The Board of Investment (BoI) is reportedly seeking concessions in duties and taxes on already cleared shipments of M/s Procter and Gamble (P&G) which intends to establish two greenfield manufacturing facilities at Port Qasim Industrial Zone, official sources told Business Recorder.
The much talked about facilities are dry laundry detergent plant at estimated cost of $45 million and the diaper facility which will entail an investment of $55 million, totalling a $100 million Foreign Direct Investment (FDI), the sources added.
The BoI, more interested in the projects rather than the investors, is of the view that P&G have accelerated construction of the laundry plant after its groundbreaking ceremony on December 18, 2008. Some machinery and equipment has already arrived and is under clearance so as to commence its operations by June, 2010. This will be followed by the diaper manufacturing facility, which is expected to start-up a year thereafter.
The sources said, P&G has requested the following incentives for its two greenfield projects: (i) duty free import of plant, machinery, equipment and spares for both the projects (laundry and diapers) not locally manufactured. The company's justification for this request is that it plans to produce superior quality consumer products that are comparable to products from its plants all around the world.
This would enable the company to develop these two facilities to produce quality products at low cost compared to other plants in the region in an endeavour to replicate the success of its Egypt-based plant which exports branded consumer goods worth $85 million per annum;
(ii) Inclusion of one raw material for the diaper (non-woven polypropylene Rolls-PCT 5603.9100) in the already notified list of 16 raw material importable vide SRO 565(I)/2006 at serial No 31 @ 5 percent (as amended) vide SRO 488(I)/2009 dated 13th June 2009;
(iii) import of diapers in bulk @ 20 percent for one year to keep operational P and G's diaper re-packing line established in 2000 at a cost of $0.4 million. The multinational company's justification for this request is that due to (a) high input costs of utilities, etc (b) higher financial and capital costs and (c) devaluation of the rupee (by 40 percent since 2003) the operation of its re-packing line is financially non-viable at the current import duty of 25 percent.
The 5 percent duty differential by reducing bulk diaper import duty to 20 percent will result in a foreign exchange saving of $1.3 million a year. The sources said the BoI has analysed the requests of P&G keeping in view the competitive scenario in the region and level playing field requirements in value added sector especially in world class branded consumer goods for future exports.
After detailed evaluation of both the proposals, the BoI has recommended to the government that the request for zero percent import duty and taxes for the import of plant, machinery, equipment and spares (not locally manufactured) may be regarded as opening of an economic avenue for P&G's 250 + branded products (P&G is presently marketing 9 and producing 2 of these brands in Pakistan) for the local market and later for export. The company may be granted zero percent import duty and taxes on imports of plant, machinery, equipment and spares (not locally manufactured) from July 20, 2009 when the first shipments were conditionally cleared on the BoI request.
According to the BoI, import of one raw material "non-woven polypropylene Rolls"(PCT 5603.9100) for the manufacture of diaper may be added to the list of 16 raw materials importable under SRO 565(I)/2006 at serial No 31 @ 5 percent (as amended) vide SRO 488(I)/2009 dated 13th June 2009.
The BoI, however, did not support one proposal according to which 5 percent reduction has been sought on import of bulk diaper for one year to test the market. "This is a commercial activity and this should be carried out at their own cost, as the BoI does not support it," the sources said.
To justify the concessions for P&G, the BoI has stated that it has been endeavouring to woo investors from North America especially the Fortune 500 multinational corporations to invest in the greenfield projects in Pakistan. M/s P&G, the world's largest consumer goods company has endeavoured to make this large-scale FDI in the manufacturing sector.
The revenue loss to the FBR due to zero percent duty on capital equipment is $1.4 million as against the future incremental revenue on diapers alone estimated to be $11.4 million in 10 years. The proposal was circulated among the Ministry of Finance, the FBR and the Ministry of Industries, of which the FBR and the Finance Division supported it. The Ministry of Industries is yet to give its comments.
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