INTERVIEW: 'HEAVY EXCISE DUTY ENCOURAGES SALE OF SUBSTANDARD LUBRICANTS'
TARIQ AHMED SAEEDI (firstname.lastname@example.org)
Jan 25 - 31, 2010
Removal of federal excise duty on lubricants can not only discourage sale of spurious and smuggled lubricants in the market, but it can also increase tax revenue of the government by pushing up sales from the legal oil sector, says a top businessman representing leading trade associations in the country.
It may be surprising to many but an accepted fact for the oil industry that half of lubricants' demand in the country is met through imported, smuggled, and substandard lubricants used to run industrial machineries, locomotive, automotive, etc.
"Right now, parallel lubricant sector meets almost 50 percent local demand while only rest is met by local lubricant industry," reveals chairman all Pakistan lubricant manufacturers association. Substandard oil is sold from open pots and in counterfeited cans. Open oil is low in quality but lawful to be sold.
Mian Zahid Hussain says present demand in the country is about four lac (0.4 million) tons per annum and 'we are selling approximately two lac tons'. There is no need of rocket science to calculate the difference, he adds, 'and that difference is cashed by substandard, imported, and smuggled oil. 'It is very difficult to break up shares exactly.' At present, association comprises of 40 members manufacturing lubricants-oil required for keeping machines operational. Non-members are not more than 10, he says.
Lubricant industry of Pakistan is complex comprising of processors who process lube base oil in to lubricant and package it, as well as dealers and distributors of imported, smuggled, and low quality lubricants. Local processors make lubricants by processing lube base and adding in to it additives. They get lube base from National Oil Refinery as well as can import it from outside the country. Lubricants can also be imported in the country.
He is of the view in terms of quality imported and local made lubricants are equivalent. But, it is the unfair practice of under invoicing that eats into market share of local brands, he argues. Price of local lubricants is high as compared to imported and other substitutes. There is a difference of Rs40 per litre in prices of local and imported lubricant, and this difference goes up to Rs60 in comparison to per liter price of substandard lubricant. We have to pay Rs45 per liter as different taxes including income and excise duty, censures Zahid Hussain, who is group chief executive of Karachi Lubricants (Pvt.) Ltd., Ashraf Lubricants (Pvt.) Ltd., Eastern Petroleum (Pvt.) Ltd., and KenLubes International. His company has no international operation, but he plans to expand the business to overseas.
He says removal of excise duty can bring down price of local lubricant by Rs15 per liter, which he says is the federal excise duty. 'Government may not loose on this account since reduction in price of local lubricant would increase its sales in the market, thereby enhancing sales tax revenue.' Illegal operators have the price advantage because they do not pay tax.
Substandard lubricants are relatively inexpensive but damage the efficacy of machines in which they are used. Often, there are media reports about crackdown on spurious lubricant facilities making substandard lubricants. However, it seems that sale of substandard oil continues unabated. Lubricant industry is deregulated and sometimes anti-market forces exploit the freedom of price determination. They put a match to prices even when cost is not high. Yes, prices are increased sometimes in contravention of market behaviors, he agrees.
Pakistan can become exporting country of lubricants because of its geostrategic location. The Arabian Sea gives a way to explore big markets in African nations, which have huge requirements of lubricants. In shipping industry lays profitable business for lubricant makers. Revenues from sale of lubricants in the international market can offset cost of imported crude or lube base. Lube base form 90 percent of lubricant. Foreign buyers from especially African countries prefer oil plants in UAE as suppliers of lubricants because of cost effectiveness, and advantage of sea-borne transportations from Dubai port. 'Buyers do not come to a country only for buying and there must be a consoling atmosphere that informs buying decision.' Raw materials in these plants are also imported from across the border. He says Africa is a big market for lubricants and Pakistan can gain a share in the international lubricants business.
Local industrial production capacity of lubricants is underutilized due to market demands being met through other sources. 'We run 60 to 70 percent of production capacity,' he said. If demand increases, the investors would come to invest in plants. Full capacity utilization can augment volume. According to him, local lubricant industry is of Rs10 billion. One facility costs Rs200-250 million, he states saying there has been a total investment of over Rs10 billion in locally incorporated lubricant companies. NRL is the sole supplier of lube base. It has production capacity that is sufficient to meet current local demand.
International associations certify the quality of local lubricants. According to the chairman, quality of lubricant is standardized world over because of similarity in technology utilization. There are testing laboratories and quality approver authorities recognized worldwide. 'Our lubricants and makers are recognized internationally."
Businesspersons find bureaucratic hurdles in setting up plants in the country, he says. His company plans to set up lubricant plant in Dubai. The market can give an easy access to African market.
Government should phase out excise duty to reduce charm of smuggled oil business and to curb sale of substandard lubricant. We propose the government to take our supports and inform us about tax evading elements and we are ready to help the government, he said. 'Prices of quality local lubricant cannot come down until government takes fiscal measure to bring cost of quality oil production down, which is possible only by tax realignment.'
TOYOTA TO RECALL 2.3 MILLION VEHICLES IN US
NEW YORK: Toyota will recall 2.3 million vehicles in the US to fix defective accelerator pedals that can become stuck, the latest in a series of quality problems that have haunted the world's biggest automaker.
The Japanese company's US division said in a statement that the recall was to correct accelerator pedals on specific Toyota models that become worn and then in some cases get lodged in a partially depressed position.
The move comes just months after Toyota Motor Sales, USA Inc, recalled about 4.2 million Toyota and Lexus vehicles - its largest-ever measure - to reduce the risk of gas pedals getting stuck under unsecured or improperly placed floor mats and causing sudden acceleration.
With a series of massive safety recalls, industry observers said Toyota's sales in the US market could be hit, especially because the automaker had expanded its presence on the back of a solid reputation for quality. "We cannot avoid damage to our corporate image," a senior Toyota official was quoted as saying by Kyodo news agency.
Subject to the recall are the 2009-2010 RAV4, 2009-2010 Corolla, 2009-2010 Matrix, 2005-2010 Avalon, 2007-2010 Camry, 2010 Highlander, 2007-2010 Tundra and the 2008-2010 Sequoia, Toyota said last week.
Of the 2.3 million vehicles being recalled, about 1.7 million are subject to both recalls.
Toyota overtook US rival GM in 2008 as the world's largest automaker.