KARACHI, Oct 26: The National Tariff Commission (NTC) has initiated investigation to rationalise tariff structure of polyester terephthalate resin (PET resin) and its downstream products.

In a public hearing held last week, the NTC invited all industries and trading concerns having interest in PET resin, PCT code 3907.6010, 30907.6020 and 3907.6090 and its downstream products, including textiles, bottles, films, sheets, etc., to solicit their views.

The investigation is being carried out as the issue of duty structure of polyester terephthalate resin (PET resin) is presently under discussion at various forums of the government.

The issue of tariff structure of PET resin, bottle, yarn and film grades had become a serious one because monopolistic practices within the industry are blocking new investment worth billions of rupees, industry sources said.

The Competition Commission of Pakistan (CCP) also recently initiated preliminary investigations into monopolistic practices by manufacturers of polyethylate (PET resin) of all grades.

The CCP initiated preliminary investigations on receiving separate complaints from Astro Plastics and Fine Star Industries, duly supported by other industry players, namely Lotte, ICI, Alhafiz Industries, Karim Containers, Trans-Pak, Mehran Plastics Industries, Pak Pet and Plaspack Ltd.

The newly-established Rs3.38 billion plant of Astro Plastics at Port Qasim is one of the two manufacturers of BOPET film (polyester films) in the country. Its annual production capacity is 18,000 tons whereas the annual production capacity of its competitor Novatex is 25,000 tons.

In its complaint, Astro Plastics accused that Novatex is indulging in abuse of its dominant position in PET resin and polyester film market in violation of Section 3 of the Competition Act 2010.

Furthermore, the Federal Board of Revenue (FBR) has made a decision of imposing a tariff structure which falls under the definition of “prohibited agreement” as per Section 4 of the Competition Act, 2010.

The other complainant, Fine Star Industries, duly supported by other industry players who are manufacturers of PET preforms, PET bottles and other plastic products in the country, made a similar complaint alleging violation of Section 3 of Competition Act, 2010.

Both the aggrieved parties pleaded before the CCP and NTC that since its formation in 1984, the Novatex group enjoys substantial duty protection on PET resin from as high as 45 per cent to the current level of nine per cent.

Even after a long period and healthy local and international growth by the company, the group is enjoying tariff protection from the FBR.

They further alleged that to prevent and restrict competition in PET resin, PET bottle and preforms, the FBR has imposed a decision (in the form of tariff imposition) on industry participants of PET resin, PET bottle and performs.Customs duty on import of raw material for manufacture of PET bottles and preforms is nine per cent whereas effective duty for Gatron Novatex group for the same product is 2.15 per cent.

Consequently, the dominant position of Gatron Novatex group was creating difficulties for new entrants in the market due to unfair product prices in the absence of fair competition.

They further stated that Novatex Ltd reported net profit of more than Rs1.9 billion, gross margin of 10.3 per cent, net profit margin of 5.6 per cent, return on equity of 24.2 per cent and EPS of Rs45.87. Hence, tariff protection designed to benefit just one company is creating monopolistic situation.

As Novatex group is only manufacturer of PET resin in the country having capacity far greater than country’s domestic demand, any increase in tariff, just increase in the price and profit margin of the group does not contribute to the government treasury, they added.