3083827 Cement Industry

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CEMENT

OVERVIEW

Total No of units are 23, 4 units are in the public sector while the remaining 19 units are owned by the privatesector. Two of the four units in the public sector (Mustehkam Cement Ltd. & A.C. Rohri Cement Ltd.) had toclose down their operation due to stiff competition and heavy cost of production.

Total installed capacity is over 17 million tons.Total domestic demand is approximately 9.6 mi llion tons which is only 56% of the installed capacity.

PROVINCE-WISE DISTRIBUTION

The province-wise distribution of cement plants is as under:

Province Units Capacity (Million Tons)

Punjab 8 7.488

Sindh 8 3.851

NWFP 6 4.945

Baluchistan 1 0.756

Total 23 17.040

Three additional cement plants with installed capacity of over 2.1 million tons are in the final stages of compdespite the available excess capacity in this sector. The table shows installation of new cement factories andof the existing facilities during the current decade.

Name of Company New/Expansion Date of Commissioning New Capacity Created(tons)

Northern RegionAskari Cement Expansion 1964 945,000

Askari Cement New 1996 630,000

Bestway Cement New 1998 1,039,500

D.G. Khan Cement Expansion 1998 1,039,500

Fauji Cement New 1997 945,000

Lucky Cement New 1996 1,260,000

Maple Leaf Cement Expansion 1998 1,039,500

Pioneer Cement New 1994 630,000

Sub-Total 7,528,500

Southern Region

Essa Cement Expansion 1998 315,000

Total: 7,843,500

Three additional cement plants with installed capacity of over 2.1 million tons are in thefinal stages of completion despite the available excess capacity in this sector. The tableshows installation of new cement factories and expansion of the existing facilities duringthe decade.


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Name of Company New/Expa nsion Date ofCommissioning

New Capacity Created(tons)

Northern Region

Askari Cement Expansion 1964 945,000

Askari Cement New 1996 630,000

Best Way Cement New 1998 1,039,500

D.G. Khan Cement Expansion 1998 1,039,500

Fauji Cement New 1997 945,000

Lucky Cement New 1996 1,260,000

Maple Leaf Cement Expansion 1998 1,039,500

Pioneer Cement New 1994 630,000

Sub-Total 7,528,500

Southern Region

Essa Cement Expansion 1998 315,000

Total: 7,843,500

INSTALLED CAPACITY,PRODUCTION AND SALES

from 1994-95 onward isshown in the table.In Million Tonnes)

Year Capacity ActualProduction

Sales ExcessCapacity

1994-95 8.81 8.13 6.70 2.11

1995-96 10.21 9.56 9.39 0.82

1996-97 11.54 9.32 9.54 2.00

1997-98 14.90 9.04 9.11 5.79

1998-99 17.04 9.52 9.59 7.45

1999-2000 17.04 9.9 9.91 7.13

CEMENT INDUSTRY

Back on the track

By AMANULLAH BASHARNov 18 - 24, 2002

Unprecedented increase in furnace oil and electricity prices was the major reason which hadalmost crippled down the entire cement industry in Pakistan. The low demand of cement due to

fall out of overall economic crisis which started after mid nineties also claimed the bloominggrowth of 7 per cent to a meager level of even less than 3 per cent in the country. Consequently,the entire cement industry was running much below of its capacity despite having a strongindustry base, this important sector had to suffer a loss of billions of rupees in the year 1998-99.

TURNAROUND

The lady luck however started getting kind on this sick unit when the decision makers took somebold and timely decision especially the conversion of the cement industry from oil/gas to coal fired


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system which proved cost effective in the real sense of the term. Those units which were runningin huge losses entirely changed their complexion from losses into profits. However, theconversion of fuel system was not only the major contributor for bringing a turnaround change inthe cement sector, there were some other forces which helped bring stability in this importantsector. And that was the increase in demand both on local front as well as from war riddenAfghanistan where the international community has undertaken the gigantic task of reconstructionof Kabul and other war affected areas in that country.

In the year 2002, the cement sector has recovered its losses it had to suffer in the past as all thecement units have performed admirably well. The tremendous recovery achieved by the cementindustry reflects in the fact that out of the total 22 cement units listed with the stock exchange, 18have announced their financial results for the year 2002 with an aggregate net earnings of Rs948million. This tremendous recovery has reverted the cement sector into a profitable zone-certainlya remarkable performance.

BENEFICIARIES

Despite being a rich country in terms of the basic components or ingredients required forproducing cement i.e. limestone, clay and gypsum, it is unfortunate that the benefit of availability

of all these natural resources is not passed on to the consumers. It is the industry which pocketsthe profit or the government which claims the lion's share in the form of levies or taxation whichare said to be the highest in this region. As a result of making the industry as a source of profit ora source of revenue by the owners or the government respectively the end users are the realsufferers. This statement can be substantiated with the fact that a cement bag of 50 kg is beingsold at Rs160 in India as compared to Rs220 or more in Pakistan. It is because of high price ofconstruction material, common man of an average income can only dream of owning a house ofhis own in Pakistan despite the fact that there is an annual demand for 6 million new housingunits in accordance with the growth in population. The existing slums and rapidly increasingkatchi abadis especially in the urban areas of this country are only because having a house is farbeyond the affordable means of the people belonging to average income group what to speak ofthe people living below the poverty line. It has been a cruel joke with the masses of this countrythat over the years, people at the helm of affairs never tired to pronounce that the common man

