The Automotive Development Policy (ADP) 2016-21 has had a major role in radically changing the complexion of the Pakistani automotive sector in the past 3 to 4 years, with numerous newcomers making their debut or return to Pakistan. With the year 2021 just having begun, the expiration date of the ADP also draws closer, which is June 30, 2021.
In a rather curious development, however, it has been revealed that the members of the Pakistan Automotive Development Association (PAMA) have asked the Engineering Development Board (EDB) about the dates whereby the new entrants shall be cut-off from the benefits of ADP 2016-2021.
A media report states that PAMA sent a letter to the EDB on February 8, 2021, requesting the board to offer “clarity” on when the benefits of the newcomers shall expire.
The media report also claims that, as per a source in the industry, the government seemed to have been favoring one of the new car companies as recorded in the minutes of the Auto Industry Development Committee’s (AIDC) 34th meeting. The report does not specify, however, which company the government was favoring.
According to a source, the new entrant in question is selling cars in Pakistan while not having a manufacturing facility anywhere in the country. The report highlighted that the ADP 2016-21 allows the newcomers to import only 100 CBU vehicles for product development and marketing purposes, whereas a particular manufacturer claims to have sold a lot more than that number.
It bears mentioning here though, that under the ADP 2016-21, the newcomers can import 100 CBU’s at 50 percent duty, but on the 101st unit, they would have to pay 100 percent duty, but they are allowed to import as many units on 100 percent duty as per their need.
As per the report, the minutes of the AIDC meeting stated the following:
That the maximum incentive period is five years, in case of greenfield, and three years in case of brownfield, thus for those approved companies, which will start their commercial operations after June 30, 2021, the break-off dates (counted from the end date of the ADP i.e. June 30, 2021) shall be June 30, 2024 and June 3, 2026, respectively. The companies who have already started their commercial production before June 30, 2021, their incentive shall not go beyond their approved five-year business plan.
The minutes further highlighted that, as per a verdict issued by the government, the new entrants that have already begun the production of their vehicles before June 30, 2021, shall have to abide by the business plan that was made amid the ADP incentive period.
The companies that do shift to a new strategy shall have to provide a proper justification, otherwise, their incentives shall be suspended under clause 4.4 of the ADP 2016-21.
With regards to the cut-off dates for the incentives as well as the revision of the business plans, PAMA put forth a few questions before the EDB in the letter. The letter stated that, under the ADP, the new entrants are allowed a concession period of 3 to 5 years, depending on each unique case, starting from the date of production.
Seeking clarity about the implementation of a new strategy and the dates of expiration, the letter stated the following,
These new entrants, also, reportedly, submitting revised business plans for the new models. This, submission of a revised business plan, by those who have already attained commercial production, may circumvent the incentive period that may end up being more than five or three years. There is done deal once in commercial production, yet the submission of the revised business plan may revive incentives that may, therefore, exceed the prescribed periods stated above.
The report adds that, as per the minutes of the AIDC meeting, the said point had been addressed in a statement that reads, “In that case, new entrants can respond/submit an application, finalizing plans by 30th April 2021,” however, there is still some clarity to be had on this claim as per PAMA.