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Foreign investment in Pakistan.

The government is hoping to mobilise $3 billion foreign investment during 1995-96 with main emphasis on exploration of oil and gas, generation of electricity and expansion of telecommunication sector. During the past the inflow of foreign investment was as follows:

Inflow of Foreign Investment
 ($ million)

1988-89 216.2
1989-90 211.5
1990-91 237.0
1991-92 553.6
1992-93 443.2
1993-94 642.7
1994-95 (*)1423.1

(*) Includes PTC vouchers of US$ 862.2 million.

With complete deregulation of the economy with no requirement for any sanction, the multinationals and other foreign investors would find Pakistan a real profitable place to bring in their investment. To make Pakistan a safe and profitable heaven for both local and foreign investors who wish to explore and optimize the potential of inexpensive labour force, real estate and vast consumer market, the government has offered an attractive package of incentives that compares quite favourably with that of the countries of the region.

* There is no requirement for obtaining No Objection Certificate (NOC) from the provincial governments for locating the project anywhere in the country except the areas which are notified as negative areas. In notified negative areas, the establishment of industries is not considered desirable for certain reasons like environmental degradation, over-congestion etc. However, if any investor intends to set up an industry in the negative areas too, he may apply to the concerned provincial government, for permission.

Traditional investors were mainly from USA, UK, Germany and Japan. In 1993-94 South Korea has appeared as a big investor in Pakistan with $ 92.6 million investment. Koreans have taken equity in Dewan Salman Fibre project manufacturing polyester fibre. Recently a $ 50 million Hydrogen Peroxide project has been finalised to be set-up at Port Qasim by the Gul Ahmed Group in collaboration with Daewoo of Korea. Finance is being lined up and land is being procured at Port Qasim for this project.

The most significant project is PTA project of ICI to be set up at an estimated cost of $ 450 million at Port Qasim. This will be completed in 1997 and will produce 400,000 tonnes of pure terapthalic acid, meeting the entire demand of the country.

Theoretically, Pakistan places no restrictions on the percentage of foreign equity, and foreign companies may hold 100 per cent. In practice, however, officials discourage majority foreign ownership and 100 per cent foreign-ownership. In general, the government is favourable to foreign investment in areas in which it brings in "advanced technology, managerial and technical skill and marketing expertise." In particular, industrial projects that involve sophisticated technology and heavy capital outlays, such as engineering, basic chemicals, petrochemicals, electronics and other capital goods industries, will be encouraged.

An industrial policy statement, issued earlier, outlines the government's main objectives when considering approval for joint-ventures projects; they should have the potential of achieving one or more of the following goals:

1) Serve overall national objectives; 2) Contribute to the development of capital, technical and managerial know-how; 3) Lead to the discovery, mobilization or better utilization of national resources; 4) Strengthen Pakistan's balance of payments; and 5) Increase employment opportunities.

The government offers a variety of incentives to attract foreign capital. There is also little public hostility to foreign investment; neither the press nor local business are opposed to it.


The Board of Investment (BOI) set up by the Government of Pakistan has primarily been established as an investment promotion and facilitation agency working directly under the Prime Minister. Board of Investment plays a pivotal role in formulation of investment policies. It includes, governor of the State Bank and Chairman of Pakistan Banking Council. BOI acts as a "one-stop-shop" and is the focal point of contract between potential investors and all government agencies which are concerned with investments and responsible for providing infrastructural facilities. BOI provides facilitation services to any investor, who wants to invest in the opportunities which the Pak-economy offers. Pre-feasibility studies and project profiles are available with the Board of Investment for the benefit of a prospective investor to help him choose a project of his liking.



Manufacturing Plant

Port Qasim Authority and Fauji Fertilizer Company recently have signed a lease agreement for 350 acres of land for setting up country's first di-Ammonium Phosphate (DAP)-Urea plant near Port Qasim, Karachi, at an estimated cost of 370 million dollars.

The plant which will be a joint venture between Fauji Fertilizer Company (FFC) and Jordan's Mine Phosphate Company will be completed within 36 months of signing the agreement. The plant will meet 50 per cent of the country's DAP-Urea requirements. Currently about $150 million worth DAP is imported annually and the proposed plant would help save substantial amount in foreign exchange equivalent to US $ 100 million per annum.