the real owners of the resources of the country, but practically speaking all the resources weredistributed either on political considerations or to the favourites. Take the example of Karachiwhere the state land at prime locations allotted to the people belonging to political, religious orsocial pressure groups at a throw away prices under the amenity clause. Today, thesestrategically located lands are being used for high commercial gains in the form of hospitals,schools, colleges, marriage halls or marriage gardens. Is there anybody to check why these landsgot allotted under the pretext for public welfare is exclusively used for profits and profits alone? Asa result of non-availability of land at an affordable price to the common man and high cost ofbuilding material including cement the main component for construction, the construction industryhad almost come to a stand-still in the major cities. It is estimated that at least 80 affiliatedindustries were also badly affected due to crisis persisting in the construction industry for the last6-7 years.

TAXATION

Despite the fact that cement constitutes as one of the basic necessities for shelter, the policymakers have subjected the cement sector to the highest taxation in the region. The levy ofGeneral Sales Tax (GST) on cement is Rs660 per ton in Pakistan as compared to Rs320 in India.The excise duty is Rs1000 per ton of the cement which is 186 per cent higher than India where itis Rs350 per ton. In the light of this tax regime, it is said that Pakistan has one of the highest taxrates on cement in the Asian region. The impact of such tax and duty structure has resulted inalmost 40 per cent increase in the cement price per 50 kg bag when compared to Indiasuppressing demand for Pakistan cement.


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CONVERSION

Conversion from furnace oil plants to coal firing system has already taken place in majority of thecement producing units which have started getting high benefits but they are also reluctant topass on the benefit to the consumer on the pretext that the industry has suffered great losses inthe past due to high price of furnace oil hence unless the losses of the past are recovered they

are not in a position to pass on the benefit to the end users. On the contrary, the experienceshows that whenever the prices of oil were increased the additional cost was always passed on tothe consumers; it is however up to the price control authorities to safeguard the interest of thepeople.

While looking at the conversion process of the cement industry from furnace oil to coal firedsystem, it comes to notice that Pioneer cement was the first one to convert its cement plant to thecoal firing system. During financial year 2001, the company incurred a heavy loss of Rs284million, which turned into a profit of Rs44 million in the financial year 2002. The conversion offurnace oil plant to coal fired system significantly reduced the production cost of the companyresulting in an improved bottom-line. It is reported that the domestic coal is not of a very highquality however the processing and blending the local coal with the imported one can producerequired heating content that is much cost-effective than the furnace oil. The increase in coal

usage continues to lower the cost of production for manufacturers. Lucky cement completelyswitched over to coal in late August this year while DG Khan about to shift on the coal technology.Cherat will take a little longer and the company will be able to fully convert to coal in March 2003.The benefit of this change is visible in the increase in gross profit of the cement units.

The annual production of cement in Pakistan comes around 10 million tons while totalconsumption of furnace account to Rs8.42 billion per annum. On the contrary, the total cost ofusing coal comes to Rs5.5 billion which translates into a total saving of Rs2.8 billion due to theconversion of the fuel system. Keeping average price of coal per ton with a ratio of 70:30 andfurnace oil cost at Rs842 per ton of cement as a benchmark and assuming that the cement plantis fully converted to coal firing system, the saving on cost per ton comes around Rs290. Inaddition to this the whole cement sector will benefit due to the reduction in production cost.However, the benefit can only be justified and enjoyed when the end users would also be given

their due share in the larger interest of the economy, because reduction in price means increasein economic activity.

CAPACITY

It may be recalled that in 1947, Pakistan had inherited 4 cement plants having total installedcapacity of 0.5 million tons. These four units at that time were controlled by India. These inheritedcement plants however were closed when they come to their age after 50 years of theiroperations. During early 30 years of independence, five cement units were established withaggregate capacity of 3.2 million tons of production. Among these units one was established inHyderabad Sindh in the public sector. It was called Zeal Pak and was set up in 1956. Another unitin the public sector was known as Maple Leaf which was established in the province of Punjab inthe same year. Three units were set up during 1965-66 in the private sector. These were Javedan

in Sindh, Gharibwal and Mustehkam in the province of Punjab. After nationalization of industriesin early seventies, cement industry remained under the control of government till late seventies.During this period, growth in demand of cement was around 7 per cent per annum, whereas newcapacities were not coming up to match with the demand. Consequently, Pakistan had to startimporting cement in 1976-77 and continued to import cement till 1994-95.

After the change in the government in 1977, private sector was allowed to establish cementplants. As a result of change in policy, seven projects having capacity of 2.54 million tons wereinstalled in private sector and simultaneously, State Cement Corporation of Pakistan (SCCP) also


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brought in 4 more units with a total capacity of 1.6 million tons. Resultantly, the total capacity ofthe cement industry enhanced to the level of 8.5 million tons by the end of 1990.

