a handbook for doing business in sindh - sindh board of ... investment handbook.pdf · especially...
TRANSCRIPT
A Handbook For Doing
Business In Sindh
Sindh, with its numerous competitive advantages, becomes anobvious choice for investors. Sindh’s wealth of natural resources, itsstrategic location and its well developed industrial, nancial andtelecommunication sectors have all the ingredients for a successfulbusiness venture.
Karachi has been the focus of investors’ interest, who have beenattracted to its vibrant economy and enormous business potential.The scope for coastal recreation resorts, construction and housingespecially in low cost sector, IT parks, modern municipalmanagement, mass transit and in relocation of textile and otherindustrial setups from developed economies make it an idealdestination for investors.
The endeavour by Sindh Board of Investment to showcase Sindh’spotential for investment particularly in rural economy, would help infulling government’s commitment to provide equitabledevelopment in all parts of the province.
Sindh, by the grace of Allah, will continue to be the majorcontributor in national revenues.
Dr. Ishrat Ul Ebad Khan
Governor Sindh
Sindh Government attaches high priority to Investment facilitationwhich it believes would take the Province to path of the progresswhere it achieves its true economic potential. The creation of SindhBoard of Investment is the manifestation of Sindh Government’scommitment to bring about continuous improvement in theinvestment climate in the province. SBI is tasked to developinvestment opportunities for large, medium and small investors,which will include technical assistance in conducting marketresearch and feasibility studies.
Sindh has been successful in signing the biggest joint ventureproject in the country’s history where the provincial government willinvest with a private sector company on a US$ 1 billion coal miningproject. Sindh Assembly has provided legal structure for PublicPrivate collaboration by enacting Sindh Public Private PartnershipAct 2010. M/s Deokjae Construction Company of Korea has alreadystarted work on the first PPP road project, Hyderabad-MirpurkhasDual Carriageway.
Sindh Development Fund is another unique initiative whereby thegovernment will provide subsidy to the private sector initiatives forvalue addition in agro-processing, fisheries, livestock and dairysectors.
The Government of Sindh is actively pursuing its goal to bringprosperity to its people by creating jobs and economic opportunitiesby facilitating investment and business.
Chief Minister Sindh &
Chairman, Sindh Board of
Investment
Saleem.H Mandviwalla
Minister of State / Chairman,
Prime Minister’s Secretariat (Public),
Board of Investment
Nature has blessed Sindh Province with ideal climate suitable forgrowing wide range of crops, fruits, minerals and man-power resources.Government policies are conducive with the emphasis on promotionalactivities to facilitate the establishment of new industries and theirsmooth growth & operation.
Pakistan’s Investment policy is the most liberal in the region, and opensnew vistas to local as well as foreign investors for investment in service,social, agriculture and industrial sectors so as to keep Pakistancompetitive in international market and viable area of investment.Under the Investment Policy in vogue no permission is required to investin Pakistan. A foreign investor can hold up to 100 percent of equity.Remittance of profit, dividend, and capital is allowed among many otherfacilities available in the policy.
Pakistan a home to over 700 multinational companies, which shows theconfidence of investors in Pakistan. Due to consistenteconomic/investment policies, international studies & surveys hasranked Pakistan better than India, China, Srilanka, Bangladesh etc withrespect to: ease of doing business.
Pakistan being one of the fastest growing economies of the worldhaving touched a GDP growth rate of 8.4% in 2005. Today Pakistan hasover 170 million consumers with an ever growing middle class. ForeignDirect investment has risen sharply from an average of $300 million inthe 1990s to over $3.7 billion in 2008-09. Fiscal decit has declined froman average 7% of GDP in the 1990s to around 3% in recent years. FOREXreserves have increased from $ 3.22 billion in 2000-01 to $11.6 billion inJune 2009 and are increasing further.
Mr. Mohammad Zubair Motiwala
Advisor to CM
Sindh Board of Investment
Sindh is the most resilient and attractive investment destination for international
and local investors. With Karachi-the financial capital of Pakistan, being
nucleus of headquarters of major banks, financial institutions and business
houses, having large agricultural, industrial and aqua culture base as well as
emerging opportunities in energy sector provides the province
with unmatched competitive advantage to attract investment. In order to
capitalize on this competitive advantage Sindh Board of Investment (SBI) has
been established to strengthen business friendly environment in the province
with efficient mechanisms of governance to enhance comfort level of the
investors by acting as a bridge between the Government & the business
community.
SBI has tried to change the orthodox way to attract investment by offering the
potential investor viable projects with complete technological knowledge.
Through Sindh Development Fund government of Sindh has established a
credit assistance window where the idea is to work closely with financial
institutions and subsidize the interest rates for attracting investment in agro
based industries to support rural economy of the Province. The commencement
of mega projects like Education City, Special Economic Zone, Textile City,
Marble City, Khairpur Special Economic Zone will provide immense
employment opportunities and usher a new era of economic activity in the
province.
With prudent policies of the Government, new investment opportunities are
emerging in Sindh everyday making it a top choice for foreign and local
investment including relocation of industries from the developed economies.
SBI hopes you will join thousands of investors already benefiting from
investment in Sindh as we oer a winning combination of benefits and
opportunities to be your preferred investment destination.
Mr. Mohammad Younus Dagha
Secretary
Sindh Board of Investment
Sindh Board of Investment presents its yet another
milestone publication. This handbook is the first attempt
on the part of SBI to bring a gist of some useful policy
papers in one volume.
There was a constant demand from our investors and
their facilitating investment institutions in various fields for
information on government’s policies and regulatory
framework. We have tried to gather some useful pieces of
such information which may be of relevance to all kinds of
investment related decision making.
We also place on record our acknowledgement of having
benefitted from the following work done in this area:
i) Investor Resource Guide, Pakistan Board of Investment
ii) Investment in Pakistan 2010, KPMG
It is admittedly not perfect yet and will require continuous
updating and improvement, which is only possible through
your valuable comments.
LAND OF ENDLESS
OPPORTUNITIES
Pakistan - Compared to global good practice economy as well as selected
economies:
To develop and promote an investment friendly environment that boosts economic
activity, brings value addition to all sectors of economy and encourages public private
partnership for socio-economic development of Sindh
Act as the Focal Point for all Investment related activities in the Province
Provide Framework for implementation of Investment Policy of the Federal Government and tosupport provincial endeavors
Investment Protection by looking after legitimate interests of business / investors community
Provide alternate dispute resolution mechanism for cases / prosecution initiated againstmembers of trade and industry under various commercial, industrial, labor and taxation lawsenforced by the Provincial Departments
Suggest improvements in regulatory framework and procedural systems for Trade and Industrialactivities in the Province
Provide platform for Public – Private interaction and promotion of Public Private Partnerships
Provide One – Window system at the Provincial level for facilitation of local and foreign investorsseeking land, approvals, concessions, facilities and support from the Provincial Departments andauthorities
A Snapshot of Sindh Sindh’s Competitive Advantages Investment Policy and Incentives Other Policies & Legislations Sectoral Policies
Agriculture
Automobile Sector
Cement
Energy (Power, Oil & Gas)
Fertilizer Sector
Financial Services
IT & Telecom
Minerals
Pharmaceuticals
Textiles
Mergers & Acquisitions Foreign Exchange Appendix I - Company Laws Appendix II – Other Legislations Appendix III – Labour Laws Appendix IV – International Agreements Appendix V – Important Contacts
Area: 140,914 Sq. Km Population: 35,470,648 Coast line: 350 Km Long Government Type: Provincial Capital: Karachi
Coastline – 350 KMs Two Major Ports
▪ Port Qasim
▪ Multipurpose Terminal, Container Terminal, Liquid Chemical Terminal & Oil Terminal
▪ Karachi Port
▪ Container Terminals, Bulk Cargo Terminals, Oil Piers, Ship Repair Jetties and Shipyard & Engineering Facility
Huge potential for Aquaculture
SINDH - Regional Power House of the Future Thar Coal – potential for
200,000 MW for 300 Years
Wind Corridor – 50,000 MW potential
Oil – 56% of country’s production
Gas – 71% of country’s production
Wide network of Industrial Estate SITE Limited (Sukkur,
Benazirabad, Nooriabad, Hyderabad & Karachi)
Korangi Industrial Area
NIP (Bin Qasim & Korangi Industrial Parks)
Export Processing Zone (EPZ) –Karachi
Port Qasim Industrial Area
Trained, Educated & Affordable workforce
Airports Jinnah International Airport
Four domestic airports (Hyderabad, Benazirabad, Sukkur & Larkana)
Airstrips at several locations
Large Agricultural, Industrial & Aquaculture base Agriculture 23% of GDP
contribution
34% of Total LSM in Pakistan
▪ LSM in Sindh contribute 43% to GDP
▪ SSM in Sindh contribute 25% to GDP
Almost all economic sectors open to foreign investors Foreign equity up to 100% allowed No Government permissions required Attractive incentives package Remittance of capital, profits, royalty, technical & franchise fee
allowed Equal treatment of local & foreign investors Network of Export Processing Zones / Industrial Estates Import of raw material for export manufacturing zero-rated Attractive incentive packages
0-5% customs duty on import of machinery
No sales tax on import of machinery
No withholding tax on import of machinery
Foreign investment is fully protected by following Acts
Foreign Private Investment (promotion & Protection) Act,1976
Protection of Economic Reforms Act, 1992
Bilateral Agreements
Investment Protection 47 countries (Appendix IV)
Avoidance of Double Taxation 52 (Appendix IV)
Policy Parameters Manufacturing Sector Non-manufacturing sectors
Agriculture Infrastructure and
Social
Services
Government permission Not required except for
specific industries [1]
Not required except licenses from concerned agencies
Remittance of capital, profits,
dividends etc.Allowed Allowed Allowed Allowed
Upper limit of foreign equity
allowed100% 60% 100% 100%
Minimum investment in service
sector (USD in Millions)N/A 0.3 0.3 0.15
Custom duty on import of plant,
machinery & equipment5% 0% 5% 0-5%
Tax relief
(Initial depreciation allowance, % of
plant, machinery & equipment cost)
General
If set-up in an
underdeveloped area
50%
90%
50%
90%
Royalty and financial fee No restriction on payment
Allowed as per guidelines
Initial lump-sum up to USD 100,000
[1]: Specific Industries are: Arms and Ammunition, High explosives, Radioactive substance, Security printing, currency and mint
Foreign companies can choose between setting-upa liaison office, branch office or incorporate aPakistani company as either its wholly ownedsubsidiary or joint venture with a Pakistani /overseas partner.
The activities of a LO of a foreign entity are restricted to undertakingpromotional activities, provision of technical assistance, exploring thepossibility of joint collaboration and export promotion on behalf of itsparent company in Pakistan. Such an office is strictly restricted fromentering into revenue generating activities and is required to meet itsoperational expenses through remittances from its parent companythrough normal banking channel and converted to local currencyaccount.
A foreign company desirous of setting up a LO in Pakistan is required toobtain permission from the BOI by submitting an application on aspecified format. The permission for opening of liaison office is grantedby the BOI for an initial period of three to five years. Further extension isgranted after reviewing the performance of the entity during the initialperiod. The request for renewal / extension with completedocumentation is processed and disposed off within two weeks.
A foreign entity can operate in Pakistan by establishing a BO. A BO is setup specifically to execute the contracts awarded to the foreign entity;therefore activity is restricted to the extent stated in the signedagreement / contract. A BO cannot indulge in commercial / tradingactivities.
