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Local engineering industry No 25% preference say WB, ADB.

World Bank and Asian Development Bank are refusing to give 25% price preference to domestic engineering industry despite Pakistan's repeated requests. According to well informed sources a petition had been filed in M/o Water and Power by some local manufacturers pointing out non-compliance to the provision by PEPCO and DISCOs in international tenders financed by global lenders. M/o Commerce had issued an SRO on December 3, 2001, {No. 827 (1) 2001} `Engineering Goods (Control) Order, 2011'. It made it mandatory for government and state agencies to accord up to 25% price preference to local engineering goods compared to price of foreign items. 15% preference is given to local manufacturers in tenders funded by WB or ADB. Local manufacturers stress that SRO 827 be followed in all international tenders financed by local resources or international loans. Following requests have been made:

(i) Accord 25% price preference instead of 15% to local manufacturers;

(ii) Compare FOB prices of foreign bidders (including local custom duties and other charges) with Ex-Work price of local bidder; and (iii) Pay foreign suppliers after receiving materials at purchaser's warehouses and after issuance of Good Receipt Notes (GRN). According to insiders, tenders financed by WB or ADB are floated as per agreed guidelines harmonized for major donors/ IFIs. PPRA Rules clause 5 requires donor agencies to be preferred over all local procedures; therefore, the said SRO stands superseded under this policy. Local bidders have raised the matter again and again and have approached courts for relief. Three petitions against tender notices issued by PEPCO and DISCOs for engineering goods were filed in Lahore High Court and one in Islamabad HC saying they hamper procurement for ADB and WB funded projects. PPRA says it has no objections on right of refusal in direct and negotiated tendering.

If the bidder is asked to match the lowest evaluated prices, the term `price preference' vanishes in its true meaning. Sub-clause (2) of clause 4-A of SRO 827 is about landed cost of imported goods (including all taxes). It shall be compared with `final price' of local goods (including taxes) as quoted by local bidders. Restricting `price preference' to a maximum of 15% by lending agencies funded projects, needs to be reviewed and local engineering industries (bidder) be allowed price preference strictly as per SRO 827 i.e. 15% to 25% depending on value addition during manufacturing as also in non-funded projects. Finance Division had convened a meeting to discuss sub committee's recommendations about how developed countries support local manufacturers international and local bidding. The sub-committee held a second meeting to review SRO 827 and came up with following recommendations:

1. Guidelines of donor agencies be preferred over all local rules and procedures in funded projects;

2. Price preference of 15% for local engineering goods against funded projects is sufficient, if prices of local and imported goods are compared on equal footing. GoP may take up this with lenders on 15% price preference allowed to local engineering goods; and 3. GoP may take up the issue of allowing 25% price preference to local industry in loan funded projects. As sub-committee recommendations are to be submitted to Lahore HC, Economic Affairs Division requested Finance Division to convene the main committee's meeting to resolve outstanding issues for implementing the said SRO with the donors. It is likely to inhibit competitive spirit in local vendors/ manufacturers thus discouraging value addition and refinement in the absence of fair competition/ undue concession to local manufacturers. The SRO is perceived as an incentive for import substitution, indigenization and self reliance. The matter, therefore, needs consultation with all stakeholders.

So the Finance Minister formed a committee to examine SRO 827 about `Implications of Engineering Goods (Control Order, 2001) and to make recommendations in 45 days. Afterwards, a subcommittee was constituted to recommend changes in the SRO to bring it in line with existing laws. World Bank believes SRO 827 goes beyond domestic preference provided in its Procurement Guidelines. All WB funded projects must follow its guidelines. It is not possible to set aside SRO application of contexts/ conditions in WB funded procurements. WB says its guidelines for international tenders are very clear and equally applicable to all member countries. And 15% is applicable to local industries of all member countries. ADB also says that the only preference permitted by ADB requires bids to be evaluated on the basis of cost, insurance, freight as described in Incoterms. Local goods with at least 30% value added component qualify for 15% preference when compared to imported goods.

The guidelines are approved and cannot be deviated from without Board's approval. Without such a change in policy, ADB would not agree to mechanisms described in SRO 827 for procurement financed in whole or in part by it.
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Publication:Pakistan Engineering Review
Date:Jan 31, 2014
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