Charging… (II)

One can make a pretty good case for introducing electric vehicles (EV) in Pakistan—with benefits ranging from environmental protection to cutting down of the import bill to opening new avenues for investments and entrepreneurship. For instance, according to a study conducted by the LUMS energy institute in collaboration with U.S.-Pakistan Centre for Advanced Studies in Energy (USPCAS-E) at UET-Peshawar, EVs environmental benefits are huge. They are run on batteries, and require minimal maintenance with no need for oil and other lubricant changes. Since, almost 37 percent electricity is being generated through renewable sources in Pakistan, the EVs can results in 70-80 percent less environmental emissions when compared to Fossil Fuel Vehicles (FFVs).

Moreover, due to the efficiency of battery based energy storage, EVs can provide the same mileage for end-consumers with one-third of the cost compared to FFVs. (Read more: “Charging…(I)”, Nov 27, 2019).

But while these benefits seem like a no-brainer, the policy has been embroiled in controversy. For starters, within government departments, there was a tussle between who will own the policy in the first place. Though the policy was designed by the Ministry of Climate Change (MoCC), the Ministry of Industries and Production wrote to the MoCC telling the former in so many words that it was working beyond its jurisdiction. Needless to say, that does not inspire a lot of confidence in investors if key government stakeholders are not on the same page.

Since then, the draft policy has mysteriously disappeared from the MoCC website (luckily, BR Research has a copy of the earlier version). To summarize: the policy will allow 100,000 CBU cars to be imported duty-free over a period of five years and by year-3 of implementation aims to localize EV technology. (read about the policy in detail here: “Electric dream”, July 12, 2019). Moreover, the government will only collect one percent sales tax from manufacturers and assemblers for seven years. This will not be a loss to the government since it will be making fuel savings and reduction in the oil import bill in addition to the underlying environmental savings.

The policy also gives charging infrastructure targets. The LUMS study had earlier argued that this is the space where private sector investments can come in really fast since charging stations can be installed not only in public places but at offices, homes, restaurants, and shopping malls. Obviously, tax benefits here will be necessary to garner such private sector interest.

As a stand-alone policy, it seems ambitious but its ambition is not its biggest problem. The first big problem the policy faces is technical. If volumes don’t come in, any production and penetration targets, not to mention, localization and private investments projections cannot be met. This is where pricing of EVs will play a significant role keeping in mind existing and future purchasing powers of the Pakistani car buyer. How will the policy tackle that? Can it tackle it, is an important question.

The second major problem is even more critical. Even before approval, two federal ministries were at loggerheads fighting on jurisdiction. If such a mammoth policy will be implemented (at the expense of the exchequer), it will require efficient planning and coordination between government departments and ministries. As earlier opined, policy without governance is basically useless. Involved stakeholders will have to be on the same page, and will have to work efficiently as a single unit.

Lastly, recall that there is already an auto development policy that is under implementation which has brought in several new players in the foray. They are at their very initial stages of entry where they are contemplating localization and establishing their footing, while also testing the market with their offerings. Does the EV policy fit with the existing policy, in a way that it does not create conflicts with new and existing automotive players? Automakers will argue it does not. In fact, many argue that the EV policy is against the spirit of its predecessor. What are they concerned about? Let’s explore in this space next time.