Revenue generated / profit earned from BO activities can be repatriatedto the Head Office, subject to payment of applicable taxes. Suchrepatriation should be in compliance with the procedure mentioned inthe Foreign Exchange Regulations of the SBP through an authorizeddealer (banker) under normal banking channels and Tax regulations.
All expenses incurred from BO activities will be met out of fundstransferred from abroad through normal banking channel and convertedto local currency account, or from the amounts received throughexecution of the agreement / contract.
A foreign company desirous of setting-up a BO in Pakistan isrequired to apply for permission to the BOI on a specifiedapplication format along with the prescribed documents /information. The BOI normally takes six to eight weeks toissue the permission letter after receiving the application,however, in case of anticipated delay; 3 months provisionalpermission can be granted on the request of the company.
Further extensions are granted by the BOI after reviewingand examining the past performance of foreign companies.Request for renewal / extension is generally processed by theBOI within two weeks, provided the requests are supportedwith complete documentation.
A foreign company (LO / BO) is required to file prescribedreturns / documents with the Registrar of Companies in thecity where principal place of business is situated, within 30days after obtaining permission from BOI, as per theprovisions of the Companies Ordinance, 1984.
Accounts of BO and LO The requirements relating to preparation of accounts, audit and
submission of accounts to Registrar of Companies are also applicableto the branch / liaison office of a foreign company.
S. No. Particulars Private Company Public Company
Single member Other private Un-listed Listed
1 Minimum number of members (shareholders)
1 2 3 7
2 Maximum number of members (shareholders)
1 50 Unlimited Unlimited
3 Minimum number of directors
1 2 3 7
4 Limitations for share transfer
Restricted Restricted Allowed Allowed
Key differences between a public company and private company are highlighted below:
Work Visas are granted to foreign technical and managerial personnel for the purpose of impartingtechnical know-how and skills to the local population. To facilitate such foreign nationals to travel andstay in Pakistan, business visa policies are considerably relaxed.
Missions abroad are authorized to grant five year validity (multiple) visa within 24 hours to businessmanof various countries on Business Visa List (BVL), with the duration of each stay restricted to threemonths. The foreign nationals seeking a business visa need to produce one of the following documents:
Recommendation letter from Chamber of Commerce & Industry of the respective country of theapplicant
Invitation letter from business organization duly recommended by the concerned Trade Organization /Association in Pakistan
Recommendation letter by Honorary Investment Counsellors of BOI
Recommendation letter from Pakistani Commercial Attaché posted in Pakistan High Commissions /Embassies / Consulates General abroad.
Business-persons and investors from any of the BVL listed countries will also be granted a thirty-daylanding permit on arrival at any airport in Pakistan.
Work visas are granted subject to a constructive plan to trainPakistani personnel to take over the technical andmanagerial responsibilities over a reasonable period of time.
The multiple-entry work visa is issued for a period of oneyear or up to the date of expiry of the applicant’s passport,whichever is earlier. The concerned Pakistani Mission abroadwill grant work visas to the applicant, whereas extension inwork visa is endorsed by the Regional Passport Office of thecity where the expatriate is working, upon authorization bythe Ministry of Interior.
Business visa conversion into work visa
For the purpose of changing the category of visa of foreign nationalemployees and investors from business visa to work visa, the concernedexpatriate is no more required to leave the country. The Ministry of Interiorwill process such requests, upon receiving verification from the BOI.
Granting of Pakistan citizenship to foreign nationals (Investors)
Any person of a country recognized by Pakistan may obtain PakistaniCitizenship by investing a minimum of USD 0.75 million in tangible assets andUSD 0.25 million (or equivalent in major foreign currency) in cash on a non-repatriable basis, and by fulfilling the conditions of the Pakistan CitizenshipLaw. Investment on a non-repatriable basis means that the amount is broughtto Pakistan through normal banking channels, converted into PakistanRupees, and never remitted back.
Agriculture
It is the source of livelihood of almost 45% of the total employed labour force andcontributed 21% to GDP in 2009-10.
Total cropped area in 2009-10 was 23.80 million hectares.
Sindh grows a variety of field and horticultural crops with wheat, cotton, rice and sugarcanecontributing to 70% of the total cropped area
Horticulture contributes to more than 73% banana,34% mangoes,40% dates,40%onion,88% red chillies and 30% mango of entire country production
Sindh produces 36% of rice, 27% of the sugarcane, 25% of cotton and 15% of the wheat inthe country
MANGO
Mango production in Sindh is 371,000tons, with growth potential of up to450,000 tons annually
International demand strong inmarkets of UAE, UK, USA, Singaporeetc.
Potential for greater export of Mangoif better facilities for cooling, grading,vapour heat treatment and packingare developed
DATES
Sindh produces 111,000 tons of dates, with potential for enhancement up to 250,000 tons annually
The dates growing is concentrated in two adjoining districts of Sindh; Khairpur and Sukkur
Due to improper processing and drying facilities, major portion of production is sold at lower prices
There is great potential for export of processed dates and its bye-products
CHILLIES
Sindh produces 10,000 tons redchillies with extra hot ratings
Dry chillies are exported to Dubai,Saudi Arabia, Canada, USA, UK andother countries
Chilly powder is a value addedproduct
Chillies can also be processed aswhole and packed
RICE
Coarse rice (IRRI-6) is the major crop of Sindh
Sindh produced 2,537,000 tons of rice during 2008-0
Livestock sector contributed 11.4% to GDP in 2009-10.
The value of livestock is 6.1% more than the combined value of majorand minor crops.
The poultry sector generates employment and income for about 1.5million people.
Poultry meat contributes 19% to the total meat production in thecountry.
Pakistan earned USD717 million from leather exports in CY09 and ameager USD96 million from meat exports.
During the year 2008-09, forests have contributed83,000 cubic meters of timber and 205,000 cubicmeters of firewood, in comparison to 94,000 cubicmeters of timber and 267,000 cubic meters offirewood in 2007-08.
Fisheries, as a sub-sector, play a significant role in the national economyand towards the food security of the country, as it relaxes the existingpressure on mutton, beef and poultry demand.
During the period July‐March 2009‐10 the total marine and inland fishproduction was estimated 952,735 M. tons out which 667,762 Million tonswere marine production and the remaining catch come from inlandwaters. Whereas the Production for the July-March 2008‐09 wasestimated to be 914,141 M. tons in which 660,141 M. tons was for marineand the remaining was produced by inland fishery sector. There is anincrease of 1.3 percent in the quantity compared to the last year.
GDP 1%
Contribution to Agriculture GDP 4%
Contribution to Labor Force 1%
Total value of fish production Rs. 50 Billion
Source of Livelihood
Direct Fisherman
Ancillary Industries
400,000
600,000
Per Capita Consumption
(Lowest in the World)
1.8 Kg
Ventures in commercial scale Mari culture. High value Fish e.g. SEA BASS, GROUPER, MULLETS, etc
Shrimp
Crab
Shellfish (mussels, clam, oyster etc)
Supply of fisheries inputs: services, fish fry, equipment andfeed
Fish Processing, Cold-Chain, Storage etc
Value addition and ready to cook products
Agriculture
Growth 2% in 2009-10 whereas 4.7% 2008 - 2009
Major crops Kharif crops (Summer produce)Rice (1.3% to GDP); Sugarcane (0.7% to GDP) Cotton (1.6%to GDP)
Rabi crops (Winter produce)Wheat (contributes 2.8% to GDP)
Livestock and poultry
Growth 3.7% in 2008-09 in livestockAnnual growth of 11.2% in the poultry sector
Fishery
Growth 2.3% in 2008-09
Growth in livestock has been in line with rapidly changing diet patterns across theworld. The share of livestock demonstrated growth by representing 52% of thesector in FY2009 as compared to 30% in FY1991 whilst the share of crop sectorshrank to 45% from 65% over the same period.
The Federal Government has initiated mega projects worth PKR7.1 billion inlivestock.
Pakistan is the third largest producer of raw milk in the world with growthpotential of 20% per annum in exports. However only a negligible quantity goesinto processing due to lack of technical assistance, research institutes and weakinfrastructure.
The President inaugurated spring tree plantation drive in February 2010 with atarget of planting 58 million saplings. The GoP plans to launch tree plantationcampaign twice a year with a view to increase forest cover to 6% of the landmassby 2015.
MANGO
Mango pulp production industry
Production of better, high yieldingvarieties
Picking and harvesting apparatusindustry
Contractual mango production for exportwith fruit processing facilities
Cool-chain, refrigerated containers
Hot water treatment, storage, ethyleneripening, grading equipment
Control Atmosphere Stores
DATES
Dates Syrup Plant
Dates dryers
Dates processing plant
Production of Chohara (Dry Date)
Dates packing & storage
Dates tissue culture
CHILLIES
Green chillies processing & packing
Chillies drying
Chillies storage
Chillies powder, packing
RICE
Parboiled Rice
Paper Industry
Rice Husk
China’s dairy industry has been very successful at creating such functional products;designer milk powder – special fortified formulations for infants, young children,teenagers, adults, and seniors- and these products are able to capture segments of themarkets that consume dairy products for their health benefits.
Somehow, much attention and focus is given to the large plants in Pakistan, while nicheplayers are also required to be encouraged. A technology-led and innovative products mixapproach can create a high margin niche in dairy plants.
Therefore, tremendous opportunities exist in introducing newer products with improvedflavours and by developing specific food solutions, for health, diet control and agingpopulation etc.
Introducing Organic products; this is a potential growth area but completely neglected bythe processors in Pakistan. Smaller processors manufacturing traditional sweets or organicproduct lines can also create success stories both in domestic and possible export markets.
Improved packaging solutions will be the key of Pakistan.
Pakistan is 21% GDP comes from agriculture sector and agriculturesectors largest share is contributed by milk production. According toEconomic Survey of Pakistan 2007-08 Pakistan produced about 42.19billion litters of milk. It is ranked 5th largest milk producer in the world.The annual milk production is shared between a 71.1% share for the ruraleconomy and a much smaller urban share for the rural economy and amuch smaller urban share of 29%. Only 3% of the total production ofmilk is processed and marketed through formal channels. For the other97%, a multi-layered distribution system of middlemen has evolved tosupply milk. However, 40% Supply and Demand gap exists in Pakistan.This weakness can be exploited through commercial dairy farming in thevicinity of large cities and towns.
Production of milk falls to 55% of peak production as its lowest point in mid-June, while the demandincreases 60% during this time compared to December when the milk supply is ample.
There are 8 million farming households in Pakistan with a total herd size of 50 million animals. 97% ofthese farmers are not linked to formal markets and hence are not progressing in economic terms.Moreover, the overall animal herd of Pakistan is thinly spread across thousands of square kilometreswith an average of 2 to 5 animals per household.
The Government of Pakistan has launched “White Revolution” scheme which aimed at modernizing theindustry with a view to increase milk supply, mitigate poverty and improve the living standard of therural population. This would further create an additional 3 million jobs in the formal economy andprovide an estimated 350 million rupees per day in cash flow to farmers in the sector or to say that anadditional formal economy of US$ 3 Billion will be developed for the rural economy.
The investment potential estimated on the basis of the fact that livestock and agriculture sectorcontributes over 10% to the GDP, and a milk economy that in value terms is 27.7% of the total agriculturesector. It is an untapped market, expected to grow an additional 3 billion litres in the next few years at agrowth rate faster than most sectors, and 30% by 2015.
