The government has taken a huge step by approving three companies to set up car assembly plants in Pakistan. This has been a huge step in shaking up the dominant Japanese automobile industry. The three companies that have been granted permission to set up car assembly plants in Pakistan are non-European.
The assembly/ manufacturing plants will be set up by collaborating with local partners. There will be an investment of $372 million for setting up car assembly plants in Pakistan.
The Secretary of the Ministry of Industries, Khizar Hayat Gondal confirmed that the United Motors Private Limited, Kia-Lucky Motors Pakistan Limited and Nishat Group has been granted permission to set up their car assembly plants in Pakistan by the Ministry of Industry and Production.
He further added that these companies would bring foreign investment of $372 million. Their personal investment would be of $190 million by Kia-Lucky, followed by $164 million by Nishat Group and $18.1 million by United Motors.
All in all, nine companies were in the running to get permission for setting up car assembly plants in Pakistan, however only these three have been approved in the first phase. The secretary informed that the remaining applicant’s documents were under scrutiny and have not been rejected yet.
A worth mentioning point here is that this decision was followed by the Prime Minister’s recent verdict of dismantling the Engineering Development Board (EDB) over the accusations of corruption and being creating hurdles in the way of setting up new car manufacturing plants in Pakistan.
Ministry of Industry have issued notifications of approval and granting permission to these car manufacturers. A statement said that the government of Pakistan was pleased to award the Category-A Greenfield Investment Status to United Motors (Pvt) Limited for assembly/manufacture of vehicles covered in the exclusive contract agreement. Similar statements were made for the other two companies as well.
Relevant and detailed business plans and documents were submitted to the EDB by these firms. A Chinese collaboration will be helping United Motors. South Korea based Hyundai Company will partner with Nishat and Lucky Cement will collaborate with Kia Motors, another South Korean firm.
The government approved a new automobile policy last year in March in an effort to attract a European carmaker, offering tax incentives to new entrants and help them establish manufacturing units and compete with the three existing assemblers.
According to Board of Investment the European car manufacturer Renault was eager to set up a car manufacturing plant in Pakistan and was in negotiations with the government. However, neither Renault nor Volkswagen submitted applications for setting up car assembly plants in Pakistan.
Another meeting of the Auto Industry Development Committee is expected to take place to review more applications soon. Government thinks that once the industry is set up the European brands would also come forward.
The federal government however has violated the automobile policy by not cutting custom duties on import of completely built units (CBUs) by 10% from July 1, 2017. Foreign investors will be discouraged by such inconsistency in policies return of long term commitments.
A senior official of Lucky Cement informed that it would have 60% share in the joint venture and will invest $150 million. The new venture will also market and sell, besides import and export of all types of Kia vehicles, parts and accessories.
All three companies would separately enter into agreements with Ministry of Industries and Production to ensure compliance conditions of the Automotive Development Policy 2016-21. A manufacturing certificate and list of importable components to new investors after verifying that the manufacturing facilities established by the firm are adequate to produce roadworthy vehicles will be issued by EDB.
The three new players are expected to break the monopoly of the Japanese dominated car market and loosen the market clam of Toyota, Honda and Suzuki.
Nishat Mills Limited along with Hyundai Company will set up a Greenfield project for assembly and sales of HMC passenger and 1-ton range commercial vehicles in Pakistan.
Under the new automobile policy, the government has allowed one-off duty-free import of plant and machinery for setting up an assembly and manufacturing facility. It has also permitted import of 100 vehicles of the same variants in the form of completely built units (CBUs) at 50% of the prevailing duty for test marketing after the ground-breaking of the project.
A major incentive for the new investors is the reduced 10% customs duty on non-localised parts for five years against the predominant 32.5%.
Similarly, localised parts can be imported by new entrants at 25% duty compared to the current 50% for five years. A-category investors will be entitled to import of 100% parts at 10% customs duty for a period of three years in respect of passenger cars below the 800cc category.
They will also be entitled to import of 100% parts at prevailing custom duties applicable to non-localised parts for a period of three years in respect of buses, trucks, tractors and prime movers.