All Pakistan Contractors Association (APCA) has urged the government to allow freight subsidy in next trade policy to items shipped in connection with the export of construction services at par with manufactured goods shipped to non-traditional markets.
APCA submitted this demand in the 57th meeting of the Advisory Council of the Ministry of Commerce, held in Islamabad. APCA also proposed that the policy of providing bonds and guarantees to construction companies working abroad as envisaged in trade policy 2005-2006 be implemented in the interest of unemployed Pakistani workforce.
APCA maintained that presently Bid Bond and Performance Bond can be issued by Pakistani banks without reference to the State Bank, but advance payment guarantee requires approval.
Having provided a bid bond and a performance bond, if, for any reason, the contractor is denied permission for the advance payment guarantee this may jeopardise the first two guarantees since advance payment is necessary for the large capital input at the start of any construction project.
Since the State Bank of Pakistan has already transferred the operational risk to the commercial banks, which make their own decisions on issuance of bond to a contractor, there is no 'added security' in requiring approval for the advance payment guarantee, which is only issued after a contract is actually awarded to the contractor.
Therefore, APCA suggests that advance payment guarantee might be issued by commercial banks without requiring specific approval from the State Bank of Pakistan for overseas construction contracts.
The government gives freight subsidy to exporters who export goods to non-traditional destinations. At present, the export of services is not given this support, although this is a new item of export, and all such exports are to non-traditional destination.
APCA, therefore, demands that export of services be treated at par with export of goods. Construction machinery requires special handling from Pakistan to non-traditional destinations. This is very expensive because not many Ro-Ro vessels visit Pakistan, and special flat racks required on container vessels are neither readily available, nor have rates similar to normal containers. They are much more expensive.
Bringing back the equipment, sent from Pakistan on temporary export basis, is equally expensive. This makes using depreciated equipment available with the contractor in Pakistan prohibitive for foreign contracts. To redress the issue, the APCA demands freight subsidy for items shipped in connection with the export of construction services at par with that allowed with manufactured goods shipped to non-traditional markets.
The import of used spare parts for construction equipment is prohibited. Construction equipment requires special large size hydraulic valves, pumps, various electronic systems etc, which are very expensive as they are not mass produced unlike those, for example, for motor vehicles.
Construction machinery parts have no application in normal commercial vehicles. For old construction equipment, which is serviceable but needs such parts which wear out with time that affects machine performance, the cost of purchasing replacement hydraulic valves, pumps, electronic systems etc, can be equal almost to the depreciated cost of the machine itself.
Internationally, due to ready lease financing and older machines are replaced by new machines. The old machines are broken up, and parts sold to developing countries. These machines are capable of performing well on overseas contracts after replacement of such worn out parts with good used parts to make the Pakistan contractors cost competitive in international bids.
APCA, therefore, proposes that hydraulic valves, hydraulic pumps, electronic control systems, fuel pumps, hydraulic cylinders, jacks and other construction related machinery parts should be allowed to be imported.
Details of used spare parts of construction machines for import and to be sent on re-import basis for repair/ refurbishment/ calibration abroad include: engine, head, crank shaft, cairn shaft, timing gears, engine block, timing cover, fly wheel, water body, oil cooler, fuel injection pump, transmission system, clutch plate, pressure plate, clutch cylinder, gears, shaft, transmission housing, chassis driver etc.
The APCA also suggested that restriction on sending all construction equipment parts to the manufacturers or reputable specialist workshops abroad for refurbishment/ repair/ calibration be removed, and these may be brought back into Pakistan without payment of any duty, taxes etc, on return after repair/ refurbishment/ calibration.
Import of all used equipment for overseas projects should be allowed without import duty or tax in Pakistan for contractors working on overseas project remitting foreign exchange to Pakistan. Construction projects generally are of 2 to 3 years' duration, and upon expiry of one contract the machinery is usually transferred to another in the same country after taking permission from the Customs.
Thus over two contracts the full duty or thereabouts is paid, regardless of the fact whether the equipment is on permanent or temporary import. If Pakistan requires a vibrant and competent construction industry, modern construction equipment is essential.
APCA, therefore, proposes that for contractors working on overseas projects all used equipment from their overseas project shall be without import duty or tax in Pakistan.