ISLAMABAD: Prime Minister Shehbaz Sharif has given two days to concerned Ministries and Punjab government to sort out issues facing Turkish companies in Pakistan, well informed sources told Business Recorder.
Prime Minister is scheduled to visit Turkey for two days (May 31 and June 1) wherein he would discuss different bilateral issues with the Turkish President.
On May 27, Prime Minister chaired a high-level meeting and discussed issues facing Turkish companies and directed that their concerns be sorted out immediately and a report be shared with Prime Minister Office on Monday (today).
The meeting constituted a committee headed by Minister for BoI and comprising Chief Secretary Punjab, Khawaja Salman Rafiq, Chairman LWMC, Chairman P&D Punjab Secretary Local Government and representative of Auditor General of Pakistan to meet at Lahore on Sunday (May 28, 2022) to fast track amicable resolution of pending dispute with M/s OzPak in view of the observation of Public Accounts Committee of Punjab Assembly.
Summary for exemption has been approved by ECC on Saturday of expenditures incurred out of grants disbursed by Saudi Fund for Development would be considered by ECC which will also examine actions of FBR officers responsible for creating a strain in Pakistan’s relationship with bilateral and multilateral aid agencies.
The meeting was given two weeks for preparation of proposal for Bilateral and Multilateral Official Development Assistance (ODA/Grants) for exemption from taxes in the Finance Bill 2022-23.
It was also decided to hold a meeting by concerned Divisions with following Turkish companies to address their concerns and issues raised by them: (a) Zorlu (b) HiyatKimye; and (c) Dawlance Arcclik.
Talking points are to be furnished by relevant Divisions to Prime Minister’s Office suggesting mutual collaboration/cooperation in following areas: (a) defence cooperation (b) health cooperation (c) Railway connectivity.
The meeting also decided that B2B meetings shall be arranged in Istanbul to facilitate interaction between Pakistani business delegation and their Turkish counterparts.
Provincial Governments have been directed to identify specific fields/ areas for collaboration with Turkish public/ private sectors and nominate a person (expenses of visit to be borne by Provincial Governments) to accompany Prime Minister and attend meetings arranged for the purpose.
A Sub Committee shall brief the Prime Minister on Monday (today) regarding the updated status/ progress on directions issued during the meeting on May 27, 2022.
Turkish Companies and their issues are as follows: (i) M/s Siyahkalem is a construction company with four projects in Pakistan between 2017 and 2020 including a university campus, two District Complexes (DHQs) in Kashmir and a Medical Institute extension in earthquake affected areas of KP with a budget of $80 million, donated by Saudi Fund for Development (SFD).
According to the company, ERRA breached the contract by not returning the amount of $ 7 million (9 per cent of contract value) and further to have not released contractor’s security letter/ bonds (US$ 8 million in value). In total, $ 15 million payments are outstanding with ERRA.
The ERRA has been justifying its action due to “out of contract” involvement of FBR (tax administration) despite the advice of a third party independent international consultant Alteraz, responsible for administering the contract.
The company is requesting that entire outstanding amount may be paid to the company ($ 7 million + $ 8 million from ERRA, as well as, amount deducted as tax by FBR).
(ii) M/s Zurlu Group was awarded a contract for 100 MW solar power project at Quaid-e-Azam Solar Park in Bahawalpur in 2017. The contract was awarded through competitive bidding on a cost plus tariff basis.
The tariff given by Punjab Power Development Board was @ 6 US cents/kWH, being the lowest. Later, it was further reduced to 5.30 US cents/kWH by NEPRA.
According to Zorlu Group, in order to not delay the project, the new tariff was accepted by it. However, the final notification was not issued by the Ministry of Energy as the Energy Committee of the Federal Cabinet in its meeting held in December 2017 decided to change the criteria for Cost Plus Tariff basis to Competitive Tariff basis bidding and applied to all projects on retrospective basis whose notification on final tariffs and Letter of Support (LoS) had not been issued.
According to the company, it made an initial investment of $40 million for the procurement of solar panels, in addition to $ 10 million for work on the ground. Other groups, such as Shell Renewable, who were interested in starting a joint venture with Zorlu Group, are now reluctant to engage in new projects in Pakistan. Subsequently, the tariff has also expired.
In Feb 2022, the company applied for a new tariff with enhanced technology and is still waiting for the award of the tariff from NEPRA. Upon determination of the new tariff and issuance of LoS from relevant institutions Zorlu Energy Pakistan aims to finalize the project and deliver energy to the national grid in 2023.
NEPRA, after getting a strong message from PM Office, has advertised M/s Zurlu’s tariff petition on May 28, 2022 for comments.
Second Project: electricity generation invoices for Zorlu Energy’s 56.4 MW Wind Power Plant located at Jhimpir in Thatta District, are disputed by Central Power Purchasing Agency (CPPA), resulting in unpaid invoices for Zorlu Energy.
