Indonesia, Malaysia, Vietnam and Thailand are all ahead of Pakistan and are much more stable markets why would anyone want to invest in Pakistan when even the Pakistanis themselves are pulling out.

Pakistan is going backwards not forward.

Everything takes time Aziqball. Be patient.

Congratz to Pakistan for getting many good deals.

Read the post it says its "likely to approve" nothing has gone through

It was approved the next day, now any company can go forward with the Naphtha cracker plant will get the incentives.