100% foreign equity allowed (only in CAF on case to case basis) Minimum $ 0.3 foreign equity investment Remittance of 100% capital, profits, dividends allowed Only such local and foreign companies will be entitled to Corporate Agriculture
Farming that are incorporated in Pakistan under the Companies Ordinance, 1984. No upper ceiling on land holding. The size of the proposed corporate farm may
be left to be determined by the prospective investor. State land can be purchased, or leased for 50 years through open auction,
extendable for another 49 years All banks and financial institutions will earmark separate credit share for
Corporate Agriculture Farming (CAF) Labor laws may not be presently applicable to Corporate Agriculture Companies.
Due to special circumstances of the agriculture sector however appropriate laborlaws be developed for this sector within five year.
Agriculture Income Tax regime applicable in provinces, on income fromagriculture, would be applicable to Corporate Agriculture Farming
0% custom duty and sales tax on import ofagricultural machinery, equipment and implementsunder SRO 575(I)/2006 dated 5th June, 2006
Exemption of duty on transfer of land for CAF Tax relief; Initial depreciation allowance @ 50% of
machinery cost. Dividends from corporate agriculture farms are not
subject to tax Farm income given more favourable treatment than
income from other sources
Land development / reclamation of barren land, desert andhilly areas for agriculture purpose and crop farming.
Reclamation of water Front Areas/ Creeks. Crops, Fruits, Vegetables, Flowers Farming / Integrated
Agriculture (Cultivation and processing of crops). Processing of agriculture products. Modernization and development of irrigation facilities and
water management. Plantation/ Forestry. Dairy, small ruminants (sheep, goat) and other livestock
farming.
Government of Pakistan encourages all types of business activities from micro tomacro level in the Agriculture sector, Generally no NOC/ License is required fromthe Federal Government Ministry i.e. Ministry of Food Agriculture &Livestock,The choice of business either sole Proprietorship or Partnership (Public or private)Depends upon the entrepreneurs. In case of Corporate Agriculture Farming (CAF)A Company should be registered with the Securities & Exchange Commission ofPakistan(SECP) under the Companies Ordinance 1984
However with regards to land acquisition on purchase or lease basis anentrepreneur is required to get the approval from the Agricultural /LivestockDepartments of Provincial Government (Punjab, Sindh, N.W.F.P. and Baluchistan)which are sole owners of lands available for Agricultural activities in eachprovince, In order to avail tax exemptions. An approval from Board of Revenue,Departments of all the Provincial Government is also required in coordinationwith the Federal Board of Revenue (FBR)
Total auto sales in 1HFY2010 increased by 16.37% to 61,021 units from 52,435 units in thesame period of last year.
The auto industry was operating at 37% of its installed capacity of 273 thousand units perannum in FY2009 and it is expected that 20% YoY growth in sales in FY2010 can easily bemet through higher production by assemblers utilizing the existing capacity.
Pakistan has the second highest number of CNG-powered vehicles in the world with morethan 1.55 million cars and passenger buses, constituting 24% of total vehicles in thecountry.
Investment in the automotive sector stood at USD70.2 million in July 08 – April 09.
Despite recessionary phase Indus Motor Company and Honda Atlas Cars launched newmodels for their key products, Corolla and City in the local market.
Car sales are related to the interest rate regime functional in Pakistan especially in thesmall-low and economy segments, whilst purchases in the small-high segment (1300cc andabove) are dependent on rising income level and improved living standards.
Market size Installed capacity of 273,000 units in FY2009
Market players Honda Atlas, Pak Suzuki, Indus Motors,Mitsubishi, Dewan Farooque, Sigma Motors,Hinopak
Domestically manufactured parts account forless than 60% of all components as comparedto a targeted 80-85% and producers relyheavily on imports of key components.
Sales Auto (cars and light-commercial vehicles -LCV) sales experience a cyclical declinetowards the end of each calendar year asconsumers delay purchase decisions forregistrations in the new year.
Pakistan has one of the lowest motorization levels (8 vehicles per 1000 persons)in Asia compared to India (11), Sri Lanka (25), and Malaysia (641) indicating adomestic market rife with growth potential.
Declining interest rates regime adopted by SBP likely to induce increased marketfor purchases in the small-low income segments.
The removal of 5% excise duty (passed on to the customers) will enhance salesgrowth. Fall in steel prices has massively reduced the cost of production ofvehicles. Engineering Development Board (EDB) is actively implementing theAuto Industry Development Program (AIDP) to achieve the following targets: Increase the GDP contribution of the automotive sector to 5.6%,
Boost car production capacity to half a million units
Attract an investment of USD3 billion
Reach an auto export target of USD650 million.
The City District Government Karachi has introduced new CNG buses as publictransport vehicles
Tax relief: First year allowance or Initial Depreciation Allowance @50% of Plant, Machinery & Equipment.
Remittance of capital. Profits dividends, etc is allowed.
100% of foreign equity is allowed.
5% custom duty on import of PME not manufactured locally
Sitara Chemicals Ittehad Chemicals ICI Olympia Engro Asahi Plymers Gatron Dewan Salman Wah Nobel Descon chemicals Rathan Maize LG Petrochemicals Pak-China Chemicals P&G Colgate Unilever Clariant
Polyester Fertilizer PTA Polysrene Phtalic Anhydride Dop Caustic Soda Hydrochloric Acid Chlorine Soda Ash Sulphuric Acid Ethanol Dyes & Pigments Paints &Varnishes Pharmaceutical
Ordinance Portland Cement (OPC)
Sulphate Resisting Cement (SRC)
Blast Furnace Slag Cement (BFSC)
White Cement
Investors are not required to obtain NoObjection Certificate (NOC) from theprovincial Governments for locating theproject anywhere in the country except in thecountry except in the areas that are notifiedas negative areas.
The existing power deficit has been a key blockage for industrial and commercialactivities since demand for electricity grew by 6% during FY2003- 09 without acorresponding addition to the supply grid during FY1998-08.
The current supply shortage has been estimated at 3,500MW (megawatts) withfrequent electricity outages experienced country-wide.
67% of Pakistan’s electricity generation is tilted towards thermal powergeneration with power plants operating at a reduced capacity utilization of 34%presenting opportunities for investment in plant machinery.
Two nuclear power plants; Karachi Nuclear Power Plant (K-1) and ChashmaNuclear Power Plant unit 1 (C-1) are operational, while construction of a thirdplant, Chashma Nuclear Power Plant unit 2 (C-2) is also in progress.
In order to meet the current and future energy demand, the GoP is working ondifferent power generation projects which are expected to contribute additionalpower supply of 9,817MW by the end of 2011-12 to the installed capacity of19,754MW in 2008-09.
Pakistan Atomic Energy Commission has also been given the task of increasingnuclear power generation capacity to 8,800 MW by the year 2030.
With the expansion of electricity network, the number of consumers alsoincreased from 10.8 million in 1998-99 to 18.5 million consumers in March 2009.
Pakistan enjoys abundance in coal resources estimated at over 185 billion tones,including 175 billion tones identified at Thar, in the Sind province. Only 18% oftotal gas reserves have been discovered in the last decade.
Zorlu Energy Pakistan Limited has commissioned its first phase (6MW) of a windpower plant in April 2009. Zorlu has indicated that it would like to install anadditional 2GW of renewable energy capacity in Pakistan by 2015.
Pakistan's Executive Committee of the National Economic Council has approvedinfrastructure projects worth USD11.78 billion, including the flagship Diamer-Bhasha hydropower dam. Pakistan and China have also signed a MoU to buildthe Bunji dam in Astore district in the north with power generation capacity of7,000MW.
Sindh Board of Investment signed a memorandum of understanding with AZURPower of Germany for setting up a 50MW solar power plant in the province, Iran-Pak Power Generation for a 50MW wind power plant and with Trans Atlantic, aDutch government-sponsored company, for a 36MW wind energy plant.
The consumption of petroleum products and coal, duringJuly- March 2007-08 of the current fiscal year witnessedsignificant increase, this is most likely due to higher demandof oil in agriculture and power sectors.
The household sector has been the largest consumer ofelectricity, accounting for 45.6% of total electricity,consumption followed by industrial (28.4%) agriculturesector(11.8) other government sector (6.2% ) Commercialsector (7.4%) and street lights (0.6%
Installed Power Generation Capacity 19,754 in 2008 – 2009
Major Players with installed capacity
Thermal Central Power Generation Company Limited
at Guddu
Hydel plants Tarbela plant (3.05GW), Mangla (1GW),
Warsak (240MW) and Chashma (184MW)
IPPs – thermal Kot Addu (1GW); Hubco (1.3MW)
Nuclear Chashma-1 (300MW) and Kanupp (125MW)
Electricity supply WAPDA & KESC
The rising energy deficit, high vulnerability to oil prices, and expensive energy importoptions, all have resulted in significant government attention and incentives for thesector.
The GoP is offering increased incentives to the private sector for the task ofdeveloping independent power producers (IPPs) and rental power projects (RPP). TheGoP guarantees 15% USD IRR along with passage of all expenses to the consumer and17% for hydel generation. Thus providing predictable multi-year and long term tariff.
Under the remote village electrification program, the Alternative EnergyDevelopment Board (AEDB) plans to electrify 7,874 remote off-grid villages in Sindand Baluchistan.
In order to meet enhanced gas requirements, The GoP has been providing improvingeconomic terms for investment in oil and gas exploration through its petroleumpolicies.
Further, in order to tap the mass reservoir of coal reserves at Thar, GoP is consideringoffering USD indexed IRR of 20-21%.
AEDB is actively working to install 103 micro hydro power plants in Chitral as well asother locations in the Northern areas.
The Asian Development Bank (ADB) has approved a USD810 million multi-tranchefinancing facility for the power sector.
Source: Pakistan Energy Outlook 2008 – 2009
Hydel29.96%
Nuclear & Imported3.41%Gas
34.37%
Coal0.10%
Oil32.16%
Electricity Generation 2008-09Total 95,860 GWh
71
Sindh185,457 million tonnes
Punjab235 million tonnes
Balochistan217 million tonnes
NWFP90 million tonnes
Azad Kashmir9 million tonnes
Thar
Source: Mines & Minerals Development Department, Government of Sindh
Pakistan is a coal rich country The total coal resource of Pakistan is more than 185 billion tonnes Coal deposits are located in all the Provinces of Pakistan and in AJK The coal reserves of Pakistan are considered suitable for power generation and comparable
to other successfully exploited coals in the world Pakistan has a population of about 162 million, and only 60% people have access to
electricity, resulting in a large and growing domestic power market To facilitate the entrepreneurs interested in developing coal based projects in province of
Sindh, the Govt. of Sindh has completed the basic infra-structure of roads and water supplysystem
Government guarantees the performance of the power purchaser Government provides protection against political risks and change in law Concessionary duties and taxes regime announced by the GOP for the power sector One-Window facility provided at Federal level through PPIB, for power projects above 50
MW Efficient and cost-effective technical manpower available in coal mining and in the power
sector Pakistan has successfully attracted four billion dollars from private sector in power
Main emphasis has been given on the development of power projects based onindigenous fuel resources including coal.
Unsolicited coal proposals on raw-sites can only be considered if respectiveprovincial governments have already signed an MOU with the prospectiveinvestors.
On identification of a raw site by the provincial authorities, PPIB would advertisecoal raw sites for seeking proposals from investors.
PPIB may also carry out International Competitive Bidding (ICB). The GOP will guarantee the terms and conditions of executed agreements, i.e.
IA, PPA, including payment terms, are maintained for the duration of theAgreements for projects.