The Company is requesting outstanding payment of approximately $ 23 million in context of wind power plant installed by Zorlu and requesting GoP to pay its outstanding dues ($23 million) stuck with CPPA on account of circular debt.
(iii) M/s Hayat Kimye Group has been facing issues relating to customs procedures/ duties, exemption of income and withholding taxes and power supply, etc.
The company was granted location by Faisalabad Industrial Estate Development & Management Company (FIEDMC) in the Special Economic Zone. All codal formalities and approvals for import of plant and machinery were met. However, at the time of import, the customs authorities of Pakistan did not allow the imported equipment including Fire Fighting Equipment’ and ‘Electric Installation Equipment’ entitled for duty free treatment.
Challenges faced by the company in following are: (i) release of bank guarantees (Pakistan Customs) Hayat Imported Plant & Machinery items as list were initially approved by the relevant authorized government departments, which were included electrical installations and fire fighting equipments. However, once electrical installations and fire fighting equipments were imported, the Customs refused to provide the exemption.
The company cleared its shipment by submitting bank guarantees of Rs 127 million (approximately) in order to avoid demurrages and raised this issue on various government forums.
The company has requested tax exemption on the import of essential equipment (the matter is sub judice pending with Sindh High Court). The company has also sought 10 years Corporate Income Tax Exemption and requested FBR to expedite the process of advance income tax/ withholding tax by the relevant authorities.
The company has also sought reduction in customs duty on raw materials on Fifth Schedule of Customs Act 1969 after verification.
According to the FBR, certificate from EDB is required by IOCO (Customs Office) which the company is pursuing but has no received any response.
(iv) M/s Albayark Ozpark deals in Metro projects, waste management projects, farm equipment, media, construction, waste to energy. Two Turkish companies, namely Ozkartallar Tld, (Sti) currently known as “Ozkartallar Insaat Sanayive Ticaret A.S”) and Compak Temizlik Bilgi Islam Otomasyon Saglik Hizmetleri Insaat Sanayive Ticrat A.S formed an exclusive business partnership titled Ozkartallar Campak.
On August 27, 2011, Lahore Waster Management Company (LWMC) announced an international competitive bidding invitation for pre-qualification for procurement of solid waste collection and transportation/ mechanical sweeping and manual sweeping, mechanical washing within the borders of Zone I & II of Lahore City.
M/s Ozpak was engaged for solid waste collection and transportation, mechanical sweeping, mechanical washing and manual sweeping as a contractor of the LWMC for Zone-II of Lahore city under the agreement dated November 11, 2011. The initial term of the Agreement was 7 (seven) years, which commenced on March 1, 2013. The term was extended by LWMC four times in total, last until December 31, 2020. However, despite full compliance by Ozpak to the terms of the Agreement and impeccable services that have been provided, LWMC defaulted on many of its obligations under the Agreement, including but not limited to payment of Ozpak’s invoices when due, reimbursement of costs incurred by Ozpak, including manual sweeping costs, management costs, pickup costs, and compliance with the waste tonnage guarantee provided in the Agreement.
While the discussions on how to resolve LWMC’s defaults under the Agreement were ongoing, on 21 December 2020 around 2:00 AM local time, the Punjab police together with various LWMC employees raided the workshops of Ozpak, forcefully and illegally broke into its premises and unlawfully took possession of 322 vehicles and other equipment registered and owned by Ozpak.
Furthermore, they removed the Turkish members of the staff by forcefully manhandling them from their residential premises located within the area of the workshops. During the raid, Ozpak’s official records were unlawfully taken without any rightful authority and all spare parts and related articles were looted from the workshops.
Furthermore, the CCTV footages, cameras, DVRS were all damaged.
Till date, the aforesaid vehicles, assets, equipment, machinery and other assets that rightly and lawfully belong to Ozpak remain in LWMC’s custody and are illegally being used by it.
The company has requested settlement of outstanding dues and amicable settlement of all disputes.
(v) M/s Arcelik Inc acquired Dawlance in Pakistan for $ 258 million in 2016. Since acquisition, it has reinvested over $ 60 million in modernization the aging manufacturing facilities and enhancing product quality with an aim to making Pakistan an R&D and export hub for the products in the region. The company has stated that it intends to export its products from Pakistan to Sri Lanka, Malaysia and Indonesia in view of Pakistan’s trade with these countries.
However, the government has withdrawn tax incentives, which has created issues for the company’s plans. The company is requesting the government to reconsider its decision and also to avoid amending existing laws and incentives schemes with retrospective application.
Other companies which are facing issues are M/s SUTAS Group which deals with dairy products as a joint venture with Nishat Group; M/s Coca Cola Icecek (CCI), Vava cars, M/s Hitit and M/s Harvelsan.
Copyright Business Recorder, 2022