Chinese, Korean and French car makers have strongly opposed the move by Pak Suzuki seeking same benefits/incentives that are marked for new players under the Auto Policy 2016-21.
Earlier in 2016, Pak Suzuki approached the government to get the benefits, saying its ‘new investment’ would be contingent on the government offering the same incentives it was offering to new entrants in the Automotive Development Policy 2016-21. However Pak Suzuki’s demand to get the Greenfield status was rejected by the government back then.
Now the company, while recently celebrating the 2.0 million sales milestone has re-approached the government to get the Greenfield investment status and hinted to set up a second assembly plant with an estimated investment of $460 million.
This demand by Pak Suzuki has created quite a debate at the Auto Industry Development Committee (AIDC) meeting held in Islamabad on Wednesday when all existing and new automakers received a copy of the two-page letter which had been sent by Pak Suzuki to the Prime Minister Imran Khan a day earlier.
In the letter, Pak Suzuki maintained that ‘if Greenfield investment incentives are given to Pak Suzuki, then the company will invest in setting up state-of-the-art green field plant and introduce new and advance models’.
Auto Policy 2016-2021 does not allow the incentives under Greenfield investment status to existing assemblers. The Greenfield policy was made to provide level-playing field to new comers and if Pak Suzuki or other existing assemblers receive these, this would be completely unfair.
It was decided that the auto policy, once implemented will not be changed for at least 5 years. However, the government will have to amend the Auto Policy 2016-2021 to provide benefits to existing assemblers. But if the government grants the Greenfield status to Pak Suzuki, or introduce any changes to the policy, it will be a huge credibility loss for the government policies. Furthermore it will create a negative impact on the new investment as there won’t be any attraction for newcomers to invest in the auto sector.
The Greenfield Incentives
In Greenfield investment status, a major incentive for new investors is reduced 10% customs duty on non-localized parts for 5 years, which is only one-third of rates available to the existing players. Similarly, localized parts can be imported by new entrants at 25% duty for 5 years, nearly half of the rates being applicable to the existing players.
The government has also allowed one-off duty-free import of plant and machinery for setting up an assembly and manufacturing facility under the Greenfield investment category. 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.