Shredded tyres NTC for new PCT Heading and duty cut

ISLAMABAD: National Tariff Commission (NTC) has strongly recommended creation of a new Pakistan Customs Tariff (PCT) Heading in existing tariff regime (2011-12) for shredded/scrap tyres to reduce customs duty on the item from existing 20 percent to zero percent for providing an alternative fuel to the cement manufacturers.

Sources told Business Recorder here on Thursday that the NTC has finalised a comprehensive report on the review of tariff structure of shredded/scrap tyres to be used in the cement manufacturing industry as an alternative fuel. The findings of the report revealed that the PCT heading of 4004 covers waste, paring and scrap of rubber (other than hard rubber) and powders and granules obtained thereof.

A new PCT Heading for Shredded/ Scrap tyres (4004.0020) has been proposed to be created in the Pakistan Customs Tariff for reduction in customs duty to avoid the revenue loss pertaining to import of all other kinds of scrap robbers. The findings of the report said that there is a potential for indigenous cement manufacturing industry to use Tyre Derived Fuel (TDF) and to save Rs.1392 per metric tons (PMT) on fuel cost if the Shredded/Scrap tyres are allowed to be imported at zero rate of customs duty. Resultantly, the cost of fuel as percentage of cost of manufacturing would come down from 63 percent in 2010-11 to 35 percent.

The findings of the NTC report added that there are chances of misuse as import of new tyres under the umbrella of shredded/scrap tyres, which may hurt the indigenous automotive tyres manufacturers, but it could be avoided by strict control on misdeclaration. Therefore, NTC has suggested that these scrap tyres may be allowed in shredded form (cut into pieces). The NTC added that the government is charging zero percent duty on all fuels. Therefore, duty @ 20 percent on Shredded/Scrap tyres should also be reduced to zero percent for the import by cement industry.

Details of the report revealed that a manufacturer of cement (PCT Code 2523.2900) approached the National Tariff Commission for review of tariff structure of shredded/ scrap tyres to be used in cement manufacturing industry as an alternative fuel. The cement manufactures stated that currently the custom duty on Shredded/Scrap tyres is 20 percent, due to which use of shredded tyres as an alternative fuel is rendered expensive. The cement manufacturer has thus requested for complete exemption of custom duty on import of Shredded/Scrap tyres classifiable under HS Code 4004.0090. The said scrap shall be used as substitute of coal for the manufacturing of cement.

According to sources, the cement manufacturer has based its request on the grounds that the cement manufacture is one of the leading manufactures of Portland cement and has invested Rs 38 billion on its cement manufacturing facilities. It has created job opportunities for more than 4,000 people in the remote areas of Khyber Pakhtoonkhwa and Sindh.

Sources said that the cement manufacturer is one of the leading exporters of cement and earning US $170 million for the country. Cement industry is now among top foreign exchange earning industry in Pakistan. However, present increase in energy prices, primarily due to increase in coal prices from US $ 85/ MT -in 2008-09 to US $ 140/MT - in 2010-11 has made the cement exporters un-competitive and thus facing a difficult situation.

Sources said that the NTC has initiated investigation pursuant to the functions entrusted upon the Commission under National Tariff Commission Act, 1990 (the Act) and the National Tariff Commission Rules, 1990 (the Rules). Functions of the Commission under the Act are to advise the Government on tariff measures or other forms of assistance for providing protection to the indigenous industry or improving competitiveness of the indigenous industry.

In this regard, the Commission conducts inquiries and investigations. The Commission, thereafter, prepares a report with its views of Environmental Protection Agency (EPA) regarding query of National Tariff Commission as well.

Sources said that the Commission has asked some questions from EPA regarding the environmental impact of TDF from the burning of rubber tyres in rotary cement kilns. The EPA agreed that use of shredded rubber tyres is not only economical but also safe to substitute the conventional fuels in cement industry and pose no hazards to the environment. Moreover, the use of TDF is supported by United States Environmental Protection agency, USEPA and Portland Cement Association USA.

Sources said that the EPA agreed that firing of TDF under controlled condition in cement kilns at higher temperature is safe to be used. Intense heat of rotary cement kilns ensures complete destruction of the tyre and there is no smoke or visible emission from the tyres.