Those units came in the public sector were Thatta Cement in Sindh, (1983), Dandot(Punjab)1983, Kohat (NWFP) 1983 and D.G.Khan (Punjab) 1985.

The units allowed in the private sector were Cherat (NWFP) 1985, Pakland (Sindh) 1985, Attock(Balochistan) 1986, Dadabhoy (Sindh) 1988, Essa (Sindh) 1988, Fecto (Punjab) 1989 andAnwarzeb White Cement (Sindh) 1988.

According to a report of ICMAP, in the early nineties, the SCCP was the market leader hence theprivate sector had to pursue the policies of the public sector in fixing the prices of cement. Withmore depreciated plants in its fold, combined cost of production of plants of SCCP was on lowerside. They had a price mechanism whereby surplus profits of depreciated plants were allocated tothe new plants having higher depreciation cost and financial changes. The level of cement pricesfixed by SCCP therefore remained on the lower side. With the privatization of cement units after1990, SCCP lost its control over the supply of cement. At that time there was an acute shortageof cement in the Northern areas of the country. In the first half of nineties, Pakistan had to importcement which led to the increase in cement prices exorbitantly making cement companies to earn

very high profits. This tempted some of the existing units like Cherat, Pakland, Dadabhoy, AcWah, D.G. Khan, Maple Leaf and Kohat to go for expansion in their plants. Simultaneously, 5more new projects with aggregated capacity of 5 million tons came on the stream. As such,production capacity went up to 16 million tons by the end of 2000. The five new units in theprivate sector were Pioneer (Punjab) 1994, Lucky (NWFP) 1996, Askari (NWFP) 1997, Fauji(Punjab) 1997 and Best Way (NWFP) 1998.

DEMAND

According to a survey, the average demand for cement in Pakistan was increased at the rate of7.2 per cent per annum to 1.97 million tons in seventies. However the growth rate of cementconsumption was arrested at the end of 1980 to 6.8 per cent per annum. During nineties, thepace of demand was accelerated to the level of 7.49 million tons which raised the hopes of the

industry that the demand will further grow to 14.73 million tons by the end 2000. However thehopes were dashed with the beginning of the economic crisis mainly due to hopelessmanagement of the economy and excessive politicization in the economy and the demand couldreach much less than the expectations at a level of 9.91 million tons at the end of 2000. Asagainst the decline in demand, the production capacity of the cement industry jumped up to thelevel of 16 million tons by the end of 2000 leaving a huge idle capacity of over 6 million tons. Thedepressed economic conditions taken as the indicator for demand of cement instilled a depressedthoughts amongst the cement industry that under the prevailing conditions there was a little hopefor any positive change regarding increase in demand for the cement in the country. However, theproverbial saying ""exception always proves the rules" came true with the turnaround in theindustry as stated earlier. Cement consumption is taken as the representative denominator of thestate of development of any economy. Per capita consumption of cement in Pakistan works out to72 kg per head per annum. This level of per capita consumption is rated as one of the lowest in

the world. As against 72 kg per capita consumption in Pakistan, the per capita consumption ofcement in India is estimated at 89 kg, Sri Lanka 106 kg, Indonesia 139kg, Vietnam 126 kg,Turkmenistan 159 kg, El Salvador 171 kg, Philippines 220 kg, Mexico 251 kg, Iran 274 kg, Syria369 kg, China 410 kg, Turkey512 kg, Thailand 600 kg, Malaysia 870 kg and Taiwan 1004 kg.

LOOKING INTO THE FUTURE

The radical change in the fuel system that from furnace oil to coal and the increase in demand forcement has lifted the spirits of the industry which should not prove a temporary one. The cement


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industry in fact in a sense plays the role of a mother industry if all the development ofinfrastructure base of the country is taken into account. The increase in consumption also pushesthe economic activity in an array of affiliated industries especially in the construction relatedactivity. Besides encouraging increase in cement consumption through positive policies and useof cement in large public sector projects, this strong industrial sector deserves incentives throughconsiderable relaxation in government levies to make it competitive in the export market.

Although things are improving but much is needed to be done to sustain the vitality of the sectorin the days to come. Diminutive cement exports to Afghanistan did not put a hem on the cementsector as the warlike situation will exists in Afghanistan. With the full conversion of cement sectorto the coal firing system, Pakistan could save about $70 million on the import of furnace oil perannum. This would result in a low price per bag of cement and would ultimately encouragedomestic demand for cement. However, future prospects for an upturn largely depend upon theconstruction activities within the country and giving this sector an edge over the competitors in theexport market. The annual demand for cement in the neighbouring countries which are not theproducers of the cement always offer good prospects for export of cement from Pakistan,provided the government agrees to allow cushion through relaxation in taxes. A comparativestudy regarding taxes on cement indicates that as against Pakistan where the taxes on cementare 37 per cent, it is nil in Iran, 7 per cent in Thailand, 10 per cent in Egypt, 10 per cent inPhilippines, 10 per cent in Indonesia and 18 per cent in India.

