Chinese investors have reportedly expressed dissatisfaction at the incentives offered for investment in Pakistan’s flagship project, i.e., Rashakai Special Economic Zone (RSEZ), well informed sources told Business Recorder.

This “unpleasant” scenario has been shared by the Chinese embassy in Pakistan with different concerned Ministries including CPEC Authority a few days before the scheduled visit of Prime Minister Imran Khan to China last week.

According to the embassy, Rashakai Special Economic Zone, a flagship project and prioritized SEZ under industrial cooperation of China Pakistan Economic Corridor (CPEC) framework, has been seen as a model for the CEPC industrial cooperation. Currently, the phase-1 construction is proceeding orderly and timely.

The embassy in a letter, noted that last year, China Road and Bridge Corporation (CRBC), as the RSEZ’s developer, conducted a series of investment promotion and road shows in China. After interview with dozens of potential investors, the CRBC realized that preferential tax policies and subsidies are crucial factors to attract Chinese investors. However, the current preferential policies provided to RSEZ are perceived as not adequately favourable.

Therefore, the CRBC has summarized the potential investors’ request and proposed the following additional incentives: (i) additional preferential policies for enterprises settled in RSEZ including exemption of duties on imported raw materials;(ii) preferential power tariff and stable power supply; and (iii) exemption of duties on export tariff for all products of zone enterprises, especially to Afghanistan.

Chinese embassy, in its letter has asked Board of Investment to consider the proposals positively and share reply.

On February 6, 2022, Ministry of Planning, Development and Special Initiatives, in a letter along with letter of Chinese embassy as attachment, sought comments from relevant Ministries on three new proposals for additional incentives sent by the Chinese embassy.

An insider told this scribe that since Pakistan is in the IMF program; hence, it would be difficult for it to give more incentives as the ECC on February 9, 2022, has already deferred a proposal of Power Division regarding reduction in Withholding Tax (WHT) to 7.5 per cent from 25 per cent for Chinese power sector projects as the FBR is unwilling to give any such incentive due to commitments with IMF.

According to joint statement issued after the visit of Prime Minister to China: “both sides acknowledged the major contribution of CPEC projects, particularly in the areas of energy and transport infrastructure, in strengthening Pakistan’ s key role in regional connectivity while modernizing its economic base. The leaders reaffirmed their support to CPEC’s high-quality development and commitment to ensuring the smooth operation of completed projects and the timely completion of projects under construction”. SAPM on CPEC, Khalid Mansoor at a press conference after the visit of the PM claimed that most of the Chinese firms expressed their deep interest in investing in Pakistan during the visit of Prime Minister.

An inter-ministerial meeting on Joint Working Group (JWG) on industrial cooperation under CPEC has directed Board of Investment to make aggressive marketing strategy to attract Chinese and other investors to relocate their respective industries to SEZs.

The meeting has decided with mutual consensus that KPT management will engage with the management of M/s CRDC, the signatory of MoU, to firm up the way forward and to negotiate on draft Investment Agreement (IFA); whereas, BoI, as Secretariat forum, will call a meeting, as and when requested by Ministry of Maritime Affairs. Besides, Ministry of Maritime Affairs was requested to closely coordinate/ consult with Government of Sindh to avoid any kind of conflict.

This report was first published in Business Recorder on February 11, 2022.