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Air conditioning industry.

Room airconditioner making industry in Pakistan has taken rapid strides during the last few years. The industry made a modest beginning in 1974, when a state enterprise produced the first domestic airconditioner. Today 13 companies have the facilities to assemble and manufacture airconditioners. However, currently, only nine units are in operation.

Local production of room airconditioners increased from 6,754 in 1985-86 to 18,913 in 1990-91, showing an increase of 180 per cent per annum.

Production of airconditioners, for the last eleven years is given in Table-1.


Production of Airconditioners
Year (Numbers)
1981-82 9,530
1982-83 20,677
1983-84 17,861
1984-85 12,791
1985-86 6,754
1986-87 7,507
1987-88 14,761
1988-89 19,983
1989-90 20,101
1990-91 18,913
1991-92 4,899

Source: Federal Bureau of Statistics Karachi

Production of airconditioners peaked in 1989-90 with production of 20,101 numbers. However, production in 1991-92 touched the bottom at 4,899. The sharp fall in production may be attributed to the liberal import of airconditioners from the Far Eastern countries like Malaysia, Taiwan, Singapore etc. Sales Tax at the rate of 12.5 per cent is charged on the retail price of domestic airconditioners. In order to encourage local airconditioners, the exemption of customs duty has been withdrawn on the import of airconditioners under Transfer of Residence Rules.

Imports of


Import of domestic airconditioners were the highest in 1982-83 at 5308 numbers worth Rs. 10.754 million. Valuewise import in 1990-91 were the highest at Rs. 38.881 million. Import of airconditioning machines have also increased from 639 numbers worth Rs. 27.411 million to 847 numbers worth Rs. 71.667 million.

Rise in demand for airconditioners depends on rise in the living standard of the people and availability of electric power. As more and more industrial and commercial complexes are going up and as government and private offices expand, Pakistan would need more and more airconditioners. The total industry is already poised for a major breakthrough in the demand for airconditioners which will certainly increase rapidly.

Local industry is meeting 85 per cent of the current demand for airconditioners, while the remaining 15 per cent is being met by imports under the baggage Scheme and under commercial licences. However, the fact remains that there is still a demand supply gap, and hence there is a vast scope for the development of engineering industry like airconditioning.

Airconditioning industry can now look forward to the day when it will not only meet the entire domestic demand but will also be able to export its products and face competition in the world market.



Airconditioning and refrigeration are now considered as essential elements for the efficient functioning of many an industry, Pharmaceutical industry cannot move without the aid of refrigeration which is used for dehumidification of air in a room for tablet coating powder milk manufacturing besides the use of chillers in the production of certain syrups and compounds. Oil refineries and petroleum industries use refrigeration extensively in refining process for the removal of wax in crystallised form. Food and beverage industries also use refrigeration extensively for the preservation of fruits, vegetables, meat, beef, poultry products, mitk and fish. Chemical and allied industries depend on refrigeration to a considerable extent.

Pakistan companies engaged in the assembly-cum-progressive manufacture of airconditioners of different types, have attained full capability to manufacture the complete range of equipment for central and industrial air-conditioning including airconditioning of textile industry.

However, most of the units are reported to be operating below the sanctioned capacity. This is attributed to a host of causes, such as, lack of adequate marketing techniques among the local units, import of airconditioning plants at dumping prices, while at times these equipment are included in all the textile plant/machinery in a package deal with machinery suppliers for import against suppliers credit imports are also made under barter trade; at times designs and specifications of airconditioning equipment, manufactured locally, do not conform to users interests and requirements and therefore they place orders for the import of specific equipment. This state of affairs may be attributed to lack of standardization of products for local manufacture. Lastly, import of industrial airconditioning equipment is allowed under Free List with the result that, consumer preference continues to go in for the imported stuff, while the locally-manufactured airconditioning equipment suffer from lack of active demand.

Imports of industrial airconditioners, operated by motors with more than 3 H.P. have been reported as under during the past 8 years.

A survey has assumed growth rate at 15 per cent annually for the demand of packaged airconditioners, 25 per cent for airhandling units, 20 per cent for Fan Coil units and 10 per cent for humidifiers.

The sanctioned capacity for the manufacture of packaged airconditioners was reported to be 1870 units/numbers annually, against which, actual domestic production has been estimated at 30 per cent. The present demand is estimated at around 3891 units which is projected to increase to 5917 units (packaged airconditioners) by 1994-95 on the basis of 15 per cent annual growth in demand.

Package type airconditioners are described as self-contained aircooled airconditioners comprising compressor, refrigerant control, thermostat, condenser and evaporator coil.

They are based on vapour compression cycle. The only difference between the window type and package type airconditioners is that of rating. The package types are of larger ratings/capacity. The package airconditioners are designed for offices, large buildings, super markets, big hotels and restaurants, commercial and industrial enterprises.

The split units consist of two parts viz, remote condenser with compressor and indoor air treatment units with return air having direct or duct connections. Humidifier, which is one of the airconditioning equipment, is designed to control humidity within the four walls of industrial installations. It is specially useful in the textile industry.

Humidification in textile industry greatly contributes to the productivity of machines and men and also to the quality of yarn and cloth.

Humidity may be controlled by direct as well as indirect methods. In the direct system, separate humidifiers add moisture to the air in a room, while in the indirect system, the rooms receive moist air from the centrally-installed airconditioning plant through ducking and diffusers.

Car Airconditioners

There appears to be a large gap in the sanctioned and installed capacity in the country for the manufacture of automobile airconditioners vis-a-vis the rising demand. In view of this, the demand is being increasingly met through illegal imports including import under personal baggage rules.

Three units are reported to be manufacturing car airconditioners with combined capacity of 7200 units.