Besides current export trend to Afghanistan which has injected a new life in our sick cementindustry, there were ample scope of export in the countries like Bangladesh where annualdemand for cement is estimated 5 million tons a year, Sri Lanka 3 million tons, Singapore 5million tons, Egypt 4 million tons, Myanmar 1 million tons, Vietnam 1 million tons, Malaysia 2million tons and Nepal 0.5 million tons. All these countries are not the producers of the cementand meet their cement needs through imports. Another factor to keep this sector vibrant is to usecement in the construction of the huge national project of Gwadar port in Balochistan, Karachi-Makran coastal highways. The use of cement in the huge network of irrigation canals and newdam projects can also contribute in bridging the gap between demand and supply in the cementsector.

Cement manufacturing in Pakistan was never as buoyant as it has become in thepreceding couple of years. Though an oligopoly, there exists immense competitionbetween members of the cartel. Critical success factors of the industry have unanimouslybecome utilization of idle production capacity, additions to which have started sendingthreatening signals to market participants. Cement manufacturers have undertakencounter offensive strategies by introducing capacity enhancements of their own tocapture extra market share and achieve economies of scale from production activities.

- This report was updated on January 2005 and provides in-depth analysis of publiclimited companies operating in the cement sector of Pakistan.

- It offers numerous charts, graphs, and tables to illustrate individual companyperformance vis--vis industry key performance indicators (KPI).

- The report follows from a large amount of supplementary information attached at theend in tabular format for easy reference.

- This report will prove useful for investment bankers, research analysts, as well asstudents interested in comparing financial and business performance of the cement sectorin fast developing economies with that of the developed world.


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- It also proves useful to cement manufacturing concerns or venture capitalists interestedin gauging feasibility of setting up a cement project in Pakistan. The opportunities formergers & acquisitions in the cement sector are quite attractive in the current marketscenario.

The package also includes a detailed presentation comprising of thirty (30) slides on keydevelopments in the cement sector of Pakistan over the last five years with majoremphasis on current year company-to-company performance as at June 30, 2004 as wellas consolidated performance for the first half of FY05 i.e. July-December 2004.

This presentation will prove useful in delivering key information to a large audience. Inaddition, the presentation allows copying, pasting, and editing information to suit theneeds of your company.

How Cement is MadeTake a Virtual Tour of a Cement Plant

Bricklayer Joseph Aspdin of Leeds, England first made portland cement early in the 19th centuryby burning powdered limestone and clay in his kitchen stove. By this crude method he laid thefoundation for an industry which annually processes literally mountains of limestone, clay, cementrock, and other materials into a powder so fine it will pass through a sieve capable of holding water.Cement is so fine that one pound of cement contains 150 billion grains.

Portland cement, the basic ingredient of concrete, is a closely controlled chemical combination ofcalcium, silicon, aluminum, iron and small amounts of other ingredients to which gypsum is addedin the final grinding process to regulate the setting time of the concrete. Lime and silica make upabout 85% of the mass. Common among the materials used in its manufacture are limestone,shells, and chalk or marl combined with shale, clay, slate or blast furnace slag, silica sand, and ironore.

Each step in manufacture ofportland cement is checked by frequent chemical and physical testsin plant laboratories. The finished product is also analyzed and tested to ensure that it complies with

all specifications.

Two Manufacturing ProcessesTwo different processes, "dry" and "wet," are used in the manufacture of portland cement.

When rock is the principal raw material, the first step after quarrying in both processes is theprimary crushing. Mountains of rock are fed through crushers capable of handling pieces as large asan oil drum. The first crushing reduces the rock to a maximum size of about 6 inches. The rockthen goes to secondary crushers or hammer mills for reduction to about 3 inches or smaller.

In the wet process, the raw materials, properly proportioned, are then ground with water,thoroughly mixed and fed into the kiln in the form of a "slurry" (containing enough water to makeit fluid). In the dry process, raw materials are ground, mixed, and fed to the kiln in a dry state. Inother respects, the two processes are essentially alike.

The raw material is heated to about 2,700 degrees F in huge cylindrical steel rotary kilns linedwith special firebrick. Kilns are frequently as much as 12 feet in diameter large enough toaccommodate an automobile and longer in many instances than the height of a 40-story building.Kilns are mounted with the axis inclined slightly from the horizontal. The finely ground raw materialor the slurry is fed into the higher end. At the lower end is a roaring blast of flame, produced byprecisely controlled burning of powdered coal, oil or gas under forced draft.


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As the material moves through the kiln, certain elements are driven off in the form of gases. Theremaining elements unite to form a new substance with new physical and chemical characteristics.The new substance, called clinker, is formed in pieces about the size of marbles.

Clinker is discharged red-hot from the lower end of the kiln and generally is brought down tohandling temperature in various types ofcoolers. The heated air from the coolers is returned to thekilns, a process that saves fuel and increases burning efficiency.

FECTO CEMENT

Summary of Project

The project of Fecto Cement Limited is situated at Sangjani, District Islamabad. The rated capacity of the plant is 600,000 metrictons of clinker per year. The project was completed at a cost of Rs. 2,104.15 mi llion.

The plant and machinery was imported from Fuller International Inc. USA. The plant is equipped with the most modernEnvironment Protection System. The plant started commercial production on January 01, 1990. The plant is achieving 100% sinceits inception. Fecto is a major supplier of quality cement for large Government infrastructure projects.

