ISLAMABAD : The Ministry of Industries and Production has proposed, to the Economic Coordination Committee of the Cabinet, a range of incentives that are company-specific. This is reminiscent of black cabs and agriculture tractors scheme announced in the budget presented by the Shaukat Aziz government which did not provide level playing field to others in the industry.

The proposals have been duly approved by Prime Ministers Advisor on Industries Manzoor Wattoo and Secretary Shahab Khawaja. Sources told Business Recorder that Trans Polymers Limited (TPL), a subsidiary of Trans Polymers Holding Limited, of UK, a private investment company representing various stakeholders including risk insurance companies, financial institutions, EPC contractors, technology providers, material suppliers and O and M contractors along with the power, desalination plant and project management consultants, has proposed to set up a polyethylene (PE) plant at Port Qasim, Karachi.

According to the proposals, first plant would come into production in next three to four years. A Naphtha Cracker will be established at the site to produce Polypropylene (PP) and other monomers. TPL has provided financial structure of the project, the first phase of which covers the establishment of PE plant costing 470 million euro.

This would include the cost of plant and machinery, cryogenic facilities, pre-production cost and the cost on power generation, desalination plant and working capital etc with the debt equity ratio of 60:40. The next phase would include establishment of Naphtha Cracker and PP production facilities, costing around one billion euro.

TPL has indicated the name plate capacity for PE production as 310,000 tons annually, with the flexibility to go up to 400,000 tons, through further investment and 300,000 tons for PP.

At present, annual country demand of PE is around 270,000 tons, which is met through imports. PE is subject to 5 percent customs duty, which is in place since 2005-06. Industries Ministry is of the view that oil refineries in Pakistan produce around 0.8 million tons Naphtha (feedstock) which is exported at nominal value due to absence of cracking facilities in the country.

With the increasing use of polymers in the country, Pakistan spent over $1 billion on import of polymers last year. Almost all monomers/co-polymers are obtained from Naphtha through a cracking process which is highly expensive and technology-intensive. Besides the polymers, commonly known as BTX (benzene, toluene & xylene) are also obtained from Naphtha cracking process. BTX is extensively used in paint, textiles, dyes and a range of other chemical products.

TPL has proposed customs duty protection on PE at 20 percent for at least 3 years after coming into production, followed by 15 percent for 5 years and then 10 percent onward. As for PP, TPL has requested for duty protection of 15 percent for 5 years and 10 percent onwards, as it would come into production. It has also asked for duty/tax-free import of plant and machinery, catalysts and raw material ie ethylene.

The company has further demanded upward revision of import duties on PE and PP in the FTAs concluded so far, ie with SAFTA and Malaysia. The companys argument, sources said, is that most of the polymers and chemical industry in the country already enjoy minimum of 10 percentage point protection between the inputs and the output such as PVC (Poly Vinyl Chloride), HIPS (High Impact Polystyrene) and PET (Poly Ethylene Teraphthalate) Resin, etc.

There is apprehension that upward revision of tariff from the present 5 percent to 20 percent or 15 percent would lead to high cost of production in the sectors where PE is commonly used as packing material for textile, clothing, packing of fertilisers, food products, manufacturing of auto and household products which altogether cover 50 percent of total country consumption of PE.

Higher duty, as demanded by TPL on PE or PP, may therefore constrain the user industry, which may render the industry uncompetitive, the Ministry opined. Industries Ministry, which is the author of the proposals, is of the view that a package of incentives, including tax holidays, should be offered for such medium to high technology and high capital-intensive projects.

According to the package, the Ministry has recommended duty-free import of Ethylene, catalysts, additives, etc, used in the production of PE. Duty- and taxes-free import of new plant and machinery, including equipment and related components for the establishment of cryogenic storage facilities and infrastructure.

Upward revision of customs duty from 5 percent to 10 percent for 10 years from the commencement of production of PE and similar duty structure for PP once its local production starts was also part of the summary, sources added. The Ministry has further said that the protected duty of 10 percent will be withdrawn after three years of commencement of commercial production of polyethylene, if the demonstrable work on the second phase ie Naphtha Cracker and PP, is not commenced. Business Recorder, 2008

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