RMB, FDI, export-oriented enterprises: GFZ may be granted exemption to initiate pilot project

ISLAMABAD: The government is likely to exempt Gwadar Free Zone (GFZ) from Import and Export Order and Foreign Exchange Regulations Act to initiate a pilot project for RMB currency exemption, boosting foreign investment and targeting export-oriented enterprises, sources close to Minister for Planning, Development and Special Initiatives told Business Recorder.

The Cabinet Committee on Chinese Investment Projects (CCoCIP) was presided over by the Minister for Planning, Ahsan Iqbal who is also incharge of CPEC projects and interact with the Chinese investors.

Ministry of Planning, Development and Special Initiatives presented different proposals for consideration of the CCoCIP.

Jul-Aug FDI up 55.5pc to $350.3m YoY

Provision of Electricity to Rashakai SEZ: The CCoCIP was briefed that Rashakai SEZ, a prioritized special economic zone under CPEC, applied for grant of electricity distribution and supply licenses from NEPRA in November 2022. However, decision was pending with NEPRA due to awaiting confirmation by Power Division on source of power supply i.e. either from CPPA-G or PESCO. The forum was briefed that during meeting chaired by Minister PD&SI on August 21, 2024, it was decided that Power Division would finalize the policy decision in 5 days for permanent of electricity provision. Additionally, Power Division was to hold meeting with developer of Rashakai SEZ (CRBC) and PESCO for immediate energization of internal network of Rashakai zone as an interim measure.

The forum was further briefed that in the CPEC progress review meeting held on September 11, 2024, Minister PD&SI expressed serious displeasure over the delay in implementation of previous decision. Power Division was directed to finalize the policy decision within three days and instructed PESCO to immediately energize the internal network of Rashakai SEZ to supply electricity to the industrial units.

During the ensuing discussion, the Power Division explained that on this issue a summary for CCoE had been circulated to seek comments and after receiving comments the summary will be submitted before CCoE for approval. The forum further directed that relevant stakeholders, inter-alia, BoI and PD&SI should convey their comments to Power Division without any delay.

Exemptions of Gwadar Free Zone (GEZ) from Import/Export Policy Order: It was explained to the CCoCIP that an investor has established a Potassium Sulphate (K2s04) fertilizer plant in the Gwadar Free Zone (GFZ), but could not export the final product due to a ban on fertilizer exports as per the Export Policy Order 2022. The forum was informed that to make the GFZ more attractive as an export-oriented zone, it was essential to grant exemptions from certain provisions of the Import/Export Policy Order. The rules in the free zone should align with practices adopted in regional free zones of UAE, Iran and Oman.

During the ensuing discussion, the forum inquired about the definition of a Free Zone and its difference with Export Promotion Zone and Export Processing Zone. However, there was no clarity on its definition or associated concessions. It was emphasized that definition and associated concession of Free Zone’ should be brought before the CCoCIP in the next meeting by Maritime Affairs Division after consulting Commerce Division, FBR and other relevant agencies.

Transit Trade with Afghanistan and Central Asian Region: The CCoCIP was briefed that in September 2023, the Ministry of Commerce introduced a policy requiring special permission, including a Bank Guarantee, for importing bulk cargo, such as Di-ammonium Phosphate (DAP) for Afghan Transit Trade at Gwadar Port. The said policy has negatively impacted transit trade at the port. So the China Overseas Port Handling Company (COPHC) has requested M/o Commerce that the Bank Guarantee requirement be replaced with an Insurance Guarantee to facilitate smoother trade operations.

The forum observed that this issue was also linked with the definition of Gwadar Free Zone (GFZ) and associated concession which must be known before making an informed decision. The forum directed Commerce Division to submit a summary to the CCoCIP after consultation with Finance Division/SBP, MoMA and FBR in next meeting of CCoCIP.

International Transshipment of Seafood from International Waters via Gwadar Port: The CCoCIP was apprised that the Gwadar Port Operator (COPHC) had requested for permission to handle seafood transshipment activities from international waters at Gwadar Port to create a favorable environment for transshipment activities of fish-catch from international waters via Gwadar port.

During the ensuing discussion, the forum inquired as to how the activities of ships would be monitored in international waters; and emphasized that fishing is a sensitive issue in Balochistan and, therefore, directed that the provincial government should be consulted before bringing this matter to CCoCIP. The forum further instructed that a well-thought-out proposal be formulated in consultation with the provincial government and other relevant stakeholders by MoMA to be presented before the CCOCIP in the farm of summary in its next meeting.

Karachi Coastal Comprehensive Development Zone (KCCDZ): The forum was briefed that Investment Framework Agreement of KCCDZ was signed between Karachi Port Trust (KPT) and China Port and Bridge Corporation (CRBC), a Chinese state owned enterprise in July 2023. CRBC has shared draft Joint Venture Agreement and Concession Agreement with KPT/MoMA for signing, which were under review for a long time now.

