The federal government has decided not to allow further import of power plants equipment at concessional rate of customs duty as part of its strategy to encourage local engineering industry, capable of manufacturing such equipment, official sources told Business Recorder.
The Economic Coordination Committee (ECC) of the Cabinet, in its recent meeting, had allowed few Independent Power Producers (IPPs) to import equipment at 5 percent duty, as one time concession on the recommendation of the Private Power Infrastructure Board (PPIB), a subsidiary of the water and power ministry.
The PPIB was now being headed by Fayyaz Elahi, whom National Accountability Bureau (NAB) declared innocent after his return from Canada where he spent almost 10-12 years.
The Power Policy, 2002, offers certain financial and fiscal incentives for new IPP projects, which include customs duty at the rate of 5 percent on the import of plant and equipment not manufactured locally and also not included in the Customs General Order (CGO) or certified as such by the LOB.
The SRO 575(1)12006 of June 5, 2006 issued by the revenue division requires that the imported goods should not be locally manufactured as certified by the Engineering Development Board(EDB).
While certifying the equipment for new IPP projects, the EDB observed that local industry has the capability of manufacturing heat recovery steam generator (HRSG), feed-water pumps and cooling towers.
Deliberations on the matter revealed that although some local companies have the capability of manufacturing/assembling the boilers and cooling towers, they do not have the experience to manufacture or assemble boilers and cooling towers of the type and size needed by the new IPPs, the sources added.
The water and power ministry had argued in the ECC meeting that local vendors were not committing delivery as per IPPs required standards as well as warrantees if they use local HRSGs, feed-water pumps and cooling towers.
Sources said that the industries ministry had arranged meetings of power companies, EDB, PPIB, and Nepra with the focal manufacturers, and it was concluded that the local industry was fully geared to produce equipment required by the IPPs as reasonable investment has already been made to cater to the requirements.
The local industry is making best efforts to get either oil and gas exploration and production contracts or sub-contracting of the equipment and has also succeeded in acquiring certain E&P contracts and is negotiating for sub-contracting of equipment in other projects, sources added.
However, to avoid delays which cannot be afforded considering the power deficit, at present, experienced in the country, the matter was discussed at a meeting on February 29, 2008, which was attended by the representatives of the industries ministry, EDB, Nepra, PPIB, and FBR.
The meeting agreed that certain projects which have achieved financial close by January 31, 2008, and were at advance stage of implementation may be allowed dispensation in duties in excess of 5 percent.
The meeting, however, agreed with the proposal of the PPIB, as the country was facing power deficit, and IPPs, which are eight in number and have achieved financial close by January 31, 2008 be allowed to import cooling towers, heat recovery steam generators and feed water pumps after paying 5 percent customs duty.
It was also decided that in all the future contracts, provisions of the Power Policy, 2002, and the directives of the chief executive would be followed in letter and in spirit. The local industry would be given free hand to supply the locally manufactured equipment or the same would be charged statutory rate of duty in case of import, the sources added.
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