KARACHI: Regulatory risk has once again come to haunt automakers as Oil and Gas Regulatory Authority (Ogra) has again banned the import of CNG cylinders from 12 suppliers, including Faber and EKC which are CNG kit suppliers for Suzuki and Indus Motor, respectively.
Banning these companies leaves only four approved suppliers on the Ogra list, according to a KASB Securities research note.
In a similar scenario, Ogra banned CNG cylinder supplier Faber in February on safety concerns, however, the decision was later reversed.
As was the case last time around, Ogra is expected to reverse its decision going forward, says the note.
Suzuki volumes at
Automakers may have to cut production during the interim period, if the process is delayed and existing supplies are exhausted, says the note. This puts Pak Suzuki’s volumes at risk as CNG variants account for almost two-third of its volumes. The country’s largest automobile company witnessed a significant drop when the ban was imposed earlier in the year.
This could also affect the supply of CNG variant Mehran and Bolan cars under the Punjab government taxi scheme which is supposed to start September onwards, says the note. The effect should be lower for Indus as it has recently introduced CNG variant of its Corolla that has not gained significant chunk of its volumes while Coure counts for only 10 to 12% of the automobile maker’s volumes.
A chronology of regulatory decisions in past year
The government has offered some benefits to automakers in the last one year as the government froze the Auto Industry Development Programme (AIDP).
As per the original plan, some high-tech parts were supposed to be put in localised parts list during fiscal 2011 and 2012 that could have significantly raised import duty as none of the assemblers have the capacity to produce engine, transmission, alternative, starter motors among other parts as volumes are half of originally planned under the AIDP while margins have also contracted, adds the note.
Published in The Express Tribune, August 26th, 2011.