Investment in garment city a waste

Economic managers ask govt to refrain from running businesses, focus on policy functions

Zafar Bhutta April 21, 2024


Economic managers have observed that government’s investment in Lahore Garment City Company (LGCC) is a waste of money and therefore it should refrain from running businesses.

During discussions at a recent meeting, the Economic Coordination Committee (ECC) noted that substantial government money had been spent on the LGCC project with a view to enhancing textile exports.

However, except for a few buildings, desired results could not be achieved despite a lapse of considerable time. There was a dire need for private sector-led growth while the government should refrain from running businesses and restrict itself to policy functions, the meeting was told.

The ECC observed that engaging the government in such projects was tantamount to wastage, therefore, there should be a thorough assessment of the project for making a decision on its continuation or otherwise. Another view was that in the presence of new projects such as the Quaid-e-Azam Apparel Park in Punjab, there seemed little justification for the garment city. The Ministry of Commerce briefed the ECC that LGCC had been established in 2004 to provide state-of-the-art infrastructure to value-added textile manufacturers.

It was incorporated under the Companies Ordinance, 1984 as a public sector company while the Central Development Working Party (CDWP) approved the scheme at a cost of Rs586.88 million on June 14, 2011.

LGCC received a cash development loan of Rs572.64 million on which an interest cost of Rs913.815 million accumulated until June 2023.

The erstwhile Textile Division sent a summary on January 25, 2018 to the prime minister for converting the loan into a grant. However, it was returned with the directive to place the matter before the CDWP.

The CDWP, in its meeting on May 16, 2019, opposed the proposal and asked for taking up the matter with the Ministry of Finance for loan restructuring or rescheduling. The commerce ministry convened two meetings on August 31, 2020 and October 28, 2021, wherein it was decided that LGCC would submit a reasonable repayment plan to clear the principal amount and interest cost.

LGCC, in its 67th board meeting dated November 30, 2021, agreed to repay the principal amount in three installments with a request to immediately waive the interest cost, ie, Rs796.15 million till June 30, 2021, and settle the interest payback period with the finance ministry.

In April 2023, LGCC submitted a repayment plan based on the updated accrued mark-up. It was agreed to repay the principal amount in 10 equal installments (instead of three) over 10 years (instead of 15 years) with the condition that interest would continue to accrue until the full principal amount was paid. Later, LGCC in its board meeting on August 7, 2023, agreed to pay the principal amount in two equal installments (on June 14, 2024 and June 1, 2025) and the accrued markup over the next 10 years once the principal amount was repaid. The commerce ministry informed the ECC that a draft summary was sent to the finance ministry, wherein it communicated that payment dates of both installments should be revised to December 30, 2023 and July 31, 2024 and the accrued mark-up would be calculated and conveyed to LGCC upon final settlement of the principal amount.

The LGCC board, in its 76th meeting, decided to pay the total principal amount in June 2024 and the accrued interest (of Rs913.815 million till June 2023) over the next 10 years.

The finance ministry concurred with receiving the total principal amount in June 2024 but indicated that the accrued mark-up would be Rs965.957 million (instead of Rs913.815 million), which LGCC had to pay in 10 equal installments. The ministry’s recommendations were approved by LGCC in its 77th board meeting.

Published in The Express Tribune, April 21st, 2024.

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