Business

Automotive policy: Exclusive incentives for new players blocked

ECC puts off decision, issues directives for more consultation at ministerial level

Shahbaz Rana March 07, 2016

ECC puts off decision, issues directives for more consultation at ministerial level. PHOTO: REUTERS

ISLAMABAD:

The government’s plan to bring a European car manufacturer for breaking the monopoly of existing car assemblers seems to be fizzling out as a nexus of assemblers and bureaucrats has again blocked preferential incentives for new foreign players.

Without getting preferential treatment, no new foreign manufacturer - Volkswagen or Audi - can establish footprints in Pakistan due to a strong network of the three existing assemblers, according to government officials seeking introduction of a new brand in Pakistan.

Auto industry enjoys unequaled run of success

The Ministry of Industries and Production on Monday tabled a revised automotive development policy for approval of the Economic Coordination Committee (ECC), again offering the existing assemblers similar tax incentives that the government wants to give to new investors.

However, a last minute intervention by Water and Power Minister Khawaja Asif stopped the ECC from approving the summary. Asif pointed out that approval of the policy should be deferred as Board of Investment Chairman Miftah Ismail was not present in the meeting.

Ismail and Asif were members of the committee that drafted the revised policy. However, the Ministry of Industry’s summary was different from what had been agreed at the committee level, said a top government functionary, prompting Asif to call for putting off a decision.

ECC Chairman Finance Minister Ishaq Dar agreed to Asif’s objection and deferred approval of the policy. “The ECC directed that more consultations on the auto policy at the inter-ministerial level be carried out,” said the finance ministry.

It was the second time in the last seven months that the ECC could not take the decision.

Trick

In October 2013, the ECC constituted a committee to propose the new automobile policy. However, even after two and a half years of work, the document still carries a bonanza of huge benefits for the existing players. In August 2015, the ECC also deferred the policy approval and asked Khawaja Asif’s committee to go back to the drawing board.

During deliberations,the committee proposed to delete Category C that offered same tax benefits to the existing players. It also agreed that the definition of Category A that offers incentives to the new manufacturers should be slightly revised and words “new brand” should be added to make sure that the existing players did not get the tax benefits.

However, contrary to the understanding reached at Khawaja Asif committee level, the Ministry of Industry’s summary implicitly offered similar benefits to the existing players. Its revised definition of Greenfield investment reads, “Greenfield is defined as the construction of new and independent automotive assembly and manufacturing facilities by an investor for the production of vehicles, not already being manufactured/ assembled in Pakistan”.

By this definition, the assembly of Camry Toyota will be treated as new investment, which will be excluded if the word “new brand” is inserted in the Greenfield definition, a senior government functionary told The Express Tribune.

In its new summary, the Ministry of Industries also excluded the word “new” from the Greenfield definition, making sure that the existing players also get similar benefits, said the official.

The delay in approval of the new policy is also going to the benefit of the existing assemblers.

“We will make sure that the new policy is approved within this month, which will also offer a level playing field to the investors”, said BoI Chairman Miftah Ismail, while talking to The Express Tribune. He said the new policy would also support the establishment of new foreign brands in Pakistan.

Auto industry expects up to $5 billion investment

However, the new investment policy under the Ministry of Industries seems to be a nuisance for new investors. Germany’s biggest and the world’s second largest automobile manufacturer in terms of market share, Volkswagen wants to do business in Pakistan, provided a competitive business environment is available.

The FBR has also opposed extending any incentive to existing players. “The existing manufacturers have availed concessions for two decades and extending further benefits to them will be of no use,” said the FBR. It also questioned the technological advancements by the existing assemblers.

Published in The Express Tribune, March 8^th, 2016.

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COMMENTS (18)

Sarfraz | 8 years ago | Reply It's a nice step towards success, why only the established manufacturers like Mercedes or VW should come here ??? We also have a lot of talent to make local cars and I must say better than Suzuki (Being the Worst of the three) Pakistan has a lot of potential we can capture the industry in terms of designing, performance and manufacturing... (Insha'Allaah)

Sumair iqbal | 8 years ago | Reply Please Allow stylish n Safe cars. I am sick of looking at 3rd Class cars on road with no Airbags and Cheap looks. If i look at Mehran or Carry Box then it seems that i am still living in 18th Century These dhould be banned and new companies should be allowed.

