Flight of capital: Lotte disengages Pakistan plant expansion

Expansion was contingent on the import tariff safety net.

KARACHI: Lotte Pakistan PTA Limited has reportedly put on hold its plan to a build an additional $500 million Purified Terephthalic Acid (PTA) plant after failing to secure government support for setting higher PTA import tariff, according to a note issued by Burj Research on Friday. The expansion was contingent on raising the import tariff from the current 3% to regional levels of 5% to 7.5%. The company officials have termed it unlikely that the tariff would be raised in the upcoming budget for fiscal year 2012-13 due to political concerns and pressure from the downstream sector.  

In September 2011, Lotte PPTA CEO Asif Saad said if the safety net is not provided Lotte has the option of making this investment in China or India or it can take this plant to Saudi Arabia which has no income tax coupled with large amounts of feedstock paraxylene which can provide huge savings in logistics costs. The company argues that an investment of $500 million cannot be made without appropriate incentives in place in any market in the world but its arguments made little impression in Islamabad.

Some analysts were also of the view that this investment is not needed in Pakistan as current PTA demand is met by local production from Lotte, sole producer of PTA in Pakistan, and the rest 15-20% through imports. Lotte PPTA management disagreed and stated that the expansion project will be completed in three years by which time PTA demand in Pakistan is expected to increase by almost 30%. In addition, the company intends to target the Middle Eastern PTA buyers and generate exports of almost $300 million dollars. If Lotte disengages Pakistan will lose $500 million of foreign direct investment, $300 million of potential exports and might have to cover its demand by importing more PTA which will be a burden on balance of payments.

Published in The Express Tribune, May 19^th, 2012.