Finance Minister Senator Ishaq Dar has constituted a high level committee to resolve a dispute between Port Qasim Authority (PQA) and Federal Board of Revenue (FBR) regarding exemption in duty for four tug boats procured to escort and harbour operation of LNG carriers and FSRU, official sources told Business Recorder.
Both the PQA and FBR are fighting with each on this issue for the last several months and finally PQA approached the Economic Co-ordination Committee (ECC) to get it resolved. The ECC heard the viewpoint of both public sector organisations but failed to evolve a consensus. Giving the background, the sources said, an LNG import terminal had been developed at Port Qasim by M/s Engro Elengy Terminal (Pvt) Limited (EETPL). Under clause 3.14.1 of the Implementation Agreement (IA) signed with EETPL, the PQA was required to develop LNG-related port infrastructure, including acquisition of four specialised ASD LNG compatible tugs for escort and harbour operation of LNG carriers and FSRU.
However, due to a weak financial position of PQA, the Ministry of Ports and Shipping took up the matter with the ECC through a summary of October 27, 2014 for grant/loan of $60 million for purchase of four ASD tugs. The ECC directed that PQA should ensure availability of four tug boats through its own resources. Accordingly, PQA arranged the tugs through hire on a charter basis for a period of two years from its own resources.
The Ministry of Ports and Shipping argues that clause 7.1(b) of the LNG Policy, 2011 envisages fiscal incentives in the form of exemption from taxes and custom duties on import of equipment for LNG terminal.
The sources said, Federal Board of Revenue (FBR) was requested to exempt from duty and taxes, acquisition of four ASD LNG compatible tugs either on lease purchase or hire purchase by the PQA. Ministry Petroleum and Natural Resources (MoP&NR) also endorsed the exemption. However, FBR regretted to accede to the request of Ministry of Ports and Shipping on the plea that tug boats are not covered under SRO 678(1)/2004 of August 7, 2014.
The sources further stated that the ECC was briefed on May 21, 2015 that the existing fleet of PQA tugs was not LNG compatible and the imported ASD tugs are specially designed and constructed to meet the standards of LNG carriers which are costly as the leasing cost of the tugs was $25 million for two years and the customs duty was estimated at $9 million. With addition of the fuel cost the annual expenditure comes to approximately $20 million. Being a huge financial liability, it does not justify the business return of LNG carriers coming to Port Qasim.
The Ministry of Ports and Shipping argued that the SRO 678(1)/2004 was issued almost more than ten years ago and the LNG Policy, 20111 clearly provides for exemption from customs duty with total exemption from sales tax and withholding tax on plant, equipment and machinery not manufactured locally and proposed that the ECC may approve exemption of temporary import of four ASD LNG compatible tugs, from customs duty and sales tax as envisaged in the clause 7.1(b) LNG Policy, 2011. The FBR did not agree with the argument put forth by the Ministry of Ports and Shipping and maintained that the exemption requested cannot be allowed.
After hearing the arguments of Ministry of Ports and Shipping, officials of Port Qasim Authority and Federal Board of Revenue, Finance Minister constituted a committee comprising Prime Minister Special Assistant on Cabinet, Prime Minister Special Assistant on Law, Secretary Ports and Shipping and Chairman FBR to examine the issue and submit their recommendation of the ECC in its next meeting.
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