June 09 - 15, 2008

The domestic PSF industry has achieved world class conversion efficiencies and the import tariff of 6.5% only is aimed at to mitigate the impact of incremental cost of doing business in Pakistan (factors beyond the control of the domestic manufacturers) vs other regional manufacturers.

The incremental cost of doing business in Pakistan can be attributed to poor infrastructure (which translates into higher logistics cost), costly port charges on liquid chemicals and unreliable power supply, under developed vendor industry for engineering goods, high labor cost due to low productivity, underdeveloped upstream chemical industry necessitating import of chemicals, requiring high financial costs and additional freight charges, multiple taxes and the relatively higher cost of borrowing. The bare minimum import tariff of 6.5% only serves to provide a level playing field as opposed to other regional manufacturers.

Prices of PSF in Pakistan are at lower end in the region as average domestic prices of PSF in the calendar year 2007 were Rs 95.6/kg in India, Rs 92.3/kg in China, and in Pakistan at Rs 90.4/kg. It is a fact that PSF industries of each of these countries are protected by similar levels of import tariff (no zero tariff in any of these countries). And additionally, exports in Pakistan are actually zero rated as the domestic textile downstream enjoys the facility of DTRE through the entire chain. This facility (available for PSF users as well) allows exporters to import their raw materials duty free.

Insofar as the much trumpeted consumption of Man Made Fiber (MMF) is concerned, the consumption in Pakistan is lower in comparison to developed nations however very much in line with other developing nations. And the reasons for lower consumption of MMF in Pakistan can be attributed to low demand for Industrial textiles and non-textiles applications (e.g. auto industry, geo textiles etc.), lack of marketing and technical skills in the textile downstream, lack of machinery (in the textile downstream) for high end products, perception of Pakistan's textile sector as a producer of low end products and so on. The domestic PSF industry has in the past introduced numerous specialty variants of PSF however the textile downstream was simply not equipped to successfully produce market specialty products which would utilize these variants. Furthermore it is important to note that PSF per capita mill consumption of Pakistan is actually higher than India's 0.64 kgs at 3.12 kg.

The domestic textile sector must recognize the fact that there is a myriad of real issues and problems that they need to address in order to improve the industry's performance as opposed to relying on the Government to bail them out every year. Issues of scale, lack of technical and marketing skills and knowledge, lack of professional management and systems and processes, lack of continuous efficiency improvement initiatives pertaining to energy consumption, wastages etc. are preventing them to compete effectively on the global stage. They must also recognize the fact that survival of entire chain depends on the availability of back end raw materials. Domestic PSF industry is capable of producing up to 3.9 million bales cotton and is responsible for foreign exchange savings for the country of up to US$250 million. The survival of the entire domestic textile chain depends heavily on survival of each member of the chain.

An investment-friendly and progressive tariff regime was provided to Pakistan PTA Limited at the time of establishment with the expressed purpose of compensating the heavy infrastructure costs that company had to bear at the time of plant setup. One company had invested US $ 490 million which includes investment in the plant, US$ 35 million in a raw water pipeline, US$ 45 million in duties on plant & machinery, US$ 15 million in electric connectivity, US$ 44 million in a high tech effluent treatment plant and investment in highly expensive third party contracts to set up a chemical jetty and industrial gases plant which will cost the company approximately US$ 250 million in 15 years. Most of these costs are specific to Pakistan due to lack of the infrastructure available hence increasing the cost of plant set up as compared to other countries.

These heavy infrastructure costs have clearly negated any tariff concessions provided to the company. Capital expenditure on non-operational infrastructure and facilities has adversely impacted the company with accumulated loss at Rs 9.32 billion, as on 31 December 2007. The original equity of Rs 15.1 billion has now been reduced to Rs 5.83 billion.

It is suggested that the 'zero-rated' impact of PTA duty in 2005 by reimbursing the PTA consumer instead of the duty drawback regime which existed prior to 2005. Therefore in either case, there is no negative impact of the duty component of PTA on Pakistan's exports. In addition, the prices of PTA in Pakistan are benchmarked with international price indexes such as ICIS-LOR, Platts, etc., ensuring prices in Pakistan are determined by market forces and at par with the international prices giving liberty to the customer to switch to imported products if desired.

Both India and China, despite their scale of operations, are still providing protection to their PTA industry, which currently stands at 10% in India and 6.5% in China. Despite this protection, the textile industry for these countries continues to boom indicating other factors contributing to their prosperity.