The coal power generating companies will be allowed to import plant, equipmentand machinery not manufactured locally, at concessionary rates. The powercompanies will also be completely exempted from the payment of income taxand withholding tax on imports.
Customs duty at the rate of 5% on the Import of plant and equipment notmanufactured locally.
No levy of sales tax on plant, machinery and equipment. Exemption from Income Tax including Turnover Rate Tax and Withholding
Tax on import. Repatriation of equity along with dividends is allowed. Permission to set-up integrated coal-mining and power projects Maximum indigenization as per GOP policies is allowed Secured return on investment for dedicated coal resource developed for
Power generation Investment made in integrated projects of coal- mining and coal power
plant to be recovered from Tariff Non muslins and non residential shall be exempted from payment of
Zakat on dividend paid by the company
Permission for power generation companies to issue corporateregistered bonds
Permission to issue shares as discounted price to enable venturecapitalist to provide higher rates of return proportionate to therisk
Permission to foreign bank to underwrite the issue of shares and bondby private power companies to the extent allowed under the laws ofPakistan
Non residential are allowed to purchase share of Pakistani company without permission from SBP subject to prescribed rules and regulation
Independent rating agencies available in Pakistan to facilitate investorsin informed decision about the risk and profitability of the project/TFC
TCEB shall act as a one-stop organization on behalf of all the Ministries, Departments andagencies of the Government of Pakistan (GOP) and those of the Government of Sindh(GOS) in the matters relating to development and leasing/subleasing at Thar (on behalf ofthe GOS), Mining, development of Clean Coal technologies, R&D activities, and other alliedmatters including but not limited to Gasification, Briquetting on Thar Coal;
To attract investment for coal mining and/or coal gasification at Thar and other areas ofSindh province, to be used for power generation or other purposes, by creating a conduciveenvironment through conducting bankable feasibility and other relevant studies, resolvingissue of cooling and drinking water, improving infrastructure and law & order, and carryingout aggressive marketing;
To negotiate, finalize and execute agreements; To assist investors in obtaining necessary consents; To liaise and collaborate with the Private Power and Infrastructure Board (PPIB) for further
processing of Private sector Integrated Coal Mining/Coal Gasification power generationprojects after approval by the Thar Coal & Energy Board, i.e., issuance of Letter of Interest(LOI), negotiation/execution of agreements relating to power generation, etc;
To assist GOP and the GOS in formulating. Policy guidelines for coal development andmining, respectively, and to implement their. approved policy guidelines;
To take all necessary measures including but not limited to formulation of rules andregulations for early and effective implementation of the above.
Sponsors to approach PPIB with their proposal PPIB Board to examine the proposal of sponsors If approved by PPIB Board, Registration with PPIB after payment of USD 100/- (US Dollars
one hundred only) in favour of PPIB Purchase of Pre-Qualification Document (PQD) from PPIB Submission of Statement of Qualification (SOQ) to PPIB Subject to SOQ approval by PPIB Board, request by PPIB to the project company to furnish
Performance Guarantee (PG) at USD 1,000/MW (US Dollars one thousand per MW) Subject to issuance of Letter of Interest (LOI) by PPIB, the project company shall conduct a
bankable Feasibility Study to ascertain economic, financial and technical viability of thepower project. The Feasibility Study is usually monitored by a Panel of Experts (POE)appointed by PPIB
Subsequent to approval of Feasibility Study by the POE/PPIB, the sponsors are advised byPPIB to approach National Electric Power Regulatory Authority (NEPRA) for their tariffdetermination
Upon successful determination of tariff by NEPRA, and submission of PerformanceGuarantee (PG) at USD 5,000/MW (US Dollars five thousand per MW) and a non-refundableprocessing fee of USD 100,000 by the project company in favour of PPIB
A Letter of Support (LOS) to the project company for starting construction activities,financial closure, signing of project agreements, and subsequently thereafter thecommencement of Commercial Operations
Extremely attractive / investor-friendly RE Policy 2006 Resource Variability Risk Coverage
Buy Back Guarantee
Political Risk Coverage
Fiscal / Financial Incentives
Attractive IRR
Facilitation for procurement / lease of land for wind farms provided by AEDB (unheard of in other territories around the world)
Extremely cheap rates offered for Land for wind farms (Euro 7/- only per acre per year)
Attractive Tariff Offered Mitigate Effects of Climate Change
Pakistan has a 1,046 Km coastline in theSouth
Average wind speed more than 7 m/s in GharoWind Corridor
Estimated wind potential more than 50,000MW
Other sites in Baluchistan, Punjab andNorthern Areas being identified
Attractive cost of land for wind energy projects (€7 per acreper year)
Wind data measured, analyzed and Wind Risk for the firstfew projects taken by Government
Wind data validated by Rise National Laboratory of Denmark 30% ~ 32% Capacity factor estimated in Gharo - Keti-Bandar
area Policy Guidelines for Tariff Determination approved by the
Federal Cabinet 15% Return on Equity (ROE) guaranteed as per NEPRA
guidelines
Unsolicited proposal Investor to initiate and then follow the
rules and regulation
Solicited proposal AEDB/Provincial/Ajk AGENCIES invite the
BIDS
Security package and risk cover GOP guarantee on payment
Protect against all political risk
Provide protection against changes in the tax and duty regime
Ensure convertibility of Pakistan rupee in US dollar at prevailing rate and remit ability of foreign exchange to cover necessary payments
Indexation of tariff to cover dollar fluctuation, inflation e.t.c
Fee & Structure Corporate Fee and contractual
arrangements are mentioned
Each IPP setting up plant meant only for supplying power to utility grid will be required to form a company according companies ordinance 1984 have to obtain a license from NEPRA. While company which is not exclusively for sale to power utility may not bound to form company.
Type of Contract BOO & BOOT which is valid for
period not less than 20 years where RE IPP is selling to grid otherwise no such contract is necessary.
Duty free import of raw materials for NPK production i.e. Ammonia Phosphate, Mono Ammonium Phosphate, and Triple Super Phosphate etc.
Second hand machinery/ plant is importable same duty as new plant i.e.10%
Tax Relief as IDA@50%of the cost of the PME
For existing Plants, annually gas prices would increase effective from July 2001-July 2006 @Nil.5%, 7.5% 12.5%and 15% respectively. Thereafter the prices to be $1.10MMBTU or prevailing Middle East price whichever is higher
Prices for fertilizers shall remain deregulated; to ensure this objective a committee under ministerial committee would meet when required
The gas used in reforming furnace for heating will be treated as feedstock
Assured supply of gas used as fuel at least for 9 months in a year
All the fertilizer producers domestic and foreign will be treated equally as well as public and private
It would be the responsibility of the DFIs to check the economic viability to the projects before providing finance
Expansion would be treated as new plant and would be entitled to the same concessions as allowed to new plants
Withholding Taxes at the same time of import of fertilizer shall be adjusted against assessed income tax of the year in case fertilizer is imported by a manufacturer of fertilizer
Ministry of Industries gives NOC.
After approval they ask for information related to the type of Fertilizer Plant and the basic requirements e.g. in case of Nitrogenous Fertilizer the availability of Gas etc.
The case is then referred to National fertilizer Development Centre (NFDC) for technical analysis.
NFDC analyses the company profile in terms the capacity. Products no. of employees to be hired etc.
NFDC also comments on the policy matters in the light of fertilizer Policy 2001
Ministry of Food & Agriculture (MINFAL) is also responsible to give comments /views for the prospective fertilizer plant.
Custom duty @5% under SRO:457(I) 2004 leviable on import of plant, machinery& equipment (not manufactured locally) for fertilizer projects
Duty free import of raw materials for NPK production i.e. Ammonia Phosphate,Mono Ammonium Phosphate, and Triple Super Phosphate etc.
Second hand machinery/ plant is importable same duty as new plant i.e.10%
Tax Relief as IDA@50%of the cost of the PME
For existing Plants, annually gas prices would increase effective from July 2001-July 2006 @Nil.5%, 7.5% 12.5%and 15% respectively. Thereafter the prices to be$1.10MMBTU or prevailing Middle East price whichever is higher
Prices for fertilizers shall remain deregulated; to ensure this objective acommittee under ministerial committee would meet when required
The gas used in reforming furnace for heating will be treated as feedstock
Assured supply of gas used as fuel at least for 9 months in a year
All the fertilizer producers domestic and foreign will be treated equally as well aspublic and private
It would be the responsibility of the DFIs to check the economic viability to theprojects before providing finance
Expansion would be treated as new plant and would be entitled to the sameconcessions as allowed to new plants
Withholding Taxes at the same time of import of fertilizer shall be adjustedagainst assessed income tax of the year in case fertilizer is imported by amanufacturer of fertilizer
State Bank of Pakistan (SBP) allows complete freedom of investment andrepatriation of profits/ Dividends/disinvestment proceeds to the foreign investorsin line with the overall investment policy. Once the investment received isregistered with SBP, foreign investors can repatriate disinvestment proceeds.Profits/dividends capital gain etc. with out the approval of SBP.
Further, under the existing foreign exchange regulations any foreign investor caninvest in shares /securities listed on Stock Exchange in Pakistan and canrepatriate profits/ Dividends of disinvestments proceeds without SBP’s approval.The only requirement for such portfolio investment is that the foreign investorhas to open a Special Convertible Rupee Account (SCRA) with any bank inPakistan.
Resident entities are also allowed to borrow in FCY from institutions abroadunder various categories of loans subject to fulfilment criteria.
The NBFI ‘S sector comprises DFIs,modarabas, mutual funds and Non BankingFinance Companies (NBFC)that showedstellar performance as is evident from CAGRof 11.9% in assets (2005).this sector isregulated by the Securities and ExchangeCommission of Pakistan.
The total teledensity in Pakistan is over 59%, which was just2.8% at the end of 2000. Pakistan shows highest teledensitygrowth in the region followed by Srilanka 37% and India 17%.
Foreign Direct Investment (FDI) in telecom sector US$ 1.4billion (2007-08).
Cellular phone subscriber base crossed 88 million by June2007.
Cellular mobile density is 54.70% (June 2007).
Fixed Line Telephony
Long distance & International License
Local Loop License
Infrastructure License
Cellular Mobile License
Class VAS License
(All licenses are to be obtained from Pakistan Telecommunication Authority- PTA)
Call Centres for help desks, complaint services and sales
GIS (Geographical information System) mapping
Business Process Outsourcing (BPO)
Database Application (MIS, Workflow, ERP etc)
Database Warehousing & Data Mining Facilities
Intranet & Extranet Solution Development
Network Deployment & Configuration
System & Process Application Development
Voice over internet Protocol (VoIP)
Calling Cards
Wireless Local Loops (WLL)
Conditions
Policy Parameters Manufacturing Sector Non- Manufacturing Sector (It &
Telecom Services)
Govt: Permission Not required except specific licenses /
registrations/ type-approved from
concerned agencies e.g. SECP, FBR,
EOB, PTA, and Ministry of Information
technology
Not required except specific licenses /
registrations/ type-approved from
concerned agencies e.g. SECP, FBR,
EOB, PTA, and Ministry of Information
technology
Remittance of capital profits, dividends,
etc
Allowed Allowed
Upper limit of Foreign equity allowed 100% 100%
Minimum Investment Amount No Restriction 0.15 Million US$
Customs duty on import of PME (Not
manufactured locally)
5% 5%
Sales Tax on import of PME (Not
manufactured locally)
0% 0%
Withholding Tax on Import of PME 0% 0%
Initial Depreciation Allowance, % of
PME cost
50% 50%
Royalty & Technical fee (Not
Related)
Not restriction for payment of
royalty & technical fee.