The project envisages production of 450,000 metric tons of DAP and 550,000 metric tons of nitrogen fertilizer (Urea) annually and is likely to commence production by the end of December, 1997. The entire requirement of the DAP is met through imports and FJFC will be the first DAP project to partially meet its requirements and will be able to save foreign exchange of about $ 100 million annually.

In addition to this other projects like liquid chemical terminal, LPG and liquid cargo terminal will also be developed in private sector on Build, Operate and Transfer basis.

FFC-Jordan Fertilizer Company Ltd. (FJFC) achieved another significant milestone on September 5, 1995 for its DAP+Urea project being set up at Bin Qasim Karachi, when the engineering procurement and construction (EPC) contract awarded to the consortium of Klockner (Germany), Krebs (France), Deacon (Pakistan) and Habib Rafiq (Pakistan) was declared to be effective. With the effectiveness of the contract the loan agreements are also ready for disbursement. All this has been done in a record period of just eight months since the signing of the contract in December 1994. It is expected to be completed in 32 months time from effectiveness of the contract.

The total project cost is US $ 370 million. It will have a debt equity ratio of 70:30. The equity holders include among others, Fauji Fertilizer Co. Ltd. 30 per cent, Jordan Phosphate Mines Co. of Jordan 10 per cent, Fauji Foundation 10 per cent, foreign placement 21 per cent, Pakistan Kuwait Investment Co. 29 per cent. The public floatation is expected very shortly.

Of the US $ 370 million around US $ 165 million will be received through buyers credit being provided by Kreditanstalt fur Wideraufbau, Germany (equivalent US $ 50 million). Export Development Corporation, Canada (equivalent US $ 22 million). Banquet National de Paris, France (equivalent US $ 56 million), Exim Bank USA, financing of (US $ 37 million), bridge financing of US $ 25 million has also been arranged through Citibank, London.

Habib Bank Ltd. has provided the main guarantee with a consortium of 10 local leading banks and financial institutions. The gigantic DAP+Urea complex will produce per annum 0.46 million tons of DAP and 0.55 million tons of Urea. Construction activities at the Project Site are already in full swing.

200 MW Power Plant

Sindh Coal Authority (SCA) has issued a Letter of intent (Lol) to a USA based firm BBI Power L.P. for establishing a 200 megawatts (MW) coal fired power generation plant at Lakhra in district Dadu. The project, estimated to cost $308 million will utilize indigenous coal. BBI Power is a consortium of leading companies Montana Corporation, USA, Illinois Power, USA and Pennsylvania Power, USA, which runs 40 power generation plants with a total installed capacity of 13,973.50 MW in USA. Besides, the group was in a process to execute work on six power plants with a proposed capacity of 2850 MW in India and China.

Steel Radial

Tyre Unit

With the completion of a joint venture between Atemco of United States and King Tyres Group, Pakistan will be able to export high quality steel belted radial tyres. The collaboration between Atemco and King group has enabled Pakistan tyre manufacturing industry to produce for the first time "steel radial tyres".

The unit, when in operation, will create 500 direct jobs for different skilled/semi skilled professional and the vendors' industry. The new technology introduced in the manufacturing of tyres if said joint venture would produce radial tyres of supreme quality, having at least double life as compared to present ordinary tyres. Such tyres are now in vogue in Europe and the Gulf states. These tyres will also suit the local conditions of roads and environmental conditions also.



The Crescent Group, a large industrial and financial services conglomerate, will establish an acrylic fibre manufacturing facility in Pakistan under a technology license from Mosanto Company one of the world's leading chemical companies.

This venture, named Crescent Chemicals Limited will, have an initial capacity of 30,000 metric tons per year (expandable to 60,000 tons per year). The contracting party for supply of basic design, key and proprietary equipment and services for execution and commissioning will be Zimmer Ag, Frankfurt, Germany. The end product will be sold in the domestic and regional markets.

Monsanto developed its wet spinning acrylic fibre process in the 1950's and has licensed the technology worldwide for nearly 30 years. It is the world's premiere acrylic fibre technology and is currently practiced in Italy, Germany, Japan and other world areas.

