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The Ministry of Climate Change (MoCC) and the Engineering Development Board (EDB), an arm of the Ministry of Industries and Production (MoI&P) have reportedly locked horns over the jurisdiction of the National Electric Vehicle Policy (NEVP), and proposed fiscal measures and incentives.
The war-like situation between the MoCC and the EDB has been witnessed in the official documents available with Business Recorder to be placed before the Economic Coordination Committee (ECC) of the Cabinet.
The EDB has challenged almost all the claims of the MoCC including consultation process with the local auto-industry stakeholders.
The MoCC, in its draft summary states that Prime Minister's Committee on Climate Change during its meeting held on May 17, 2019 approved the minimum mandatory electric vehicle (EV) penetration targets, and tasked the MoCC to develop the NEVP.
After extensive consultations, the draft National Vehicle Policy was firmed-up and placed before the Cabinet for approval, which was approved by the Cabinet in principle.
The Cabinet directed the MoCC to set up an inter-ministerial committee to finalise further details, including the phasing/timeframe for various actions.
The Cabinet also directed that the committee will also hold consultations with the existing automobile manufacturers to address their concerns, if any, and the incentive structure proposed in the policy to be submitted for consideration to the ECC.
According to the MoCC, the proposed package in the NEVP aims at to introduce the EVs in the country, and make their prices affordable by focusing on local manufacturing.
The incentives package among others, proposes nominal import duty at one per cent on the import of parts and components of various categories of EVs 2-3 wheelers, various categories of cars, buses and trucks.
It further recommends nominal sales tax at one per cent on the sale of all EV categories to make these affordable for the buyers/general public.
The capital cost of the EVs is still high due to high battery costs, and as such without the proposed incentive structure it will be difficult to introduce EVs in the country.
There are forecasts, which indicate, that the cost of Lithium batteries are failing rapidly.
The MoCC says that the NEVP revolves around the major objective of "Make in Pakistan" by incentivising import of parts and components for those companies that establish assembling/manufacturing units.
It only recommends import of three years old cars for only two years, primarily with the aim to get EVs introduced and to get the charging infrastructure established in the country.
The Federal Board of Revenue (FBR) is of the opinion that import duties for all categories of vehicles should be at 10 per cent rather than the NEVP proposed one per cent.
Their view is that a nominal customs duty will impact potential revenue due to reduction in duties, and the GST will be more than offset by the benefits of EV introduction in a timely manner, local production and export potential.
These incentives do not violate the Auto Development Policy 2016-2021.
The MoCC claims that these incentives and the EV targets become part of the next ADP.
However, introduction of the EVs through the proposed incentive package is expected to usher multiple economic benefits.
The Sustainable Energy Project (SEP) of the USAID, which is assisting the Ministry of Energy and Ministry of Planning, Development and Special Initiatives on various aspects of integrated energy has developed an energy supply chain simulation based on Global Market Equilibrium Model (GCAM) and builds six possible scenarios revolving around high and low vehicles expansion and low, moderate and high EV penetration.
These scenarios reflect net benefits in the range of $2.2 billion to $3.7 billion, on account of net saving to the country under various scenarios in the 2020 and 2030 time period.
Additionally, there are benefits on account of reduction in emissions and air pollution/smog, the associated health benefits and the larger/associated economic benefits of establishment of local manufacturing and assembling not included in the calculations.
The EV transition has begun across the world, and many countries have set ambitious targets for EVs backed by subsidies and incentives.
With a view to facilitate a smoother transition in the country, the EVs targets have been planned in a phased manner, so that it does not create any disruption.
The MoCC is of the view that it is the best time to give effect to the policy prepared by it with the technical support of the LUMS, the Energy Institute by providing a framework and an incentive regime to facilitate transition towards EVs.
The ministry further states that as a country Pakistan have an opportune 3-4 years to set up EV value chain manufacturing focused on right-hand drive vehicles.
Delay in this will never allow Pakistan to be a major player in the EV value chain and will always remain a net importer.
Also many companies such as Sazgar, Jolta, New Asia, Inerz in collaboration with leading Chinese manufacturers (BYD, BIAC) etc, have begun the investments for manufacturing EVs in the country and many more are waiting for the policy.
Companies such as the PSO, Total ABB etc, are preparing to undertake establishment of charging facilities as the policy gets into implementation.
However, the key rival of the MoCC i.e. Engineering Development Board/Ministry of Industries and Production is of the view that the proposed incentives for EVs will create major disruption in the market against the claim, adding that this can be cross-verified from local industry, which has not been consulted adequately.
The EDB, in its comments further stated that technology acquisition, localization and capacity building are major driving forces behind automotive industry rather than climate consideration only.
"Neither LUMS nor MoCC posses requisite exposure of automotive manufacturing. The announcement of proposed policy by the MoCC having heavy incentives for the EVs in current difficult conditions will further add to the disadvantages of existing industry," said the EDB.
It further states that local industry could not achieve required volumes due to such interventions in the past.
The EDB has proposed to the Ministry of Industries and Production to oppose the proposed incentive package, which is unacceptable to the major stakeholders' i.e. local manufacturers of vehicles and parts.
The EDB is in the process of finalizing the draft EV policy with the involvement of local industry, which will include specific interventions for each sub-sector of auto industry ranging from 2-3 wheelers, cars, light commercial vehicles, sports utility vehicles, and heavy vehicles.

Copyright Business Recorder, 2020

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