During the ensuing discussions, the forum observed that there were practical difficulties in case of reclaimed coastal land, which according to Court Judgment became Provincial properties/domain. Therefore, Provincial Government needs to be brought on board and Chief Secretary should be consulted on the important issue by MoMA and inform the CCoCIP in its next meeting through a summary about the way forward.

Exemption from Foreign Exchange Regulation Act 1947/RMB Settlement as Pilot Project in Gwadar Free Zone: The CCoCIP was briefed that the China Overseas Port Handling Company (COPHC) has requested the State Bank of Pakistan to initiate a pilot project for RMB currency exemption, targeting export-oriented enterprises in the Gwadar Free Zone. The aim was to boost foreign investment, and further develop the free zone. The forum was also informed that COPHC had also proposed to allow businesses in the free zone to maintain USD or RMB accounts without foreign exchange controls to facilitate smooth profit remittance, creating a more attractive environment for investors.

During the ensuing discussion, the forum directed Ministry of Maritime Affairs to submit summary after seeking comments from FBR, SBP, Commerce Division and Finance Division.

Security of Chinese Nationals in Pakistan: The CCoCIP was briefed that Chinese nationals working on various projects in Pakistan were consistently requesting for convenient and soft security SOPs which might ensure fool proof security but at the same time also allow them to conduct their business operations with ease. The forum was informed that recently Chinese experts visited Pakistan and they underscored security issue as a big hindrance in attracting Chinese investment to Pakistan.

The CCoCIP directed Interior Division that Standing Operating Procedures (SOPs) may be revisited to improve the convenience for Chinese investors, especially in the Special Economic Zones under CPEC. The forum directed Ministry of Interior that despite the challenging law and order situation in the country, efforts should be made to provide a safe and conducive environment to Chinese investors. It was emphasised that investors should not be overly restricted in their movements. The forum also instructed that foolproof security measures be implemented for Chinese nationals to enable them to conduct their business with security and convenience.

After detailed discussion, the meeting took the following decisions:

(i) on the issue of “Provision of Electricity to Rashakai SEZ” the CCoCIP directed Power Division to resolve all issues for provision of electricity to Rashakai SEZ and submit the summary for the Cabinet Committee on Energy (CCoE) at the earliest after seeking comments from all relevant stakeholders;

(ii) on the issues of “Exemptions of Gwadar Free Zone (GFZ) from Import/Export Policy Order” the CCoCIP directed the Maritime Affairs Division to submit a summary to the CCoCIP after consultation with Commerce Division, FBR and other relevant agencies and give presentation to CCoCIP on the concept and definition of Gwadar Free Zone in the next meeting of CCoCIP;

(iii) on the issue of “Transit Trade with Afghanistan and Central Asian Region,” the CCoCIP directed Maritime Affairs Division to submit a summary to the CCOCIP after consultation with Finance Division, the SBP, Commerce Division and FBR in next meeting of CCoCIP;

(iii) on the issue of “International Transshipment of Seafood from International Waters via Gwadar Port”, the CCoCIP directed Ministry of Maritime Affairs to submit summary to the CCoCIP after consultation with FBR, Government of Balochistan and other relevant stakeholders in next meeting of CCoCIP;

(iv) on the issue of “Karachi Coastal Comprehensive Development Zone (KCCDZ),” the CCoCIP directed Ministry of Maritime Affairs to submit summary to the CCoCIP after consultation with KPT, Government of Sindh and other relevant stakeholders to present a way forward in the next meeting of CCoCIP;

(v) on the issue of “Exemption from Foreign Exchange Regulation Act 1947/RMB Settlement as Pilot Project in Gwadar Free Zone,” the CCoCIP directed Ministry of Maritime Affairs to submit summary to the CCoCIP after consultation with Finance Division, Commerce Division, the SBP, FBR and other relevant stakeholders in the next meeting of CCoCIP; and

(vi) on the issue of “Security of Chinese Nationals in Pakistan,” the CCoCIP directed Interior Division to submit summary to the CCoCIP on status of security arrangements after consultation with Chinese Companies through CPEC Secretariat in next meeting of CCoCIP.

The forum directed all concerned ministries/divisions to submit their proposals with clear recommendations in the form of summaries for the CCoCIP in the next meeting through the CPEC Secretariat, in accordance with Rule 18(1) read with Rule 23(4) of the Rules of Business, 1973. Additionally, the forum directed the CPEC Secretariat to play an active role in coordination and analyzing the summaries before submission to the CCoCIP, ensuring that the proposals are well thought out and formulated in consultation with all relevant stakeholders.

Copyright Business Recorder, 2024