There is said to be no restriction on the expansion of sanctioned capacity of a project/unit for manufacturing car airconditioners so long, as, it follows the deletion schedule as prescribed by the Government. The components which are allowed to be imported by the manufacturing units at concessionary duty rates, include: Compressors in CKD condition, Magnetic Clutches, Expansion Valves, Pilot Lamps, Thermostat and Evaporators. It is conditional on these units that import liability of a unit should not exceed Rs. 4.00 million per annum.

In 1988 the investment Promotion Bureau decided upon an economic sized model project for the guidance of prospective investors in this industry. Accordingly, the economic size of a unit was determined with a capacity of 4,000 units of car airconditioners per annum (300 days working). The cost of a project of this capacity was estimated at Rs. 9.500 million with a foreign exchange component of Rs. 1.600 million for financing the import of machinery/equipment, and working capital requirement of Rs. 2.825 million. The total cost of production was estimated at Rs. 5,500 per unit. Deletion could be achieved to the extent of 50 to 60 per cent.

Airconditioning has been defined as a function involving control of temperature, humidity, and distribution of air within the confinement of a given space. The space in a car is the entire internal portion which simultaneously should be protected against other adverse atmospheric conditions from outside.

Thus, the important actions involved in the operation of an airconditioning system include:

1) Temperature control, 2) Humidity control, 3) Air filtering, cleaning and purification,

and 4) Air movement and circulation

The car airconditioner consists of a compressor driven by car engine; a condenser located in front of the car radiator, liquid line(copper tube)for the refrigerator control; an evaporator; a fan and a duct system.

It is pointed out that the use of an airconditioning system in a car may lead to reduction in fuel mileage of the car to the extent of 10 per cent, when the car airconditioner is in operation.

The demand for car airconditioner is derived from the rising population of cars in the country and partly k is also linked with the rise in income levels. A car owner belonging to upper middle income can hardly afford to equip his car with an airconditioner unless he has some other sources of income. Most of the cars provided by government offices and private firms are equipped with airconditioning system. In the government, nobody bothers to care that it is the tax payers money which is at their disposal. They have the pleasure and discretion to use this money to spend in all sorts of comforts. As for the private companies, they consider it their right to spend whatever they earn, otherwise they will have to pay to the government as income Tax/Super Tax.

Coming back to the growth of cars and light vehicles, Table-III shows the projected increase in the number of different types of light automobiles upto the and of June 30, 1991-92.

Fiscal Changes

Until the financial year 1987-88, the refrigeration industry was operating at an average 33% capacity utilization. Major reasons for this state were duty-free imports under the transfer of residence scheme allowed to expatriate Pakistanis and an unbalanced duty structure for commercial import of refrigerators. in CBU condition and components.

Duty for commercial imports was fixed in absolute term-per litre of capacity whereas on components it was charged on C&F basis. As a result, the duty on components kept going up with the rise in C&F cost of components due to inflation in exporting countries and devaluation of Pak rupee.

At the same time, the duty on commercial imports of refrigerators in CBU condition remained fixed. This sharply narrowed the gap in the selling prices of imported goods and cost of locally produced goods to an extent that local industry was forced to sell almost at cost. Therefore, the investment in the industry got frozen. The industry was surviving hand-to-mouth, as it could neither increase production nor could it increase selling price to recover the rising costs as the market was flooded with cheaper imported goods.

At last in 1988 the government started taking a realistic view of the local industry which was slowly heading towards a complete closure. In October 1988, the government imposed almost 50% duty, as compared with commercial CBU imports, on refrigerators imported under Transfer of Residence Scheme. The next two year saw further removal of fiscal anomalies by imposition of duty on commercial imports on ad valorem basis instead of the previous fixed Rs. 17 per litre capacity.

The rate of concessionary duty on import of components was also reduced from 40% to 20% ad valorem. Some unscrupulous commercial importers, however, resorted to massive underinvoicing to avoid additional duty payable by them on ad valorem basis. The latest step taken by the government is the fixation of import trade prices to overcome the menace of under-invoicing.

Unhealthy trade practices of commercial importers had two pronged impact on's economy. On one hand the government was being deprived of revenues by way of import duty and sales tax etc. and on the other, the local industry was placed in an artificially uncompetitive situation.

In April 91, the government devised a system of capacity assessment to check unfair practices. Now the ITP has been fixed on the basis of outer dimensions i.e., cubic feet based on outer dimension multiplied by 28 to arrive at liters. impact of these measures has been simply startling on the growth in production and sales volumes of local industry.

For instance in 1987-88, before the change in government policies, total production of refrigerators in Pakistan was 36,615 units shot upto 53,801 in 1988-89, as a direct result of changes in tariff policies, showing an increase of 47 per cent over the previous year. Upward trend continued in 1989-90 with total production going up to 70,758 units, showing an annual growth of 32 per cent and a cumulative growth of 93 per cent. Fast growth in refrigerator production is expected to continue in the current year.

It is estimated that 110,000 units will be produced in 1991-92, registering a growth of 10 per cent over the previous year and a cumulative growth of 200 per cent in just four years.



Import of Airconditioning Plants
 Quantity Value
Year Numbers (Rs. Min.)
1984-85 718 47.8
1985-86 1,253 59.4
1986-87 762 43.0
1987-88 1,289 61.4
1988-89 1,117 60.6
1989-90 1,256 47.5
1990-91 847 71.6
1991-92 1,401 139.8

Source: Foreign Trade Statistics of Pakistan
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Title Annotation:Pakistan
Publication:Economic Review
Article Type:Industry Overview
Date:Jul 1, 1993
Previous Article:Environmental benefits of Pakistan's energy conservation programme (ENERCON).
Next Article:Refrigerator industry: future challenges.

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