PAKISTAN'S DEVELOPMENT LINKED WITH INDUSTRY'S UPLIFT
The country's industrial sector is facing challenges from WTO, China and India
BY ZAHID ANWAR
Chairman, FPCCI Standing Committee on
Industrial Promotion & Facilitation
Mar 13 - 19, 2006
Importance of industry in a country is an accepted reality. When this sector suffers, whole nation suffers. No nation can even think of progress and development without developing industry. This sector can be developed by hard work of industrialists and friendly policies of the government. Every one knows that Pakistan inherited few industrial units. Sheer dedication of the nation to industrialize the country, particularly that of industrialists was exemplary. They started from a scratch and now Pakistan enjoys a certain level of development in this sector. Pakistan inherited many handicaps in the field of industry - lack of sources, lack of infrastructure and lack of skilled labour (these all stil1 persist on).
In spite of all these difficulties and hardships industrialists in particular and the nation in general showed the determination and resolution to develop this sector. The level, at which their efforts can bring forth, that, is achieved. The most crucial factors i.e. patronage of government in this regard is at very low ebb rather sometimes it seems it is demoralizing industrialists, demolishing industry and makes the nation to suffer. Policy of nationalization, in the decade of 70's is bright example of unconcerned attitude of the government.
Pakistan has enjoyed three types of governments; democratic, martial laws and hybrid of the two aforesaid. ln all these governments the process of discouraging, punishing and demolishing industry sector is constant and a continuous feature. Even after passing golden jubilee, the government has failed to visualize the importance of the sector and any solid framework even for the survival of the sector is yet to be made. Notions of uncertainty and inconsistency of the policies are nurtured and made the part of conscious and unconscious in the minds of persons who join this sector. There, it seems no end of this perspective. This is dangerous and demoralizing situation for the nation and for all the well wishers of the country..
Bad policies of the past may be neglected, although it is tough task, if current policies are to mend the losses. But the continuation of such policies keeps on demoralizing the industrialist. Power generation policies of the government are best example in this regard to show the indifference of the government.
Nation generally and industrialists particularly started to recover after the shocks and wounds of nationalization, when another crises struck that was power crises. This, very basic raw material, life line of industry became scarce. Load-shedding became the order of the day. In this situation prosperity of the sector became out of question. Survival of the sector even became a remote possibility.
When Nawaz Sharif came into power he tried his best to attract foreign investment in the country to develop this most vital sector. His efforts were not fruitful because of power crises in the country. It was the biggest hurdle in any sort of development in this regard. Pakistan-born, foreign investors with sheer love for their place of birth, could not motivate themselves in this bleak situation and who dared to do; are portrayed by Mr Hamid (an important member of Zia's team) in his book "Qurbani Ka Bakra". The situation was not very much different for those who were already in the business. Load shedding just not disturbed industry but domestic users also suffered. Load shedding ended for domestic users - this was not due to improvement in production of power but by the closure of many units of industry.
Private sector started to import electricity generators powered by diesel oil and industrialists started to build in-house power plants to get rid of blackmailing of WAPDA and huge wastage of sources. A lot of foreign exchange was spent on the import of these units. This cost was not sufficient when one compares advantages and benefits are associated with it.
In Banazir's era, a revolutionary idea of IPP was given to nation. A power policy issued; the salient features of this policy were as follow:
The investors were free to propose the site and opt for the technology and fuel.
Investors could propose projects based on hydro, or other renewable and / or non-conventional sources of energy.
• The power was to be purchased by WAPDA / KESC under the long-term contracts covering the concession period.
• The Policy offered an up-front Bulk Power Tariff. Thermal projects were to be implemented on Built-Own-Operate (I300) model Availability of draft security agreements.
• Assurance for convertibility of Rupees and availability of foreign exchange to cover necessary expenses of the projects.
• PSEDF could provide up to 40% of the capital costs of the project.
• Removal / reform of Section 13 of 1947 Foreign Exchange Regulation Act.