Mission Statement

Their mission is to manage and operate the company in a manner that allows continued growth and profitability without high risk

for investors, customers or employees. They do this by offering quality products to their customers, by constantly striving toimprove their product to meet their customers' needs, allowing us to prosper as a business, and to provide stable, secure incomeand employment for their employees and a reasonable return for their shareholders, the owners of their business.

Vision Statement

The future of the cement industry will be characterized by tough competition. In this future, Fecto Cement will be constrained ofcapacity utilization, tough and sluggish market and rising cost but Fecto Cement will strive hard to be able to make profit-and thuscreate value for their shareholders-and to continue as a successful company.

Corporate Strategy

Their Corporate Strategy and objectives for the future are to find new and improved means of cost reduction, fuel economy and toacquire advanced manufacturing capabilities to support their product development efforts and product line expansion and standready to leverage their debts and be responsive to the changing economic scenario. Fecto Cement believe in harnessing theinherent strengths of available human resource and materials to the utmost and a commitment for building a solid foundation

poised for sustainable growth for the long-term benefit of their shareholders and their employees.

Overview Operating Performance

P 2001 2002

Production:

Clinker 493,210 370,691

Cement 484,873 397,637

Despatches 485,378 397,439Operating Result

Inspire of increase in production and despatches the company suffered major loss during the year. This was mainly due tosubstantial decrease in selling prices. However, the commissioning of coal firing plant in November 2002 and adoption of variouscost saving measures decreases the cost of sales.

The company earned gross profit of Rs. 20.203 million as compared to gross profit of Rs. 116.510 million in preceding year. Thegross profit decline inspire of saving in per ton fuel and power cost by 5% percent. The reduction was mainly due to decrease inaverage net selling prices by 16%. Although company succeeded in controlling operating expenses but the financial expensesshowed increase due to higher utilization of running finance facilities. All these factors resulted in your company ended up withloss before taxation of Rs. 118.935 million.

Key Operating And Financial Data

Year ended June 30th, 2003


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Production summary Tonnes

Clinker production 493,210

Cement production 484,873

Cement despatches 485,378

Profit & Loss summary Rupees in 000

Turnover (Net) 1,061,194

Gross Profit/loss 20,203

Operating profit/Loss (64,244)

Loss/profit before tax (118,935)

Balance sheet summary d

Paid up capital 456,000

Reserves 150,000

Accumulated loss/profit (142,188)

Long term loans 58,338

Deferred Liabilities 122,395

Fixed Assets 723,716

Miscellaneous s

Contribution to national 788,207

Exchequer 6

Earning/Loss Per Share (Rs) (1.96)

Break up value per share (Rs) 10.17

Current Ratio 1:1.20

Debt/equity ratio 11:89

Company RegistrationMode of Forming Companies

Any seven or more persons associated for any lawful purpose may, by subscribing theirnames to the Memorandum of Association and complying with the requirements of theCompanies Ordinance, in respect of the registration, form a public company, and any two ormore persons, so associated may, in like manner, form a private company.

Prior approval of the ministries (which regulate their respective functions) noted against eachcategory of the following specified nature of companies is required before incorporation ofsuch companies.


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(1) Banking Company Ministry of Finance/State Bank of Pakistan.

(2) Insurance Company Ministry of Commerce.

(3) Investment Finance Company(Investment-Bank)

(i) Ministry of Finance.(ii) State Bank of Pakistan.

(4) Leasing Company Securities and Exchange Commission of

Pakistan.(5) Venture Capital Company Securities and Exchange Commission of

Pakistan.

(6) Asset Management Company Securities and Exchange Commission ofPakistan.

A company which invests in any of the following industries

(i) Arms and Ammunition Ministry of Industries/Board of Investment.

(ii) Security Printing, Currency andMint.

Ministry of Industries/Board ofInvestment.

(iii) High Explosives. Ministry of Industries/Board of Investment.

iv) Radio Active Substances Ministry of Industries/Board ofInvestment.

b) Availability of Name of the Company

The first step with regard to incorporation of a company is to confirm the availability of the name of theproposed company from the concerned registrar on payment of a fee of Rs.100, The name should not beinappropriate, deceptive or designed to offend the religious sensibilities of the people, and it should neitherbe identical nor have a close resemblance to the name of any existing company.

::. Starting a Business - Main Fees to be paid to the registrar of Companies

Companies doing business in Pakistan must register with the Registrar of Companies under the Companies Ordinance,1984.Securities & Exchange Commission of Pakistan (SECP) is responsible for this registration.

Main fees to be paid to the Registrar of Companies

Registration Rupees

Reservation of a name 200

Application Fee 1000

For registration of a company, fees range according to nominal share capital, e.g:

Not exceeding Rs.500,000/- 5000

For every 100,000 rupees of nominal share capital orpart of 100,000 rupees, after the first 500,000 rupees,upto 5,000,000rupees

500

For every 100,000 rupees of nominal share capital orpart of 100,000 rupees, after the first 5,000,000 rupees

250

Average fees for Professional Company Secretarial ServicesThe services of a Professional Company are h ired to prepare the necessary documents like Article of Association & Memorandum ofAssociation etc.Average fee for a medium sized Company is asunder:

For Private Company 20,000

For Public Company 25,000


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Rental Rates for Prime Office Space

The following rates are approximate rentals (gross) per sq.ft. per month in the major cities ofPakistan.

