ISLAMABAD, Feb 1: The Economic Coordination Committee (ECC) of the cabinet on Thursday granted 40-year tax exemptions to the proposed operators of Gwadar port, making it a virtual tax-free port to the extent of its development and operations.

The ECC, which met here on Thursday under Prime Minister Shaukat Aziz, also approved a five-year automobile policy, sale of 1,423 acres land of Pakistan Steel Mills to industrial sector, import of liquefied natural gas (LNG) and gas diversion from KESC to Wapda.

Dr Ashfaq Hassan Khan, economic adviser to the finance ministry, told a news briefing that the tax concessions were granted to Gwadar Port operators i.e. the Port of Singapore Authority (PSA). The concessions had been approved by the prime minister on January 23.

He said the PSA would invest about $550 million in five to 10 years under the concession agreement while the government would provide them incentives and facilities. The agreement also entails ministerial authority over the operators to fix port fees to attract shipping lines.

He said the list of tax exemptions was long. Some of the major tax incentives included complete exemption from corporate income tax for 20 years, duty exemption on import of material and equipment for construction and operations of Gwadar Power and Development Free Economic Zone for 40 years and duty exemption for shipping, bunker oil for Gwadar port for 40 years, he said, adding that the port operators would also be exempted from all local and provincial taxes for 20 years.

"They will make Pakistan an economic hub," said Dr Ashfaq when asked what the port operators would give in return. He agreed that it would be an ‘almost tax-free port’.

He said the ECC approved a five-year policy for the automobile industry allowing a gradual tariff reduction on import of cars and light commercial vehicles by up to five per cent to produce about 500,000 vehicles by 2011-12.

“The policy provides protection to the existing car manufacturers but offers incentives at the same time to the new entrants to grow and expand,” he said, adding that the existing policy on import of used cars would remain in place.

He said the tariff on localised parts of the completely knocked down (CKD) cars would be reduced form 50 per cent at present to 45 per cent by 2011-12. Similarly, import tariff on non-localised parts of CKD units would be reduced from 35 per cent to 30 per cent in five years, he added.

Likewise, the tariff on the import of completely built unit (CBU) would remain unchanged at 50 per cent for cars up to 1500cc while the tariff on 1501-1800cc CBUs would be reduced from 65 per cent to 60 per cent in 2009. For CBU cars above 1800cc, the tariff would be reduced from 75 per cent to 70 per cent by the year 2009-10.

Moreover, the tariff on localised parts of light commercial vehicles (LCVs) in CKD form would be reduced from 50 per cent to 45 per cent by 2011-12 while existing 20 per cent tariff on the import of non-localised parts would remain unchanged. The existing 60 per cent tariff on LCVs in CBU condition would also remain unchanged.

The adviser said the auto-policy would enhance total investment in this sector from Rs98 billion to Rs225 billion by 2011 and double its share in GDP to 5.6 per cent. The share of auto sector in manufacturing would increase from 16 to 25 per cent and its revenue contribution would increase from current Rs63 billion to Rs190 billion by 2011, he added.

He said the ECC also decided to sell about 1,423 acres of Pakistan Steel Mills to the industrial sector at a uniform rate of Rs7 million per acre, although 423 acres were partially developed and about 1,000 acres underdeveloped.

The development and management of this land would be done by the National Industrial Parks Development & Management Company (NIPDMC) that would also put in place terms and conditions for use of such land for industrial purposes, he said.

He said the plot would be non-transferable during the lease agreement but failed to explain if the land would be sold or leased out when asked about the lease period.

Dr Ashfaq said the ECC also approved a policy on exploration and development of coal bed methane in Sindh and authorised the provincial government to award the contract to M/S Cathy and Company. He declined to divulge the parameters of the policy but said the ECC had directed the Sindh government to conduct ‘proper due diligence’ with the company.

He said the ECC also allowed the Sui Southern Gas Company (SSGC) to go ahead with the project for import of LNG and start delivering about 3.5 million tons (500 million cubic feet of gas per day) in the first phase by 2010-11 with the option to expand further to import an additional 3.5 million tons by 2012-13.

He said the ECC asked the SSGC to adopt an approach of bringing in a completely integrated plant involving supply, plant for degasification and distribution instead of unbundled and segmented approach and invite request for proposals (RFPs) from 14 companies who had submitted comprehensive statements of qualifications. As such, the RFPs would be invited from Persian LNG and British Petroleum as suppliers while consortiums of Shell, ENI, Mitsui-Kogas, AES, Fauji Corporation-Fourgas and Fotco with Sojitz as plant operators and distributors.

The ECC also approved diversion of about 48 MMCFD of gas from two independent power producers -- Fauji Korangi Power and Western Electric -- to Wapda because the management of the KESC had refused to purchase electricity from the two IPPs.