ENGRO FIGHTS FOR TARIFF DIFFERENTIAL
POLY VINYL CHLORIDE (PVC) AND VINYL CHLORIDE MONOMER (VCM)
From YOUSAF RAFIQ
SPECIAL CORRESPONDENT, ISLAMABAD
Nov 22 - 28, 1999
M/s Engro Asahi Polymer and Chemicals Limited, have represented that in the recently announced Tariff Reform the Government has changed the tariff structure on PVC and VCM to 25 percent and 10 percent respectively. In other words the differential between the two has been reduced to 15 percent. Prior to starting implementation of their PVC project, they had requested the Government for assurance of 20 percent differential between PVC and VCM for a period of 5 years from commencement of production. The government had consented to their request, which subsequently was reconfirmed by the Central Board of Revenue. The sponsors have requested to rectify the situation urgently as any delay would lead to problems with their lenders like International Finance Corporation who had financed the project on the condition that the 20 percent differential will be maintained for a period of 5 years.
The Board of Investment in its Board meetings on February 7, 1995 and August 27, 1996 approved the following package for the manufacturing of PVC. (i) A minimum net tariff protection of 20 percent between PVC and VCM will be maintained for at least 5 years after start of commercial production of PVC or until such time that VCM is produced locally, whichever is earlier. (ii) Customs duties on the imported machinery shall be levied at the rate of 10 percent. No sales tax will be levied on locally fabricated as well as imported machinery. The Central Board of Revenue will issue necessary SROs to cover the incentive of 10 percent customs duty on imported machinery for PVC/Petro Chemical Projects. (iii) Sales tax pain on imported as well as locally fabricated machinery, will be refundable within a period of 30 to 60 days.
The Board of Investment has proposed that as committed by the government earlier, a minimum net tariff protection of 20 percent between PVC and VCM be maintained for at least 5 years after start of commercial production of PVC or until such time that VCM is produced locally, whichever is earlier.
According to the sponsors, "it is possible that the concerned authority who has made the tariff changes was not aware of the commitment made by the Govt for our project and we would request you to take up this matter with the concerned Authoritry to rectify the situation and maintain the differential at 20 percent." The National Tariff Commission on its part has said that they were not consulted by any of the parties when the investment was being made by the Sponsors. "The plant has not yet come into production. If BOI and/or M/s Engro feel that the revision of tariff has adversely affected the viability of their project, their case could be examined under the laid down procedure of NTC and in that case they have to provide requisite data pertaining to their project on prescribed proforma along with fee."
Engro Asahi Polymer and Chemicals Limited is a joint venture between Engro Chemicals Pakistan Limited (50 percent) and two leading Japanese companies M/s Asahi Glass Company (30 percent) and Mitsubishi Corporation (20 percent). It may be mentioned here that it is for the
first time that Asahi Glass has invested in Pakistan and this is also the largest Japanese equity investment in Pakistan. This is the second joint venture of Engro Chemicals, the first being Engro Paktank Terminal Limited a 50-50 joint venture with Pakhoed of the Netherlands. Engro has been able to attract the top companies of the world to invest in Pakistan and is also committed to expand in downstream petrochemical project for which it has already acquired 350 acres of land at Port Qasim.
The Company is in the process of putting up a world class plant to produce PVC resin with an annual capacity of 100,000 MT in the Port Qasim area. The total estimated investment in the project is US $83 million (over Rs 4 billion) including the equity component of US $37 million. The foreign exchange component of the project is approximately US $19 million that will be met almost entirely by foreign equity and loans from the International Finance Corporation (IFC) of the World Bank group. Therefore hardly any foreign exchange of the Government of Pakistan has been used to put up the project. As compared to this, at full production, the company will save approximately US $18 million in foreign exchange every year. The project will provide employment to about 140 persons directly and hundreds more indirectly. Commercial production is expected in December 1999. Further down the Company plans to double its capacity to enter into the export market and also has plans to backward integrate into production of VCM, the main raw material for producing PVC.