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Umer | 8 years ago | Reply At least, I am happy about this decision. We actually deserve it, being a nation. I seriously wish and pray that Pak Suzuki increase the price of Mehran three fold, say, 2 million PKR. I'll be more then happy then. Corolla should be priced 5 Million (base version) and 7.5 Million PKR for fully-featured car. And guess what, even at that time, people struggle to buy those crap cars instead of keeping the government official accountable for what they do. My best wishes are with the government, at least they are seriously loyal to their pockets whereas people of Pakistan aren't to their living standards. Time to celebrate, anybody coming?

Usman | 8 years ago | Reply This is the progress PMLN was promising.

Gemini | 8 years ago | Reply I have seen people driving zero meter suzuki mehran in this era, while they have also got the choice of mira, pixis and carol which are far better cars then this so called mehran. Car manufacturers should be ashamed of themselves that they are still selling mehran.

Shakil Ahmed | 8 years ago | Reply so you helping current troika to keep the monopoly and keep selling substandard cars, let the germans come and teach some lessons to them how to make quality cars! They are scared of VW and trying to create hurdles, they offer bribes to govt officials to keep current policy. VW may not offer bribes! last time Mercedes instead went to India after Mr Asif Zardari then Mr 10% asked for his cut during BB tenure. They promptly refused and set up plant in India instead. This is how you push investment away!

Qasim Cheema | 8 years ago | Reply I do not see a problem in giving incentive for existing players as long as it is for additional investment for new and different models.

Rahul | 8 years ago | Reply Pakistanis are just doomed to drive Mehran and CD100 all their life. Tsk tsk!!!

Anserali Khan | 8 years ago | Reply It seems that the Government is protecting the 3 monopoly companies and the government is not serious or interested in new investment or the interest of the consumers. For over 30 years these 3 companies have been provided protection by the government at the cost of consumers. This has to stop and interest of consumer has to be given preference.Allow new companies to set up manufacturing facilities in Pakistan.Please

Zubair | 8 years ago | Reply There is no need for foreign investment. We should take more loans from the IMF instead!

Abdul Aleem | 8 years ago | Reply What a shame.... if the government is serious, they need to investigate the matter and put to task the people behind changing the agreed upon text.

Ehs | 8 years ago | Reply This is a matter of shame for the whole country and especially the government has once again proved it does not give any importance to consumer interests. Governments unending supporting to local players - especially Paksuzuki has drowned the whole industry. Government appreciates Paksuzuki despite the fact that they are selling globally retired models from late 1970s to early 1980s in Pakistan even today. (Mehran, Bolan, Ravi, Cultus). Punjab government even handed them contracts for 30,000 cars without considering alternatives.

Asad | 8 years ago | Reply The consumers should also be encouraged to buy new brands instead of waisting more than 7 lacs on a piece of crap, I am talking about Mehran.

Fahim | 8 years ago | Reply bureaucrats has again blocked, why not terminate all bureaucrats and make round free for all

Syed Ahmed | 8 years ago | Reply This is so bad for the country and consumer but good for ministers as they have increased their price. Now the existing players will bribe them to stop the new entrants.

Zohaib Aslam | 8 years ago | Reply What a shame!!!

Logitech | 8 years ago | Reply Absolutely disgusted by this extortion being carried out by Toyota Indus, Honda Atlas and Pak Suzuki. We are sick and tired of your sub-standard, out-dated and unsafe cars.

H.A.Khan | 8 years ago | Reply The present car manufacturers (assemblers) are a mafia who are abusing their near monopoly at cost of the consumers.For nearly 30 years they have enjoyed near monopoly. FBR is right in stating concessions should not be extended to present car manufacturers Look at India which has over 20 manufacturers offering consumer range of choice in car buying.The prices are less than those being offered in Pakistan and with better options,safety features and technology in their cars The government should think about the consumers first and open this sector to new entities and invite them to set up plants in Pakistan

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