Inland freight subsidy for export from Karachi: move termed conspiracy against Gwadar

[Naveed Yaseen]

ZAFAR BHUTTA
ISLAMABAD (August 12 2009): The Ports and Shipping Ministry, Singapore Authority, and Balochistan government have jointly opposed Finance and Commerce Ministries' bid to give inland freight subsidy from Rs 40 billion export investment fund to cement, chemical, leather and marble tile exporters for exporting goods through Karachi Port, terming it a conspiracy against Gwader Port.

In order to help the textile and other export industry Rs 40 billion export investment fund was proposed in the federal budget for 2009-10. Around Rs 27 billion will go to Pakistan's main export earner-cotton and textiles-and Rs 13 billion for other export sectors to boost export earnings.

Sources in Finance Ministry told Business Recorder that the main beneficiary of inland freight subsidy would be cement sector, which has requested Rs 1000 per ton inland freight subsidy on export of cement from the government. Finance and Commerce Ministries are making all-out efforts to fulfill their demands, and the Ministry of Industry and Production is a silent supporter of this bid.

The Ports and Shipping Ministry had moved a summary to Economic Co-ordination Committee (ECC) of the Cabinet to give Rs 23 per ton inland freight subsidy to exporters for Gwader Port. That was rejected due to opposition by Finance and Commerce Ministries and now these two ministries are making an effort to give Rs 1000 per ton inland freight subsidy to cement exporters, sources said.

In a meeting held on July 24, the Ports and Shipping Ministry and Balochistan government strongly criticised the bid of Finance and Commerce Ministries to grant inland freight subsidy for export of goods through Karachi Port. They demanded giving inland freight subsidy only to exporters willing to export through Gwader Port.

They said that it would help increase the activities at Gwader Port. Cement sector exported 11.5 million tons cement during financial year 2008-09. Out of total exports, 7.5 million tons cement was exported through Karachi Port to Middle East countries, whereas 4 million tons cement was exported to India and Afghanistan.

Cement exporters have to pay demurrage during the loading of goods at Karachi Port, and sources were of the view that if export level remained at 5 million tons per year, then exporters would not have to pay demurrage. If it exceeded 7 million tons, demurrage is not affordable for exporters and, therefore, inland freight subsidy, aimed at enhancing export through Karachi Port, will not help where there is no room for traffic due to congestion, sources argued.

During the meeting it was noted that in this context, there would be no export enhancement by giving inland freight subsidy to the exporters for Karachi Port due to its congested position. "Gwader Port can be helpful in increasing exports," representatives of Ports and Shipping Ministry and Balochistan government said in the meeting, adding that cement exporters want to take the demurrage charges from the government disguised as inland freight subsidy.

Cement exporters have submitted to the government that they were exporting cement at $53-54 per ton on fob basis through Karachi Port to Middle East countries and they are exempted from 16 percent general sales tax (GST) and Rs 700 per ton federal excise duty.

According to calculations based on their export rate of cement, total cost of cement including GST, FED and freight is calculated at Rs 234 per bag here in Pakistan but they were selling cement in the country at Rs 350-360 per bag. At this time all the ministries including Ministry of Industry and Production and Finance are silent over the high rate of cement in the market and there is no ministry to take up the issue to protect the consumers.

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