• Exemption from corporate income tax on income earned from sale of electricity.
• Exemption from Sales Tax, Iqra, Flood Relief and other surcharges.
• Exemption from custom duties on the import of plant and equipment.
• Exemption from Income Tax in Pakistan for foreign lenders to such companies
At that point it seemed a great blessing. It was the time when industrialists thought now it would be smooth flow for the sector. It was anticipated that at least the importance of the sector is visualized by the government. Work started with zeal and zest. Private sector was encouraged to invest in power sector. Industrialists, who were black mailed by the monopoly of WAPDA and continuously tormented by the inefficiency of WAPDA, were quite pleased. An example of this black mailing is, whenever a transformer of an industry seizes to work, it is believed it all happened because of negligence or improper use by the industry men; nothing is supposed otherwise. Moreover, unscheduled load-shedding, frequent power failures and supply of excessive or dropped voltages was a routine matter. This results in huge loss of time, raw material and sensitive and costly equipment. In addition to this, usually, there was no redress for these grievances.
Shifting from diesel engines to furnace engines was not an easy task for the industrial sector; it is done because no other option was available. Thus all foreign exchange spent on the purchase of diesel engine generators, wasted. This action just not only shocked industrialists but also drained blood from the very weak economical body of the nation. Industry once again found itself in doldrums. Profound and multiplied magnitude of problems was once again there to be faced by the industry sector. This shifting was continued for the sake of survival. Furnace oil powered engines were imported to run the business of power generation. IPPs continued to produce electricity in spite of all difficulties. Another change of stance was quite anticipated by the IPPs. In 1998 the government once again issued power policy; the very important features which show government's irrational and miserable attitude towards IPPs were as follow:
- 90% First Year Allowance (FYA), for hydel and indigenous coal base projects the cost of plant, machinery and equipment.
- No respite in customs duties, sales tax, Iqra, flood relief and other surcharges as well as Import License Fees.
There was still a good point in this development that price of furnace oil was very low. The cost of production of electricity produced in-house till low as compared to the cost of electricity bought from WAPDA. According to policy, IPPs were exempted from tax. Development persisted on even in the presence of hardships and difficulties. To intensify the hardships and difficulties government started to raise the prices of furnace oil. In start of the era of furnace oil it costs almost Rs 2.50 per liter which increased about Rs 25 per liter. This titanic multitude of increased cost of furnace oil forced this sector to anticipate for elimination of this fraction of industry and gradually the sector.
In 2002 another power policy was issued when the government came forward to plant the idea of natural gas powered generators. The killing instinct of the government was quite obvious for the IPPs who use furnace oil in their power plants in this policy. This is depicted in the following feature of the policy: -
• To enhance share of Renewable Energy Sources, hydel and fuels other then oilbased fuels, full levy of income tax on oil-fired power projects.
For a moment if one conceives the idea of natural gas powered generators and shifts now, from furnace oil to natural gas and discards all the furnace oil powered generators i.e. just like throwing precious foreign exchange in dustbin. Will our scarce foreign exchange reserves bear the brunt of this shift? Even then, knowing, we have very limited sources of natural gas. At present situation, continuous and full supply of gas is not possible especially in the months of winter, which cause lot of losses to industrialists and there is no redress for the grievances. It clearly indicates the scarcity of this fuel. Further pressure on this limited source certainly will destroy the productivity of persons who are already using this fuel. It is estimated; the reserves would be not sufficient to meet the needs of the country after the year 2010.
What should happen at that time? Once again it would be a new policy. All system of natural gas powered generators should be discarded at that time. Nation will once again start its journey from zero. If this system continues; when will nation reach the age of adulthood? Now, our industrial sector is facing the challenges of WTO, China and India. This competition is necessary and for this, survival of the industry in Pakistan is necessary. Only friendly and consistent policies of the government can assure the survival, growth and development of industrial sector. This inconsistent and unanticipated policy is just like WMD (weapons of mass destruction). The target of this WMD is no one, except, the nation of Pakistan.