Allowed as per guidelines:
Initial lump-sum up to
$100,000
Max Rate 5% of net sales
Initial period 5 years
In case of non-residents is such
as contained in the overriding
Provision Of bilateral
agreements on avoidance of
double Taxation.
Withholding Tax on Dividends:
Public & Insurance Cos.
Other Companies
5%
10%
5%
10%
Withholding Tax on Capital Goods 1% 1%
Corporate Tax rates:
Public Companies
Private Companies
TaxYear 2006
35%
37%
TaxYear 2007
35%
35%
The pharmaceutical manufacture and trade in Pakistan is regulated through the Drug Act 1976 , And therules framed there under. Pakistan was the first amongst the developing countries in the world to haveintroduced Good Manufacturing Practices as a mandatory requirements , Registrations are granted bythe Central Licensing and Registration Boards. Drug Control Organization, Ministry of Health,Government of Pakistan is the primary authority for obtaining Pharmaceutical Manufacturing Licensefor Drug Formulation Activity. The procedure of gittig licenses/NOC along with fee detail is as under:
Application with Documents of Ownership of Company /Firm
Verification of Site
Approval of the Layout Plan
Application for Grant of a Drug Manufacturing License
Inspection of Facilities
Orders of the Central Licensing Board
Issuance of License
Suspension /Cancellation/Denial for Renewal of License
Registration of Drugs: Registration of a drug is granted by the Registration Board , set upby the Federal Government under the Drug Act. 1976 .This Board, comprises of 21 expertsin the field, before registering a drug, satisfies itself of its safety, efficacy, quality andeconomy. The Board also take into consideration the public interest, addition in respect ofregistration of a drug for local manufacturer, it is ascertained that the manufacturerpossesses matching facilities . The Process is as follows:
Application for Registration
Evaluation of the Application
Orders of the Board\
Drugs Registration
Communication of the Orders of Drugs Registration Board
Renewal of Registration of Drugs
Refinery Pricing Formula rationalised and linked with actual import cost,to provide incentives for up -gradation/expansion of existing refineries.
The prices and allocation of LPG deregulated ,With these incentives theproduction of LPG has risen to 1600 tons/per day,
Consumer prices of Furnace Oil and White Oil products linked to theinternational prices and adjusted on fortnightly basis.
Consumer prices of gas are reviewed bi-annually on the basis of coast ofsupply. This will improve the confidence of foreign oil and gas producersand protect the gas utilities.
Prequalification of applicants/ companies
Licenses awarded through transparent and open competitive BidEvolution Process
135 days process after close of call of nomination which includes:
Invitation of Bids within 25 days
Incitation to Bid will remain valid for at least 90 days
Bid Evolution on the basis of total work units (80% weighted) and gasprice gradient when reference price is above US$ 45 /bbl (20% weighted)
License /PCA/ PSA will be concluded within 30days
Natural gas price is linked with C &F prices of imported crude oil
Guaranteed Foreign Exchange permitted
Imported of equipment allowed on concessionary rates
Royalty payable @ 12.5% of the value of Petroleum at field gate
Corporate income tax is 40% of profits and gains
Local companies encouraged to establish Joint Venture with foreigncompanies
Royalty will be treated an expenses for the purpose of determination ofincome tax liability
No permission is required for setting up new refinery
Pricing formula for new refineries linked with Singapore Mean FOB spotprice
Import of crude oil from any source after lifting local crude, if allocated
Concessionary rate of taxes for import of equipment not manufacturedlocally
Refineries are free to sell their products to any marketing company ormarket the product through their own marketing network
Deregulated Lube industry
BHP Billiton British petroleum Pakistan Oilfields Pakistan Petroleum Hycarbex-American Energy Inc. MAKCO Mari Gas Company MOL Pakistan Oil and Gas Development Company OMV Orient Petroconpak PETRONAS Polish Oil and Gas Company, United States Zaver Petroleum Corporation Limited
Government of Pakistan encourages all types of business activities frommicro to macro level in the Mineral sector. For this purpose the Federali.e. Ministry of Petroleum & Natural Resources, Mineral Wing & ProvincialGovernments of all the four Province3s will provide following four typesof Licenses to the eligible entrepreneurs:
Reconnaissance License (RL)
Exploration License(EL)
Mineral Deposit Retention License 9MDRL)
Mining Lease (ML)
Apart from the above mentioned Licenses the entrepreneurswill be required to follow the international environmentalobligations which would ensure sustainable developmentwith consistent environmental priorities. In this regardmining companies will have to submit to the Government anEnvironmental Impact Assessment (EIA) and EnvironmentalManagement plans. Moreover, An applicant for grant orrenewal of EL, MDRL or ML will be required to provide at thetime of the grant or renewal a guarantee, in a formsatisfactory to the Licensing Authority (either Provincial orFederal) , to ensure performance of the licensees or lessee’sobligations.
The Foreign Private Investment (Promotion and Protection) Act,1976. Guarantees that a foreign investor in an industrialundertaking may at any time repatriate capital and profits. Thisincludes mining ventures.
Investment in small –scale mining (capital employed less thanRs.300 million) will be continued to Pakistani nationals.
Corporate merger of small scale mine operators will beencouraged.
The Federal and Provincial Governments will provide grants to therespective corporations for the promotional tasks on priorityareas.
Mining and establishment of rock salt based chemical industries.
Mining/cutting and polishing of hard/soft dimension stone(Granite,marble, Limestone )
Commissioning of coal washing plants for up gradation of indigenouscoal for processing industry
Commissioning of Fullers Earth plant from Bentonite deposit.
Utilization of low grade iron ores for commissioning Steel Mill
Coal based Power generation projects.
Lapidary industry.
Foreign companies will be free to apply for and be granted licenses without theneed to incorporation locally. However, no mining lease will be given until theforeign company is incorporated locally.
The provincial Government may enter into an agreement with an investor, withinthe framework of the law, to stablize the terms or to predetermine procedurewith respect to certain matters relating to the carrying out of operations underlicense/lease
Mining operation will be allowed to insure their assets and risks with internationalinsurance companies
The mining concession rules will provide for four types of minerals titles, namely:Reconnaissance License, Exploration license, Mineral Deposit Retention Licenseand Mining lease
Mining and value added minerals processing are placed in category A industries.
Sindh has billions tons of M&G reserves
Quality and Colour is best in the word.
India is a top exporter from the same region
USA & China are the largest markets for it
Karachi is the biggest cluster of M&G Processing
In 2008 the health care and pharmaceutical sector contributed 2.2% to the country’s GDP,with the pharmaceutical sector solely contributing 1% to GDP (PKR101.6 billion).
Demand for pharmaceutical products has been growing at about 10%-15% a year over thepast few years.
There are 455 licensed pharmaceutical manufacturers in Pakistan and 29 multinationalcompanies (MNCs). The remaining demand is met by 212 drug importers.
The sale of pharmaceutical products in international markets has almost doubled duringthe last five years. The industry is focusing on an Export Vision of USD500 million by 2013.In the meantime, exports are also likely to get a boost due to new regional and globalopportunities.
Unlike global trends drug demand does not follow a seasonal pattern and sales remainsimilar through out the year because of poor health and environment conditions.
Market size USD1.35 billion as at 31 March 2009
CAGR 12% over the last five years until April 2009
Capital investment USD0.5 billion (as of March 2009)
Major Marketplayers
Glaxo SmithKline Pakistan, Johnson & Johnson, AventisLtd., Reckitt & Benckiser, Roche, Abbott Laboratories,Merck Marker, Novartis, Pfizer Laboratories
Market share Top 50 producers contribute to 84.5% of the market shareTop 50 domestic producers contribute to 45.5% of themarket share
Domesticallyproduced drugs
Pain killers, anti-stress and anti-depressants, anti-infective,penicillin etc.
Imported Products Antibiotics, vaccines, analgesics, tranquillizers, drugs fortreating cardiovascular diseases & cancer
Import markets US, UK, Germany, Switzerland, Japan, Netherlands andFrance
Rising life expectancy thus consequent rise in number of elderly people andincreasing urbanization will stimulate demand for pharmaceutical products andhealth care services.
Customs duty on import of packing materials has been reduced from 25% / 20% /10% to just 5%, on import of polyacrylate, piston caps, laminated heat sealablepaper, kraft paper (wax coated) non-woven fabric and non-woven paper.
Spending on health care and pharmaceutical products are expected to rise fromPKR261 billion in 2008 to PKR424 billion in 2013.
The export size of pharmaceutical industry is currently at USD101 million and hasthe potential to grow many folds to at least USD1,000 million.
Cotton based textile contribute:
54% of the total exports
Accounts for 46% of the total manufacturing
Provide employment to 39% manufacturing labour force.
Pakistan is the world’s fourth largest producer of cotton and the third largestconsumer of the same.
The availability of cheap labour and basic raw cotton as raw material for textileindustry has played the principal role in the growth of the textile industry inPakistan.
With the advent of the quota free global imperative for a rapidly developingcountry like Pakistan to further explore potential new markets both in itsneighbouring territories as well as distant ones.
100% foreign equity is allowed
Gradual reduction of import duty on textile machinery and parts to 5% advalorem except spinning rings on which it is 10%
Sales tax on import of and local supply of major inputs/raw materialutilized in the same manufacturing regime of textile industry have beenrated Zero.
Imports duty on raw, sub-components and components used in localmanufacturing of textile plants and machinery of exports sector has beenreduced to 0% (SRO 565 (1)/2005)
Import duty on ginning presses has been reduced to 5%
Turnover tax has been reduced to 1% on retailers of specified textile fabrics andarticles of apparel including ready made garments or fashion wear. The 15% salestax levied earlier on retailers has been reduced mark-up of 7% and 6% for 7 and 3years period respectively.
The refinancing rate has been reduced to 7.5% from 9%
R&D support @6% shall continue to be given to ready made garments andknitwear exports
In addition R&D support will also be available for exporters of the following:
Dyed/ Printed Fabrics and white home textile @ 3%
Dyed Printed Home textiles @ 5%
According to Pakistan Social and Living Measurement Survey 2007-08, the overall literacyrate (age ten years and above) is 56%, with 71% in urban areas and 49% in the rural.
The trend of investment on education in terms of GDP has been on the lower side with2.50% & 2.47% in the years 2006-07 and 2007-08 respectively, and was estimated to be2.10% during 2008-09. The primary cause is considered to be the financial constraints in thegiven economic situation.
Investment case for education with only 124 universities catering to approximately 170million people in the country and approximately 20 million school age children lackingaccess to . course material and books for different tiers of education is in some caseoutdated and there are limited resources for teachers’ training resources and researchlaboratories.
The GoP approved the new national education policy in September 2009 which suggestsraising the annual budgetary allocation for the sector to 7%of the GDP and increasingliteracy to 85% by 2015.
Foreign assistance of USD1,974 million has materialised in the past few years targeted atimproving education in the country.
Pakistan has a young workforce of 51.78 million (2007-08) with a literacy rate of 56.2%,leaving greater room for public as well as private partnerships to augment access toeducation, build infrastructure as well as train staff to achieve a skill development systemthat can be benchmarked against international standards.
Approximately 9,000 acres of land has been legally notified as Education City
Core elements of EC are ‘local’ educational and health institutions that will provide locally relevant solutions to Pakistan’s challenge of higher education
Opportunity and attraction to remain and study in Pakistan.