Producer Dyed Fibre (PDF) in shades required in Pakistan will also be manufactured at Crescent Chemicals Limited allowing the company to offer a high quality, diversified range of products. Monsanto and Crescent are also discussing a licence of Monsanto's technology for manufacturing acrylonitrile, the key raw material used to make acrylic fibres.


Lately some obstacles have also come to light in the way of foreign investment. For instance several Memorandum of Understanding (MoUs) signed this year are in doldrums. The validity period of 55 MoUs out of 139 signed with foreign companies during the last one year has expired. It is reported that the sponsors of these expired MoUs got fed up with lengthy government procedures and kickback demands. One of the main reasons of the lapse of validity was that BOI failed to devise an official mechanism under which "deadline of financial close" of each and every MoU could be fixed and notified.

The sponsors of almost all the expired MoUs were also very much perturbed at the attitude of the Government of Pakistan for credit needs. In view of Pakistan's status in international markets these sponsors preferred to stay away.

A survey conducted by the Board of Investment on the implementation status of MoUs signed by various government ministries and organizations and private sector companies with South Korean investors, reveals a dismal picture since most of the agreements did not progress beyond the paper stage and as such the projects can be said to have aborted.

All the three projects signed with June Engineering of Korea including newsprint plant meat and milk processing and coal fired power plant have been scrapped. Similarly, the Hanbo Group of Korea has withdrawn itself from all the projects for which MoUs were signed last year. These related to (1) a coal based power plant with Sindh Coal Authority at a cost of $ 650 million, (b) processing and export of fruits from Pakistan in a joint venture with Mian Akhtar Pagganwala Group, with $ 7 million, and (c) construction of deep water port at Keti Bundar at a cost of $ 500 million. According to the Pakistani entrepreneurs the Hanbo Group does not seem interested in investing in Pakistan.

An equally dismal picture has been painted about the Hyundai Corporation of Korea. The $ 32 million joint venture for assembly and progressive manufacture of cars between Hyundai Motor Company and Saigal (Pvt.) Limited has been scrapped due to the withdrawal of tax concessions by the government under the rural industrialization incentives scheme. Since the Letter of Credit was not established prior to June 30, 1995 the project cannot enjoy the tax holiday.

It is also learnt that after the completion of a feasibility study for the construction of a refinery between Keti Bundar and Port Qasim the project has run into snags with regard to economically viable capacity. While the government wants the Pakistan State Oil to put the project based on Badin crude, PSO has indicated that it would like to put a 4.5 million BPD refinery at a cost of $ 800 million, based on imported crude-oil. The project will require 2500 acres of land and will have through-put of 100,000 tons per day. Hyundai has been asked to quote its price for the project.

The sole exception in the Korean-Pak MoU saga appears to be the establishment of $ 50 million Hydrogen Peroxide facility al Port Qasim by the Gul Ahmed Group in collaboration with Daewoo of Korean, Nissho Iwai of Japan and Udeh GmbH of Germany. Negotiations for the project were finalised before the much publicised Korean visit last year. Finance is now lined up and land is being procured at Port Qasim.

Siddiq Sons and Company have reported to BOI that it has submitted application for 25 acres of land to put a tin plant at Winder, Balochistan, in collaboration with Daewoo of Korea at a project cost of $ 30 million. However, its application for a $ 1 00 million, power plant project with Daewoo, with a capacity of 114 MW has been held in abeyance by the Pakistan Power investment Board as the requirements under the 8th Five-Year Plan have already been fulfilled by other projects. In case, the other MoUs ahead of Siddiq Sons-Daewoo application falter in their commitments, only then PPIB would issue a letter of support for which a bank guarantee has already been submitted.

Similarly, the government bodies, such as State Engineering Corporation, have stated that no progress could be achieved on the $ 300 million MoU signed with Halla Engineering and Construction Corporation, Korea for cement plants, sugar mills and power generation plants despite submission of feasibility on the limestone potential of Larkana district.

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Author:Haidari, Iqbal
Publication:Economic Review
Article Type:Cover Story
Date:Sep 1, 1995
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