Sources further said that the EPA agreed that TDF gives more heat (in term of calorific value) as compared to conventional fuel such as coal and natural gas. The heat from TDF is almost same as that from furnace oil. The EPA has developed a guideline on use of TDF in cement industry, which has been shared with cement industry.

The NTC report has also carried out comprehensive analysis of the issues involved. The report of the NTC further revealed that the whole purpose of this exercise is to provide the cement unit with cheaper alternative fuel. One of the solution is to use Shredded/ Scrap tyres which is to replace the conventional fuel i.e. coal/furnace oil. Presently, the conventional fuel cost in cement industry is more than 60% of cost to make cement. Use of Tire Derived Fuel (TDF) can bring the fuel cost from 63% to 35% of the cost to make cement.

Sources said that the PCT Heading given by the cement manufacturer i.e. 4004.0090 is meant for "other". According to Pakistan Customs Tariff the main PCT Head i.e. 4004 is meant for waste, paring and scrap of rubber (other than hard rubber) and powders and granules obtained thereof. According to import data taken from FBR, the imports of following items are being done under the PCT Heading 4004.0090. Rubber pipe scrap, rubber waste scrap (cut into pieces), rubber sheet scrap, new tyres upper cutting in strips cut into pieces and rubber scrap comprising of used tyres cutting. Purpose is to provide the cement industry TDF not the rubber scrap.

It is therefore, important to create a new PCT Heading for Shredded/ Scrap tyres (Say 4004.0020) in which customs duty be reduced for cement manufacturing industry under SRO. The creation of new PCT heading would also help to avoid the revenue loss pertaining to import of all other kinds of scrap robbers.

The industry needs to make capital investment to enable it to use Shredded/Scrap tyres and the rate of customs duty is an impediment in making this investment, sources said.

Sources said that the annual imports of coal are presently 4 millions tones of which, 20% can be substituted by this cheaper material, which will result in saving of US $ 64 million in the import bill. According to report of Scrap Tire Management Council Washington, D.C, rubber scrap calorific value is 7,760 Kcal/kg as against much lower coal calorific value of only about 6500 Kcal/kg. This difference fully illustrates vast saving through use of Shredded/Scrap tyres.

Sources said that the NTC report further revealed that the demand of coal by cement industry is around 3.5 million tones. The foreign exchange on import comes to US$514 million. In comparison, if cement plants convert to Shredded/Scrap tyres, only 3.0 million tones would be imported costing US $156 million in foreign exchange.

This is clear cut saving of US$358 million in precious foreign exchange. Since Govt has imposed zero percent duty on all fuels including coil. Therefore, duty @ 20 percent on Shredded/Scrap tyres should also be reduced to zero percent for the import by cement industry, NTC concluded.

According to the conclusions of the NTC report, there is a potential for indigenous cement manufacturing industry to use Tyre Derive d Fuel (TDF) and to save Rs.1392/MT on fuel cost if the Shredded/Scrap tyres are allowed to be imported at zero rate of customs duty. The cost of fuel as percentage of cost of manufacturing would comes down from 63% in 2010-11 to 35%.

According to the EPA (Pakistan) and literature published internationally by various EPAs pertaining to environmental hazardous of use of TDF, there is no potential hazardous to use shredded/Scrap tyres as an alternative fuel in place of conventional fuels such as coal, etc.

Although there are 5 major automotive tyres manufactures in Pakistan which are producing new tyres which eventually turn into scrap tyres and there might exist local availability of Shredded/Scrap tyres in the country, but this quantity might not be sufficient for the use of cement plants in the country, sources said.

Sources said that the fuel value (energy gained per unit quantity) of shredded/ Scrap tire is higher than the conventional fuel such as coal/furnace oil which are costlier than TDF. Therefore, its use as an alternative fuel should be encouraged.

There are chances of misuse as import of new tyres under the umbrella of shredded/scrap tyres, which may hurt the indigenous automotive tyres manufacturers, but it could be avoided by strict control on misdeclaration. Therefore, it is suggested that these scrap tyres may be allowed in shredded form (cut into pieces), sources said.

The NTC has recommended that a new PCT Head (PCT No.4004.0020) be created for Shredded/Scrap tyres (cut into pieces). Secondly, the customs duty on this PCT (4004.0020, meant for Shredded/Scrap tyres (cut into pieces) be reduced from present level of 20% to zero percent.