1,839 acres of land has been allocated to 7 local institutions while more than two dozen other institutions are awaiting allotments
Educational institutions will create the opportunity for private R&D businesses as a component of EC
Residential and commercial development will enjoy a ‘quality of life’ or ‘character of community’ that is typical of educational communities
A consortium of planners – Arcop Group, Chan Krieger Sieniewicz (USA), and Halcrow (Pakistan) is in the process of developing a master plan for the Education City
The tourism sector of Pakistan, although currently not an extremepriority for the GoP under its development program, has greatpotential to attract investment.
It has been given the status of an industry in Pakistan and holdsgreat promise for prospective investors.
Pakistan has a blend of beauty and historic sites, ranging from thepeaks of Karakorum to the historic civilization of Mohenjo-Daro.
Pakistan enjoys a long water coast of the Arabian Sea in itssouthern region.
Tourism services such as airlines, hotels, road transport, souvenirshops not only provide employment but also provide uniquebusiness avenues in the diversified geographical regions ofPakistan.
Several resorts and farmhousesspringing up on outskirts of Karachi
Travel time to such places takes upto 1 hour
Keenjhar Lake only one more houraway
113 Km from Karachi on theNational Highway
Driving time (1.5 to 2 hours) perfectfor family road trip.
A destination surrounded by nature,heritage and culture
An untapped opportunity to utilizethe serenity and the beauty of thelargest fresh water lake in Pakistan
Largest freshwater lake in Pakistan (24 Km long, 8 Km wide,192 Km Periphery)
Wetland of international importance (RamsarSite) Wildlife Sanctuary and home to several species of local and
migrating birds Major water reservoir Perfect for short stay s away from the busy routine of city Proximity to ThattaCity , with its rich history and culture,
enhances tourism potential An ideal location for eco-friendly tourism and nature Resort development can be a major economic stimulus
The health sector is a priority for the GoP, since the high correlation between theexpenditure on health and productivity in developing countries like Pakistan emphasizesthe importance of improving health services as an aid to growth.
Per capita health expenditure in Pakistan is a meagre USD47 with GoP allocating 3% of itstotal expenditure to health sector whilst the private sector provides 84% of total healthexpenditure.
Health facilities in Pakistan are provided through health care delivery systems and PublicHealth Intervention (PHI). Programs under PHI include National Program for prevention ofHIV / AIDS, Malaria, Hepatitis, child healthcare etc.
There are just 12 healthcare attendants (physicians and nursing staff) for every 10,000people.
Low level of life expectancy (65 Years in 2007), high child mortality rate under 5 year age(73/1000 in 2007) and high population growth rate at 2.1% surpassing regional average of1.5%; indicate the increasing need for better health care and preventive services in thecountry.
Only 58% of the population has access to quality sanitation as against the global average of78%.
Sectors warranting attention include inadequate sanitation facilities, unsafe water, poorliving conditions and malnutrition.
In Pakistan people still do not have easy access to food to meet theirbasic requirements for protein and deficiency of essential micronutrients,such as iodine, vitamin A, and iron.
Availability of major food items and its access during the year 2008-09was maintained by taking necessary measures to combat the effects ofinternational price hike and shortage of grains.
The average caloric availability remained around 2363 calories per capitaper day and protein at 70gms per capita per day against the averagerequirement of 2350 calories per capita per day.
Currently the GoP is taking actions to rectify the situation of shortage ofquality food supply in the country. Some of the initiatives taken are foodsupport programme for poor households, incentives to improve thenutritional status of Government Rural Primary Schools, Micro NutrientDeficiency Control Programme etc.
In order to provide for a fair and equal treatment to all the investors aswell as a transparent and efficient system for substantial acquisition ofvoting shares and takeovers of listed companies and matters ancillarythereto or connected therewith, the SECP has promulgated followinglegal framework:
The Listed Companies (Substantial Acquisition of Voting Shares andTakeovers) Ordinance, 2002; and
The Listed Companies (Substantial Acquisition of Voting Shares andTakeovers) Regulations, 2008.
Takeover laws and regulations are intended to minimize pricemanipulation and insider trading. Following is the summary of someimportant sections of the Ordinance:
Any person who acquires voting shares in a listed company as a result ofwhich his aggregate holding exceeds 10% of the voting shares, mustdisclose the aggregate shareholding to the said company and to thestock exchange on which those shares are listed, within two workingdays of the acquisition. Any additional acquisition by the above personduring the next 12 months need not be disclosed until such time as theshareholding does not cross 25%.
Simply, the disclosure is triggered on crossing the 10% voting rightsthreshold. Any further purchases in the 12 months thereafter, up to 25%of the voting rights need not be disclosed.
When the acquirer plans to cross the 25% threshold or gain control of alisted company, he is required to make a public announcement of offer toacquire additional voting shares or control of such company; beforemaking announcement such person shall make requisite disclosures asmentioned above.
No acquirer, who has acquired more than 25% but less than 51% of thevoting shares or control of a listed company, shall acquire additionalvoting shares or control unless such an acquirer makes a publicannouncement of offer to acquire voting shares or control in accordancewith this Ordinance.
Provided that such acquirer shall not be required to make a fresh publicannouncement of offer within a period of 12 months from the date of theprevious announcement.
When an acquirer is required to make a public announcement of offer,the acquirer shall make a public announcement of offer to acquire suchnumber of voting shares, which together with the existing voting sharesheld by the acquirer will oblige the acquirer to acquire at least 50% of thetotal voting shares of the target company.
In addition following are the important provisions of the takeover laws:
Disclosures by the target company on possibilities of its acquisition to the stock exchange
Timing of public announcement of intention and of offer to purchase shares of the target companybeyond the specified threshold appointment of manager to the offer contents of public offeringdocuments
Procedures for withdrawal of public announcement of intention and of offer for purchase of shares
Size of offer, minimum offer price, mode of payment to shareholders on acquisition of shares
Form / nature of security for performance of obligation under the public offer
Obligations of acquirer, board of directors of the target company, manager to the offer
Other procedural matters including penal provisions, reporting requirements, and powers of theSECP in the area of substantial acquisitions.
The buyer and seller may need to consider following tax aspects:
Treatment of gain on disposal of assets / issue of shares
No gain or loss shall be taken to arise on disposal of asset from onecompany to another company and no gain or loss shall be taken to ariseon issue, cancellation, exchange or receipt of shares as a result ofoperation of a Scheme of Arrangement and Reconstruction undersections 282L and 284 to 287 of the Companies Ordinance, 1984 orsection 48 of the Banking Companies Ordinance, 1962, if the conditionsstipulated in the tax laws are satisfied.
Acquisition of an entity may involve various steps depending on thenature, size, and complexity of the transaction and the target entity.Following are the typical phases of acquisition of an entity:
Signing of Letter of Intent / Memorandum of Understanding between the potentialbuyer and the seller
Seeking required regulatory approvals Undertaking financial, legal, commercial and operational due diligence Assessing value and negotiating price Signing of Sale and Purchase Agreement Closing the deal.
The intended buyer and seller usually engage financial consultants andlegal advisors to assist them on various phases of merger and acquisitiontransactions, particularly; to perform due diligence, assess businessvalue, transaction structuring; and to assist on legal matters.
The Competition Ordinance, 2007 requires that where an undertaking,intends to acquire the shares or assets of another undertaking, or two ormore undertakings intend to merge the whole or part of their businesses,and meet the pre-merger notification thresholds stipulated inregulations prescribed by the Competition Commission, suchundertaking or undertakings shall apply for clearance from theCompetition Commission of the intended merger.
The aim of the Competition Ordinance and Competition Commissionestablished under this Ordinance is to provide for a legal framework tocreate a business environment based on healthy competition towardsimproving economic efficiency, developing competitiveness andprotecting consumers from anti-competitive practices.
There has been considerable merger and acquisition activity in the recent past. Theconcentration of M&A activity has been observed in the financial services and telecom sectors.
Key M&A transactions during 2004-09
Target name Sector Acquirer name Stake
Orascom Construction Industries stake in Pakistan Cement Company Pakistan Cement Company Limited’
Cement Lafarge S.A. 69%
Pure Terephthalic Acid divested by AkzoNobel Chemical KP Chemical Corporation 75%
Tameer Microfinance Bank Financial Services
Telenor Pakistan 51%
PICIC & PICIC Commercial Bank Limited Financial Services
Tamasek through 74% stake in NIB 100%
Saudi Pak Commercial Bank (now Silk Bank) Financial Services
International consortium comprising
Bank Muscat SAOG, International
Finance Corporation, Nomura
European Investments Limited & Sinthos Capital
86.55%
Crescent Commercial Bank (now Samba Bank)
Financial Services Samba Group 68.4%
Union Bank Financial Services Standard Chartered Bank 95.37%
Arif Habib Bank Limited Financial Services Suroor Investments led by Mr.
Hussain Lawai
60%
Bosicor and associated companies (now Byco Petroleum & Byco Chemicals Pakistan Limited)
Oil & energy Abraaj Capital & Bosicor Corporation Limited 40% & 60% Respectively
Karachi Electric Supply Corporation
Power generation Abraaj Capital 35.8%
Pakistan Telecommunication Company Limited
Telecom Emirates Telecommunications
Corporation- Etisalat
26%
Paktel Telecom China Mobile 100%
Lakson Tobacco Company Limited
Tobacco Philip Morris International 97.62%
Foreign exchange dealings are regulated under the Foreign ExchangeRegulation Act, 1947. Foreign currencies are made available to persons /companies doing business in Pakistan for all purposes under rules whichhave been clearly defined by SBP. There are no restrictions on availabilityof foreign currency for imports (except for import of banned items or forimports from Israel). Business houses can buy foreign currencies for allother commercial transactions like payments for export claims,commission payment to foreign agents on exports, royalty, franchise /technical fees and dividends (as subsequently described in detail),software licenses / maintenance / support fee, advertisement abroad innewspapers and magazines, business travel etc.
Foreign investment in Pakistan enjoys full protection and repatriationfacilities. The Foreign Private Investment (Promotion and Protection)Act, 1976 provides guarantees for repatriation of foreign investment tothe extent of original investment, profits earned on such investment, andappreciation of capital.
The important foreign exchange regulations pertaining to foreigninvestment are covered in detail hereon.
SBP has given general permission to non-residents to purchase shares ofPakistani companies quoted on the stock exchange irrespective of thenature of their business, and shares of those private companies which areengaged in manufacturing, power generation and approved segments ofservice sectors. This facility is available to the following categories ofnon-residents, subject to payment being made in foreign currency andthe price being not less than break-up value as certified by a practicingChartered Accountant in the case of unlisted shares and the market pricein case of quoted shares;
A Pakistan national resident outside Pakistan
A person who holds dual nationality including Pakistan nationality, whether living in oroutside Pakistan
A foreign national, whether living in or outside Pakistan
A firm (including a partnership) or trust or mutual fund registered and functioningoutside Pakistan, excluding entities owned or controlled by a foreign government.
Companies are required to nominate a bank through whichthey would like to make remittance of dividends to non-resident shareholders. On receipt of nomination of a bankfrom the company SBP authorizes the concerned bank toeffect remittance of dividends to the non-residentshareholders of the company without its prior approval.
Manufacturing sector
The SBP has laid down certain conditions for remittance of Royaltyand Technical Fee by the manufacturing sector to facilitate theexecution of agreements for transfer of technology. The local firmwould designate any of the Authorized Dealers (Banks) in foreignexchange in Pakistan, through whom payments will be made.