Province City Rupees

Federal Territory Islamabad 25-50

Punjab Lahore 20-50

Sindh Karachi 25-60

NWFP Peshawar 15-30Baluchistan Quetta 10-20

Cost of Industrial Land

Province LocationCost of Land persq.ft.in Rupees

Federal Territory Islamabad 35 - 135

Punjab Lahore (Sheikhupora Road) 80 -140

--do-- Gujrat 35 80

--do-- Sialkot 45 90

--do-- Taxila 25 - 30

--do-- Faisalabad 45 - 90

Sind Karachi 50 - 150

--do-- Hyderabad 62 100

NWFP Peshawar 25 35

--do-- Hattar 20 - 25

Baluchistan Quetta 20 25

Taxation in Pakistan

Generally, any income received / accrued in or deemed to be received / accrued in from any source is liable to tax in Pakistaincome remitted to Pakistan by resident companies, non-resident companies and non-resident individuals are exempted fro

Income / Profits generated by an assessee from the following setups is exempted from tax :

a) An industrial undertaking, which is engaged in manufacturing of goods or material transformation, conversion,transmission or distribution or supply of electrical energy or hydel power.

b) An undertaking approved by CB

c) A setup in areas specified by CBR.

d) Export of software developed in Pakistan.

Residential status determination

In case of individuals:

a) Person in that year is in Pakistan for a period / periods amounting to 182 days or more.

b) Person in that year is in Pakistan for 90 days or more who has been in Pakistan within four preceding years fo


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or more.

In case of companies:

The control and management of its affairs is situated wholly in Pakistan

Company TaxBanking Companies 38%

Public Companies 35%

Private Ltd. Companies 37%

Personal Income Tax

Resident and Non-Resident Individuals 7.5% - 35%

Withholding Tax

Interest on Securities 30% after Zakat

Profit on debit (on Bank Account / Fin.Inst.) 10% before Zakat

Fees for Technical Services 15% of Gross Fee

Royalty 15% of gross royalty

.. Services Rendered 5%

Execution of contracts

a) Value not exceeding 30 million rupees 5%

b) Value exceeding 30 million rupees 6%

c) Supply of Goods 3.5%

Profit or Interest on Bonds, Certificates etc. 10%

Commission or Brokerage 5%

Sales Tax

This tax is imposed at the import and manufacturing level 15%

Supplies by registered person to registered persons 15%

Supplies by registered person to un-registered persons 18%

Specified items (Mentioned in SRO 389(I)2001 dt . 18-6-2001 20%

Turn over Tax 2%

Interest rate for long term finances 9-12%

Rates of Capital AllowanceCapital allowances are given on qualifying capital expenditure. Initial allowances are given once only while annual allowances are givenevery year. Some of the items accorded allowances are shown below:

Initial Allowance

Newly purchased machinery, plant & equipment 50 %


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Annual Allowance

Buildings 5%

Factories / workshops 10%

Residential accommodation of labour 10%

Plant & Machinery 10%

Personal Computers 30%

Underground Installations 100%

Other Items / Equipments 10 - 25 %

Motor Vehicles 20%

Various incentives available for Setting up new business

In order to attract foreign investment, the Government of Pakistan has announced various incentive schemes and has given taxexemptions to the Companies who intend to invest in Pakistan.

Major exemptions are as under:-

Interest Income on foreign currency accounts

Profit from educational institutes

Profit from computer training and educational centers

Capital gains on sales of shares of listed companies

Income from pioneer industrial undertakings

Income from manufacture of electronics

Income from manufacture of solar energy equipment

Income from industrial undertaking in Export Processing / Special Industrial Zones

Income from fruit processing

Income from manufactures of soft and stuffed toys

Duties & Tariffs

Raw material duties and tariffs on imports 5-20%

Duties and Tariffs on import of machinery 5-30%

::. Human Resources - Minimum conditions of Employment


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Paid maternity leave (max.) 12 weeks

Normal work hours 7 8 hours daily

Paid holidays (Gazetted) 11 days /Annum

Paid Annual Leave for Employees 14 days /Annum

Paid Sick Leave for Employees 16 days/Annum

Paid Casual Leave for Employees 10 days/ Annum

Statutory Contributions

Employees Provident Fund

Employers 8.3% - 10%

Employees 8.3% - 10%

Workers Welfare Fund (WWF) 2% on pre-tax profit

Workers Profit Participation Fund (WPPF) 5% on pre-tax profit

Employees old-age benefits

The old age benefits Act-1976 covers industrial,commercial & other establishments whereemployees are ten or more in number.

Contribution: 5% of wages of insured workers getting uptoRs.3000/- p.m. payable by Employers.

Provincial Employees SocialSecurity SchemeThe Provincial Employees Security Ordinance1965 covers industrial, commercial & otherestablishments where employees are ten or morein number.

Contribution: 7% of wages of secured workers getting uptoRs.5000/- p.m. payable by Employers.

