KARACHI, May 4: The four polyester fibre makers in the country are again taking up the case with the government for the withdrawal of 15 per cent sovereign guarantee given to the giant multinational ICI and replace it with a system that gives local industry enough room to counter the impact of increasing world prices of raw material.

Those involved in PSF trade in Pakistan are of the firm view that if the industry is given a relief from the 15 per cent tariff on PTA, the local industry will be able to effectively counter the increasing world prices of raw material but also gain enough potential to move in the international export market.

The hard pressed PSF makers have increased the prices of their products by one rupee from the first of this month to Rs75 a kg. For last three months the industry has virtually frozen the polyester fibre prices at Rs74 a kg.

Now that the prices of the basic raw materials of PSF industry has increased substantially, the local industry is reported to have made a token increase of one rupee in prices.

Industry sources quote current PTA prices at $730 per ton and that of MET at $810 per ton. The industry does not see any respite from the price hike of PTA and MET as these two are bye products of the petroleum industry.

Thanks to the Bush, Chenny and Rumsfield adventure in Iraq, the international price of crude oil is on constant rise and there is hardly any chance of price stabilization of crude till next October at least.

Out of four PSF makers in Pakistan, two big plants have a capacity of 600 tons, which is comparable to any mega sized plant in other parts of the world and could effectively realize economies of scale.

"But the major obstacle in free export of PSF is sovereign guarantee given to ICI Pakistan till the year 2008 due to which 15 per cent import duty is to be paid up front on the import of PTA which is highest in the world", a frustrated PTA maker remarked.

"Currently, there is a big demand for PSF in mainland China and other Far Eastern countries," he informed and explained that because of the protection being given to local ICI plant their prices in the international export market becomes un competitive.

The PSF dealers allege that duty refund procedure for export is too cumbersome and a complicated process and the refund sum is less than the levies. "Then you know how the guys in Central Board of Revenue are when it comes to refund. The going rate is 30 per cent minimum with a lot of run around," he said.

At home, Pakistan government has given a 10-year sovereign guarantee of 15 per cent tariff protection to the ICI from June 1998 to July 2008 in lieu of additional investment of $130 million on infrastructure development when it took up PTA expansion project at Port Qasim.

"Higher tariff on polyester chain on account of 15 per cent tariff on PTA is thus a major impediment in the fast track growth of polyester sector as well as a major cause of smuggling of synthetic cloth into Pakistan," is a candid observation of an official report of the federal industries and production ministry.

"Pakistan has become a favourite dumping ground for smuggled synthetic cloth and filament yarn," a local PSF maker remarked who said that a distorted taxation structure that encourages smuggling has literally crippled the domestic industry and it is resulting in wastage of billions of rupees investment.

Not only the tiny PSF industry but also the mighty All Pakistan Textile Mills Association (Aptma) has also been demanding from the government to make polyester available at international prices to remain in competitive.

There is still a lot of room for Pakistan textile industry to make a big headway in the polyester-cotton mixed apparels and clothing. But then as the situation is, a government that ran on IMF and World Bank crutches for last four years, find it difficult nay impossible to annoy a British multinational ICI.

"Withdrawal of sovereign guarantee would send a negative message to international investors," a PSF dealer quoted a senior government official.

The federal industries and production ministry took notice of the plight of the domestic textile and PSF industry about two years ago and in consultation with all the stakeholders worked out a tariff formula that adequately compensates ICI and also provide relief to the downstream industry.

Under the arrangement worked out by the ministry, the 5 per cent difference between the PTA and PSF was maintained. At present the import tariff on PTA is 15 per cent and on PSF is 20 per cent. The tariff on PTA is proposed to be brought down to zero and that of PSF to 5 per cent. Thus existing level of protection to PTA would be maintained.

However, zero duty on PTA cannot be achieved unless the duty drawbacks on the existing philosophy of deemed imports is moved upstream to the level of PTA to the extent of domestic sales of PTA.

The ICI proposal was to "push the payments of drawback further up the chain, when the PPTA supplies to a exporter of PSF, PPTA should be eligible to claim a drawback on a deemed basis of the rate of 15 per cent of the selling price".

For one reason or the other, the proposal could not get through. But now that dismantling of textile export quota regime from December 2004 and the perception is gaining that Pakistan stands to gain a lot from export market in future, the government is expected to give a serious consideration.