Payment of royalty, franchise / technical fee by the non-manufacturing sector opened for foreign direct investmentlike International Food Franchises is permissible, subject tothe maximum limit of USD100,000 as the initial lumpsumpayment, irrespective of number of outlets, and maximum5% of net sales. The initial period for which such fees will beallowed should not exceed five years.
Remittance of royalty / franchise and technical fee orcommission / service charges for the financial sector may beallowed by the SBP, on case-to-case basis, in respect offoreign collaborator’s branded financial products / services.The one-time lump sum up-front royalty / technical fee /franchise fee should not exceed USD500,000. Continuingpayments should not exceed 0.25% of customers billing.
Private foreign currency loans
Private sector entrepreneurs are permitted to obtain foreign currencyloans from banks / financial institutions abroad, parent companies ofthe multinationals and as suppliers’ credit, not involving governmentguarantee, for financing foreign currency cost of the projects coveredby the government’s industrial and investment policies. Therepayment period of such loans / credit should not be less than fiveyears. Loan agreements and repayment schedules are registered withSBP which enables banks to allow remittance of interest and loaninstallments, after deduction of applicable tax, without furtherapproval of SBP.
Individuals, firms, companies resident in Pakistan includingforeign controlled companies and branches of foreigncompanies but excluding banks may obtain foreign currencyloans from abroad on repatriable basis for any purposesubject to SBP – Foreign Exchange regulations.
Repatriable foreign currency loans by foreign controlled companies for workingcapital
Foreign controlled companies (i.e. branches of foreign companies and companiesincorporated in Pakistan with 50% or more foreign share holding, or 50% or moredirectors of foreign nationality) are allowed to contract foreign currency loansfrom banks / financial institutions abroad or from their HO or from other overseasbranches / associates abroad for meeting their working capital requirements,subject to the conditions that the repayment period should not exceed twelvemonths and the interest should not exceed 1% over LIBOR. Such loans canhowever be rolled over for further periods not exceeding 12 months each(branches of foreign companies are not allowed to pay interest on such loans).
Foreign currency loans for working capital by Pakistani firms
Pakistani firms and companies functioning in Pakistan, excluding banks, mayobtain foreign private loans on non-repatriable or repatriable basis.
The SBP allows prepayment of foreign private loans (otherthan the Government guaranteed loans), on a case-to-casebasis. This facility can be availed by those borrowers whohave the rupee counterpart available with them or they havethe capacity to generate rupee funds themselves.
Possession of foreign currency There is no restriction on residents and non-residents on bringing in,
and holding foreign currency. However, there is a ceiling of USD10,000on taking foreign currency out of Pakistan.
Foreign currency accounts (FCA) Companies and individuals are allowed to maintain foreign currency
accounts with banks in Pakistan subject to certain conditions specifiedin the Foreign Exchange Manual.
Lending to foreign controlled companies for working capital
Authorized Dealers are allowed to grant Rupee loans and credits to foreigncontrolled companies for meeting their working capital requirements.
Lending to foreign controlled companies for capitalexpenditure Foreign controlled companies engaged in manufacturing are allowed to
obtain Rupee loans for meeting capital expenditure requirement from banks,development financial institutions and other financial institutions or by issuingParticipation Term Certificates, etc. However, other foreign controlledcompanies require special permission to obtain medium and long-term Rupeeloans.
Authorized Dealers have general permission under theForeign Exchange Regulations to grant Rupee loans to theirclients (including foreign controlled companies) againstguarantees of non-residents / guarantees received frombanks functioning abroad subject to compliance with thePrudential Regulations of SBP.
Appendix I
Business activities may be carried out through a company,modaraba, branch, partnership or sole proprietorship.Companies incorporated in Pakistan and branches or liaison/ representative offices of foreign companies are regulatedby the Companies Ordinance, 1984, and Rules framed thereunder, administered by SECP.
The Companies Ordinance, 1984 mentions the following types ofcompanies:
Company limited by shares The personal liability of shareholders is limited to the amount (if any) unpaid on their
shares. Effectively, the shareholder's liability does not exceed the amount committed,when taking up the shares in the company.
Company limited by guarantee In this type of company, the memorandum binds each member to contribute to the
assets of the company in the event of its being wound up while he is a member, or withinone year afterwards, for payment of the debts and liabilities of the company contractedbefore he ceases to be a member, and of the costs, charges and expenses of winding up,and for adjustment of the rights of the contributories among themselves, such amount asmay be required, not exceeding a specified amount.
Unlimited company
The law also allows formation of company with unlimited liability of itsmembers. From a practical perspective, the limited liability companywith share capital would be the type of company contemplated by anon-resident interested in investing in Pakistan. A companyincorporated in Pakistan, may either be a "Public Company” or a"Private Company”. A public company can also be a listed company.Companies are required to get registered under the tax laws andobtain a National Tax Number (NTN).
A private company can be easily formed by aminimum of two members (except for a singlemember company) and may commence itsbusiness immediately after its incorporation. Aprivate company, through its Articles of Association(AoA):
Restricts its members to transfer shares
Limits the number of its members to fifty
Prohibits any invitation to the public to subscribe for itsshares or debentures.
An individual is entitled to obtain corporate status by forming a singlemember company and avail privileges of limiting the liability. Theintroduction of the concept of a single member company has facilitatedsole proprietorships to obtain corporate status, giving them theprivilege to limit the liability of their proprietors.
All the shares are vested with single member, however, he / she isrequired to nominate two individuals, one of whom shall becomenominee director in case of death of the single member and the othershall become alternate nominee director to work as nominee director incase of non-availability of the nominee director.
Single-Member company is required to appoint a qualified companysecretary and to write “SMC” in addition to Private Limited with itsname.
A public company can be formed by three members or more. It isentitled to commence business after obtaining a commencement ofbusiness certificate from the Registrar of Companies.
A public company does not have restrictions with regard to maximumnumber of members and transferability of the shares. A public limitedcompany should have a minimum of three members. Public companieshave the option to get their securities listed on a stock exchange.
A company cannot be listed unless it has made a public issue which issubscribed by at least 500 members. However this is applicable forlisting of shares. For listing of securities other than shares, minimumnumber of members is three.
A listed company may buy back its own shares subject to conditionsspecified in the Companies Ordinance, 1984.
A company is governed by its Memorandum of Association(MoA) and Articles of Association. The MoA primarilyspecifies the framework of company’s objectives and capitalboundaries, whereas AoA transcribes rules for conducting itsdaily business in accordance with applicable laws e.g.transfer and transmission of shares, mode of alteration incapital, holding of meetings, voting, powers and duties ofdirectors and chief executive, distribution of dividends,capitalization of profits and reserves, preparation ofaccounts, winding up, etc.
The shares are moveable property of the member and aretransferable in the manner provided in the company’s AoA.
Company may have different kinds of share capital andclasses of shares with distinctive rights attached thereto, ifso provided in its constitutive documents i.e. MoA & AoA.
Directors
The management of companies is vested in the Board of Directors and they mayexercise such powers as are specified in the AoA and the Companies Ordinance 1984.The Ordinance has vested in members certain powers, which cannot be exercised bythe directors. The first directors are appointed by the subscribers to the MoA who shallremain in office until the first AGM, thereafter, directors are elected by the membersfor a period of three years.
A single member company is required to have at least one director, whereas everyother private limited company should have at least two directors. A public company isrequired to have at least three directors in case of an unlisted company and seven incase of a listed company. All directors must be natural persons.
Chief executive
All companies are required to appoint a Chief Executive Officer (CEO) except for acompany managed by a managing agent. The first CEO is appointed by the directors ofthe company at the date of commencement of business or within 15 days from thedate of incorporation, whichever is earlier and thereafter within 14 days of the date ofelection of directors.
Statutory meeting is required to be held by a public company limited by shares or limitedby guarantee having share capital, within a period of not less than three months nor morethan six months from the date the company is entitled to commence business.
First Annual General Meeting (AGM) of the members (shareholders) is required to be heldnot later than 18 months from the date of incorporation and subsequently once everycalendar year within a period of four months following the close of its financial year, andnot more than 15 months after holding the last AGM.
Any general meeting other than the AGM shall be called an extraordinary general meeting(EoGM). The directors, at any time, may call an EoGM to consider any matter whichrequires the approval of the company in a general meeting and shall, on the requisition ofmembers representing not less than one-tenth of the voting power on the date of thedeposit of the requisition, forthwith proceed to call an EoGM.
The directors can meet as many time as they require, however, directors of a publiccompany are required to meet at least once in each quarter of a year.
Some of the important provisions of the Companies Ordinance 1984,relating to accounts and audit are summarized as follows:
Accounts preparation & approval
Every company is required to prepare annual accounts including balance sheet andprofit & loss account whereas listed companies are also required to prepare cash flowstatement and statement of changes in equity.
Every listed company is required to prepare quarterly accounts within one month of theclose of first and third quarter of its year of account and within two months of the closeof the second quarter, and transmit the same to the members and stock exchanges onwhich it is listed
The directors of every company shall present balance sheet and profit and loss accountin the AGM not later than 18 months after the date of incorporation and subsequentlyonce at least in every calendar year.
Directors’ report shall be attached with the accounts in the prescribed manner.
Audit of accounts
Following companies are required to have their accounts audited by aChartered Accountant;
a public company
a private company, which is a subsidiary of a public company, or;
a private company having a paid-up capital of PKR3 million or more.
The first auditor is required to be appointed by the directors within 60days from the date of incorporation and thereafter in each AGM of thecompany.
A public listed company shall ensure that its half-yearly financialstatements are subject to limited scope review by statutory auditors.
Circulation & submission of accounts
Every company shall send a copy of the audited accounts, directors’ and auditor’s reports to allmembers at least 21 days before AGM and shall keep a copy at the registered office of the companyfor the inspection of the members of the company during a period of at least 21 days before thatmeeting.
A listed company shall, simultaneously with dispatch of the aforementioned accounts and reports,send five copies to SECP, the stock exchange and the registrar.
Listed companies are required to submit three copies and other companies are required to submittwo copies of annual accounts along with reports and documents required to be annexed toRegistrar of Companies within 30 days from the date of AGM.
In case of a private limited company having share capital not exceeding PKR7.5 million, there is norequirement to submit annual financial statements to Registrar of Companies.
Under the code of corporate governance, all listed companies shall publish and circulate quarterlyun-audited financial statements along with Directors’ review on the affairs of the listed company forthe quarter.
The Companies Ordinance, 1984, requires companies incorporated inPakistan to file various statutory returns relating to meetings ofmembers, issuance and allotment of shares, appointment of and changein directors, chief executive and auditors, annual audited accounts,annual list of members etc. with the Registrar within the prescribed timelimits.
Similarly, foreign companies (liaison offices and branch offices) are alsorequired to file various statutory returns relating to their incorporation,principal place of business and particulars of Directors and PrincipalOfficer, etc.
The SECP vigilantly monitors the affairs of entities under its purview. Thisis done through off-site monitoring of companies on the basis of reportsand returns furnished by them as well as through on-site inspections ofcompanies.
The effort is targeted at ensuring compliance of the regulated entities withapplicable laws and regulations and protecting the interests of the investors,depositors and other stakeholders.
Recently SECP has developed an e-Services project which is an electronic datagathering and retrieval system that would perform automated collection,acceptance and forwarding of submissions by companies who are required by lawto file forms and documents with the SECP. Its primary purpose is to increase theefficiency of the corporate sector for the benefit of investors, companies, and theeconomy by accelerating the receipt, acceptance and dissemination of timesensitive corporate information filed with the SECP.