::. Wages Rates

Average total remuneration in manufacturing sector is as under

Salaries & Benefits (Executives) Rupees per month

Managing Director 250,000 _ 500,000

General Manager 125,000 _ 275,000

Senior Manager 75,000 _ 150,000

Manager 50,000 _ 90,000

Deputy Manager 30,000 _ 70,000

System Analyst 30,000 _ 70,000

Programmer 20,000 _ 50,000

Salaries & Benefits (Non Executives)


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Foreman 8000 _ 12,000

Supervisor 7000 _ 9000

EDP Supervisor 10,000 _ 12,000

Boiler man 7,500 _ 9,500

Electrician 7,500 _ 9,500

Clerk/Typist 5000 _ 6000

Data Entry Operator 5000 _ 6000

Security Guard 4000 _ 5,500

Driver 3000 _ 4500

Utilities

Electricity Rates Rate in Rupees/KWH

Domestic

Upto 50 Units 1.40

First 100 Units (1-100) 2.44

Next 200 Units (101-300) 3.34

Next 700 Units (301-1000) 5.63

above 1000 units 6.77

Commercial

First 100 Units 6.88

Above 100 Units 7.24

For peak Load 4.24

Industrial

B-1 5..19

B-2 3.65

B-3 3.56

B-4 3.35

Industrial (TOD TARRIF)

B-2 (Off Peak) 3.52

B-2 (Peak) 5.09

B-3 (Off Peak) 2.99

B-3 (Peak) 4.56

B-4 (Off Peak) 2.84

B-4 (Peak) 4.39

Agriculture

D-2 Scarp 4.93

D-2 (i) Punjab and Sindh 2.99

D-2 (ii) NWFP and Baluchistan 2.62


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Water Rates

Flat rates of water supply for industries are as under:

Industries using water for dr inking & toilet purpose only. : 600 Rs. per monthIndustries where water is partly used for manufacturing purposes.:1200 Rs. per month

Industries where water is used as raw material.: 3000Industrial Wastage / Treatment Rates

Ministry of Environment, Local Government & Rural Development has a department called Environmental Protection Agencwhich is responsible to monitor the industries against spread of pollution. Similarly each province has established provinciaProtection Agencies to monitor the environment pollution in their provinces.

Different private sector companies are doing the industrial wastage disposal / treatment task. The average rates are as und

Wastage Disposal

Ordinary wastage : 20 35 Rupees per k.g.

Toxic material : 20 100 Rupees per k.g.

::. Gas & Fuel CostsNatural Gas (as on 1st June, 2003)

Domestic Rs./MM BTU

Upto 3.370 MM BTU 67.953.371 to 6.742 MM BTU 102.376.743 to 10.115 MM BTU 163.78Above 10.115 MM BTU 213.06

Commercial 190.00

General industry 168.88 LPG/CNG Rs/K.g.

LPG 29.66-32.20

CNG 22.94-24.98

Petrol/Diesel/Fuel OilEx-Depot prices as on 1st

June, 2003

Rupees/Liter

Petrol (87 RON) 30.12

Hi-Octane (97 RON) 33.65

Diesel 19.91

Medium quality fuel oil 130 - 145

System of Price Adjustment & Regulatory Framework

The consumer prices of petrol and diesel are reviewed and adjusted on fortnightly basis by Oil Companies Advisory Committee (OCAC)on variations in the international market prices. Any increase / decrease in the international market prices is passed on to the consumerby the approval of Ministry of Petroleum & Natural Resources.

::. Telecommunication Rates


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Pakistan Telecommunication Corporation Limited (PTCL) is the main Organization in Pakistan which provides telephone services.Service rates of PTCL are as under:

Rupees

Installation Fee 2228 (one time)

Line Rent/month 282

Local Call Charges(upto 25 k.m. distance)

2.31

Nation Wide Dialing (NWD ) Charges

DistanceOne Minute Charges

Rupees

Exceeding 25 K.M. but not

exceeding 80 K.M4.62

Exceeding 80 K.M but not

exceeding 160 K.M9.24

Exceeding 160 K.M but not 11.55

Time Wise Concessions

Normal Rate 0700 1800 Hours

Half Rate 0800 2130 Hours

Quarter Rate 2130 0700 Hours

International Telephone Call Tariff

Name of Country3 Minutes chargesRupees

SAARC Countries Rs. 25/- per minutes & other countries Rs. 39/- perminute

America 117.0

United Kingdom 117.0

Australia 117.0

Canada 117.0

Germany 117.0

Japan 117.0

India 75.0

Kuwait 117.0

Saudi Arabia 117.0

Doha (Qatar) 117.0

Russia 117.0

Cellular Phones

In Pakistan, PAKTEL & INSTAPHONE are providing Cellular phone services based on AMPS technology while UFONE & Mare providing mobile phone services based on GSM technology.

Every company offers different packages. The average rates are as under :


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Description Pre-paid Post-paid

Rupees Rupees

Connection charges 2100-3000 Local 3500, NWD 6000, ISD 10000,International 22000, Roaming

Outgoing per minute 5/- 1.00 - 3.50/-

Incoming Free Free

Internet Service Fees

PTCL is the main provider of telecommunication facili ties in Pakistan. Many private companies have acquired leased lines fand are providing internet services

::. Transportation Costs

Dial up connection Rupees

PAKNET Pre-paid package (monthly) unlimited 3800

NTC Pre-paid package (monthly) unlimited 3500

Post paid package (rate per hour)

COMSATS

22

Comsats provide 50% concession to Govt./EducationalOrganizations

Security (Refundable) 5000

Rate per hour

(COMSATS provide 50% concession to Govt/Edu.Org.)