Main features of the system include online registration of companies, reservationof name, change in name and address of the company, online submission ofannual, quarterly, and monthly returns by companies and tracking of complaints,etc. The system will also aim to reduce undue paper work and improve variousprocesses within SECP.
Appendix II
Apart from Companies Ordinance, 1984, there is a host of other CorporateLegislations in force regulating different aspects of corporate entities. These areenumerated as follows:
Non-Banking Finance Companies (NBFCs) and Notified Entities Regulations,2008
These regulations are applicable to NBFCs carrying out leasing, investmentfinance services, housing finance services, asset management services,investment advisory services including their business activities and to the notifiedentities being managed by such NBFCs. NBFCs include Private Equity and REITs.
Fund Management Company (FMC) is licensed by Commission to operate asNBFC providing PE & VC Fund Management Services and its activities aregoverned by these regulations in addition to NBFC Regulations 2008. Minimumpaid up capital requirement of FMC is PKR30 million and no fund is allowed tooperate without registration with Commission. These regulations also covermatters like obligations of and restrictions on FMC, appointment of Trustee,cancellation of license or registration of fund, investment conditions andrestrictions etc.
It regulates the activities of REIT Management Company (RMC) and theregistration and regulation of REIT scheme and for matters connectedtherewith and incidental thereto. There are two types of REIT schemes,namely rental and developmental. The minimum paid up capital at thetime of application should be PKR50 million and is required to beincreased to PKR500 million within 30 working days subsequent toregistration of the REIT scheme. The minimum fund size of REIT schemeis PKR5 billion and real estate shall be within the limits or surroundingareas of Islamabad, Rawalpindi, Karachi, Lahore, Peshawar or Quetta. AREIT scheme shall not undertake more than one real estate project. AnRMC shall not hold less than 20% and not more than 50% of the units ofthe REIT managed by it, unless otherwise permitted by the Commission.
Takaful rules were ssued by SECP for the conduct of takaful operations inthe country. Takaful refers to Islamic way of insurance. A Takaful operatormay underwrite any or all classes of Takaful business, provided approvalis obtained from the Commission. A Takaful operator shall maintain andadminister following funds, a) Participants’ Takaful Fund; and b)Shareholders’ Fund.
Each Takaful operator shall appoint a Shariah Board of not less than threemembers which shall be responsible for the approval of products,documentation as well as approval of all operational practices andinvestment of funds which shall be filed with the Commission.
Insurance Ordinance regulates the formation and activities of insurancecompanies. Insurance rules are issued in conjunction with InsuranceOrdinance and contain detailed operational and reporting guidance andprocedures.
No Modaraba can be floated unless an authorization isobtained by the Registrar of Modaraba Companies under theprovisions of this Ordinance.
The main law relating to the Stock Exchanges, Brokerage Houses,Central Depository and Credit Rating Agencies in Pakistan is theSecurities and Exchange Ordinance, 1969 which regulates and governsthe establishment and running of these entities in Pakistan.
The main law governing the establishment and operations of
banking companies in Pakistan is the Banking Companies
Ordinance, 1962.
A company that seeks to offer its shares to the public andwishes to apply for a listing on the Stock Exchange mustcomply with the listing requirements of the Exchange, inaddition to compliance with the provisions of the CompaniesOrdinance, 1984. The requirements of the Exchange relate tomanagement and company procedures, disclosures,provisions concerning the issue of prospectus for the issue ofshares to the public, distribution of financial statements andother matters to keep the public and the exchange(s)adequately informed on all aspects of the affairs of thecompany, which may affect the market value of its shares.
Issue of capital is mainly governed by the CompaniesOrdinance, 1984, Companies (Issue of Capital) Rules, 1996,Listing Regulations, and Regulations governing Over-The -Counter (OTC) market and criteria for listing framed thereunder.
The main requirements of listing on the ready market are: minimum paid up capital of PKR200 million
public offer of equity has to be subscribed by at least 500 applicants
the offering document has to be cleared by the KSE before it issubmitted to the SECP for approval.
A maximum period of three months will be taken from thedate of receipt of listing application completed in everyrespect along with offering document, for the grant ofpermission by KSE.
Under the Listing Regulations, every company proposed tobe listed on the stock exchanges shall make offer to thepublic as follows:
In case capital of company is up to PKR500 million, at least50% of such capital shall be offered to the public; and
In case capital of company is beyond PKR500 million, publicoffer shall be at least PKR250 million or 25% of the capital,whichever is higher.
The objective of code of corporate governance is to establisha framework of good corporate governance for the listedcompanies. This has been incorporated in the listingregulations and broadly covers the matters relating to boardof directors, corporate ownership structure and divestiture ofshares by sponsors / controlling interest, internal audit,external auditors, audit committee, and corporate andfinancial reporting framework.
Appendix III
This Ordinance relates to the formation of trade unions, theregulation of relations between employers and workmen andthe avoidance and settlement of any differences or disputesarising between them or related matters. In its ambit theOrdinance includes trade unions and freedom of association,registration of trade unions, workers' participation anddispute resolution, labour courts, authorities, decisions,settlements and awards, penalties and procedures etc.
Every industry or establishment with five or more employedpersons is required to get registered under the Act. Recentamendments have extended the applicability of this Act foremployees of banks or banking companies. The contributionis made at 5% of workers’ wages by the employer and suchcontribution cannot be recovered in any manner from theemployee; whereas, employee will make a contributionequal to 1% of his wages. Wage refers to wage defined in‘The Minimum Wages for Unskilled Workers Ordinance, 1969’which is PKR6,000. The minimum old-age benefit under thisAct is PKR2,000 per month.
This act is applicable on every employee in theprivate sector, corporations and autonomous orsemi-autonomous bodies whose terms andconditions of employment are negotiable throughcollective bargaining under the Industrial RelationsOrdinance, 2008. The act entitles the employee acost of living allowance equal to PKR 100 per monthto be paid by the employer.
Under this Ordinance, any industrial establishment asdefined in the Ordinance, having total income is PKR500,000or more is required to pay 2% of its total income under theIncome Tax provisions, to the Workers' Welfare Fund. TheOrdinance has extended the scope of industrialestablishment by including establishments formed underWest Pakistan Shops and Establishment Ordinance, 1969,resulting in every business concern, having total income ofPKR 500,000 or more in a tax year, being liable to WWF.
According to this Ordinance, the amount of minimum wages forunskilled worker should not be less than PKR 7,000.
The Ordinance provides for the wages, leaves, holidays,working hours, overtime, maintenance of statutory recordsof leaves etc. It applies to all shops and establishment whereany workman is employed.
A company engaged in industrial undertaking, if the numberof workers employed at any time during a year is 50 or more,or the paid up capital as on the last day of the accountingyear is PKR5 million or more or the value of fixed assets as onthe last day of the accounting year is PKR20 million or more,is required to establish a Workers' Profit Participation Fundand pay to it, 5% of its profits every year. A worker’s share inthe fund depends on the category of his average monthlysalary.
Every industrial or commercial establishment, where 20 or more workersare employed, is required to comply with the conditions of employmentof workmen and other incidental matters contained in the standingorders. Commercial establishment includes all kinds of commercialestablishments such as, advertising agency, hotel, restaurant, bank,insurance company, etc., and an industrial establishment includesfactory, mine, construction industry, etc. An amount equal to the wagesof the workers has to be paid during the period of suspension.
The standing orders cover the following matters relating to employment ofworkmen:
Classification of workmen into permanent, temporary, probationers, etc.
Terms and conditions of service to be given in writing
Publication of working time and holidays
Details as to shift working, terms of attendance, leave, terms of wages and group incentive schemes
Compulsory group insurance of permanent workmen against death, injury or disability not coveredby Workmen Compensation Act, 1923
Terms and conditions governing stoppage of work, closure of establishment, terms relating totermination of employment, governing payment of gratuity or other termination benefits
Compulsory payment of bonus in case the employer is making profit.
This Ordinance is applicable only to such areas, classes ofpersons, industries or establishments with regard to suchbenefits, as the Government may specify from time to timein this behalf. The benefits provided by this scheme aremedical care, maternity benefit, death grant, pre-natal andpost-natal care, injury benefit, disablement pension,disablement gratuity. Employees drawing wages up toPKR10,000 fall under the ambit of this Ordinance.Employer’s Social Security contribution has been capped at6%.
The Factories Act is applicable to almost all the industries. According tothe Act, "Factory" means any "Premises" or "Precincts" thereof, in whicha manufacturing process is being ordinarily carried on with or without theaid of power.
The Act deals with following aspects relating to working conditions forworkers:
Daily and weekly working hours Intervals for rest Weekly holidays Compensatory holidays Extra pay for overtime Annual holidays Casual leave or sick leave Special provisions for adolescents and children Health and safety measures, etc.
Under this Act, the employer is liable to pay compensation to workers for accidents arising out of and during the course of employment. The rates of compensation for death, permanent total disablement, permanent partial disablement and temporary disablement have been given in the Act. The amount of death and permanent disablement grant is PKR 200,000.
Appendix IV
Bilateral Investment Treaties
List of Countries / Organizations with which Pakistan has Bilateral Investment Agreements
S. No. Name of Country Signing Date S. No. Name of Country Signing Date
1 Australia 07.02.1998 25 Malaysia 07.07.1995
2 Azerbaijan 09.10.1995 26 Mauritius 03.04.1997
3 Bangladesh 24.10.1995 27 Morocco 16.04.2001
4 Belarus 22.01.1997 28 Netherlands 04.10.1988
5 Belgium 23.04.1998 29 Oman 09.11.1997
6 Belgo-Luxemburg Economic Union 23.04.1998 30 Philippines 11.05.1999
7 Bosnia 04.09.2001 31 Portugal 17.04.1995
8 Bulgeria 32 Qatar 06.04.1999
9 Cambodia 27.04..2004 33 Romania 10.07.1995
10 China 12.02.1989 34 Singapore 08.03.1995
11 Czech Republic 07.05.1999 35 South Korea 25.05.1988
12 Denmark 18.7.1996 36 Spain 15.09.1994
13 Egypt 16.04.2000 37 Sri Lanka 20.12.1997
14 France 01.06.1983 38 Sweden 12.03.1981
15 Germany 01.12.2009 39 Switzerland 11.07.1995
16 Indonesia 08.03.1996 40 Syria 25.04.1996
17 Iran 08.11.1995 41 Tajikistan 13.05.2004
18 Italy 19.07.1997 42 Tunisia 18.04.1996
19 Japan 10.03.1998 43 Turkey 15.03.1995
20 Kazakhstan 08.12.2003 44 Turkmenistan 26.10.1994
21 Kuwait 17.03.1983 45 U.A.E. 05.11.1995
22 Kyrgyz Republic 23.08.1995 46 United Kingdom 30.11.1994
23 Lebanon 09.01.2001 47 Uzbekistan 13.08.1992
24 Loas 23.04.2004 48 Yemen 11.05.1999
Appendix V
Organisation Web Address
Sindh Board of Investment (SBI) www.sbi.gos.pk
Board of Investment, Pakistan www.pakboi.gov.pk
Federal Board of Revenue www.fbr.org.pk
Ministry of Finance www.finance.gov.pk
Securities & Exchange Commission of Pakistan
www.secp.gov.pk
State Bank of Pakistan www.sbp.gov.pk
Alternative Energy Development Board www.aedb.org