25

Other ISPs Registration charges 500-700

Rate per hour 15

Leased Line Connection

Tariffs on half circuits of International Private leased lines for internet service providers are as under:

Data Speed Annual Rentals (US $)

64 kbps 17,000

128 kbps 34,000

DSL services

DSL (Digital Subscriber Line) is a technology for bringing high bandwidth information to homes and smallbusinesses over ordinary copper telephone lines.

Data Speed Monthly (Pk-Rs)

64 kbps 22572128 kbps 42750256 kbps 73656512 kbps 125928


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Ocean Freight Rates

Ocean freight rates applicable for general cargo from Karachi Port to some of the major ports are as under:

From Karachi Port to: 20 ft container 40 ft container

(US $) (US $)

Thames Port (UK) 1100 1950

Hamburg (Germany) 1100 1950

Rotterdam (Netherland) 1150 2050

New York (USA) 2300 3400

HongKong 500 1000

Kaohsiung (Taiwan) 600 1200

Busan (Korea) 600 1200

Osaka / Yokohama / Nagoya, Japan 700 1400

Courier Service Rates

A number of Pakistani and International companies provide courier services in Pakistan

Documents Merchandise

CountriesFirst Next First Next

500 gms 500 gms 500 gms 500 gmsAustralia 1450 650 2800 550Germany 1300 325 2100 350

Japan 1500 700 3000 650

Taiwan 1350 350 2200 400

United Kingdom 1300 325 2100 350

United States 1350 350 2200 400

Canada 1350 350 2200 400

India 1350 350 2200 400

Russia 1450 650 2800 550

Air Cargo Rates

The cargo rates of Pakistan International Airlines (PIA) for some of the countries

Destination Country

Minimum

Weight (Kg)

Rate

Rupees

For eachaddl. K.g.Rupees

America 3 3100 359

Canada 3 3100 449

Australia 3 1020 282

Europe 3 1290 225

Middle East 4 955 123

Singapore 3 1020 171

Thailand 3 1020 130


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::. Rented Residential Accommodation

In major cities of Pakistan i.e. Karachi, Lahore, Islamabad, Peshawar and Quetta, the average rental rates are as under :

Rupees per month

Bungalow (2, 3 bed rooms) 20,000 - 40,000

Bungalow (4, 5 bedrooms) 40,000 - 60,000

Semi-detached 10,000 - 15,000

Apartments (Unfurnished)

One bed room 3000 - 5000

Two bed room 5000 - 7000

Three bed room 8000 - 10,000

Four bed room 12,000 - 18,000

::. Non-dutiable Goods

The following items can be brought to Pakistan duty free under personal

baggage scheme :

1. One Mobile Phone2. One Portable Radio3.One Tape Recorder / Cassette Player, CD Player4.Personal Jewellery Worth less than 1100 $5.Two Personal Computers or one Laptop Computer along with Pr inter, Monitor, Keyboard, Mouse and cables etc.6.Any other gifts worth 100 $.

::. Hotel Rates

Rupees per day

3-Star 4-Star 5-Star

Islamabad

Single bed 1600 7000 11000

Double bed 2000 8000 12000

Lahore

Single bed 3000 6500 9000

Double bed 5000 7500 11000

Karachi

Single bed 3000

7000 11000

Double bed 5000 8000 12500

::. Club Membership

Rupees


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Registration (Government Employees) 25,000

Monthly fee (Government Employees) 300

Registration (Private) 2,00,000

Monthly fee (Private) 600

Golf Club MembershipRegistration (Government Employees) 10,000

Monthly fee (Government Employees) 600

Registration (Private) 1,00,000

Monthly fee (Private) 1250

::. Economic IndicatorsEconomic Indicators (July 2004 - June 2005)

Indicators 2000 - 01 2001 - 02 2002 - 03 2003 - 04 2004 - 05 + (-) %

Exports (Billion $) 9.20 9.13 11.16 12.31 14.41 17

Imports (Billion $) 10.72 10.34 12.22 15.59 20.62 32

Trade Balance (Billion $) (1.52) (1.20) (1.06) (3.28) (6.21) 90

Net Revenue (Billion Rs.) 393.9 404.1 460.6 518.8 591.09 14

FDI (Million $) 322.40 484.70 798.00 949.40 1524 61

Workers Remittances (Billion $) 1.09 2.39 4.24 3.872 4.17 8

Forex Reserves (Billion $) 3.22 6.43 10.72 12.33 12.61 2

Exchange Rate (Rs./ US$) 58.4 61.0 57.7 57.92 59.66 3

Stock Exchange Index 1300 1520 3402 5279 7450 41

GDP Growth 2.6% 3.6% 5.1% 6.4% 8.4%

Inflation 4.4% 3.4% 3.3% 3.9% 9.3%