The concessions given by Pakistan’s government to Chinese, due to CPEC, are completely against Pakistani industry. There is 17 percent sales tax on the products that local manufacturers supply, whereas if CPEC projects purchase imported cable and wire they are exempt from paying sales tax and customs duties. The local industry be given the facility to sell to CPEC projects on a zero rated basis, otherwise there is a strong chance that the local industry will get wiped out. Read an exclusive interview with Fahd Chinoy, Deputy Chief Executive, Pakistan Cables.
Please tell us something about yourself and Pakistan Cables.
Fahd Chinoy: I am the Deputy Chief Executive of Pakistan Cables and have been with the company for almost 11 years. Prior to that I was a banker in the US and Canada. I have studied at the University of Pennsylvania and INSEAD, which are both amongst the world’s top educational institutions and it is this exposure to international business and academics that has helped me in my career with Pakistan Cables. Pakistan Cables, the country’s oldest and most reputable cable manufacturer was established over 5 decades ago in 1953 as a joint venture with British Insulated Calendar Cable (BICC). In 2010 General Cable Corporation, a Fortune 500 company and global leader in cable manufacturing invested in Pakistan Cables by taking up a 25% equity stake in the company. General Cable was affiliated with Pakistan Cables up to 2017. Pakistan Cables primary product lines are Wire and Cable, Copper Rod, PVC compound and Aluminum Sections and its annual revenue is in excess of Rs9.5 billion. The company has been listed on the Pakistan Stock Exchange since 1956.
What major milestones have been achieved by Pakistan Cables?
Chinoy: Pakistan Cables is the first cable manufacturer in Pakistan and is a pioneer in the industry. We have been the first to introduce a large number of cable and wire products in the country and are proud to be a major part of the country’s industrial growth story. Pakistan Cables is also the only cable manufacturer to have foreign technical collaborations through its JVs with BICC, General Cable and now CTC Global. We have invested in technology, best practices and have a strong reputation in the market for product quality and operating through a highly ethical approach. Our products and factory have received several certifications, including the coveted KEMA type test certificate as early as 1984 (we now have successfully passed 8 KEMA type tests). We are the largest importer and processor of copper in Pakistan and also on the forefront of innovation. The most recent product that we have introduced to the market is Aluminium Conductor Composite Core, which is a new technology for conductors that is highly efficient and reduces line-losses and increases transmission capacity. This introduction is set to have a major impact on the efficiency of Pakistan’s stressed and ageing transmission and distribution network.
How do you review the performance of Pakistan Cable during 2018?
Chinoy: Our financial year runs from July – June and the year 2017-18, which was reasonably satisfactory with topline growth of 18% and overall sales of Rs.9.56 billion. Unfortunately, the business environment remained challenging during the year thereby impacting margins and profits. But we are undertaking several measures and programs to enhance efficiencies alongside the value proposition for our customers.
How has cost of production escalated over the years?
Chinoy: The key input for us is the price of copper, which is our primary raw material and an overall driver of costs. Copper is traded internationally and generally tends to fluctuate. Recently it is the exchange rate, which has had an impact on raw material cost because a very high percentage of our raw materials are imported. Overall, the cost of doing business has been increasing, with electricity rates, gas prices and now interest rates creeping up. There has also been the inflationary impact on salaries and wages. Given rising costs, it becomes critical to ensure that there efficiencies built into the organizations systems to ensure that there is profitability along with a focus on cash flow. As costs have escalated and our industry has become more competitive, this has become even more critical.
What is the main source of copper for Pakistan?
Chinoy: Well for Pakistan Cables, we import our copper only from London Metal Exchange Certified Grade A suppliers. We do not compromise on the quality of the copper cathode that we purchase, as we want to ensure that the copper we are using in our wire and cables are as close to 101% conductivity as possible. We purchase our copper through highly reputable international metal and commodity houses. Unfortunately, a large component of the wire and cable industry, both organized and unorganized does not focus on purchasing high quality copper, which puts the end user and common man at severe risk. Low quality copper results in the cable heating up and posing a safety risk. Short circuits, fires and line losses in Pakistan are quite common due to this factor.
Does recycling meet part of the demand?
Chinoy: This is exactly what I was pointing towards in the previous question. There is a huge market for recycled copper in Pakistan. Used compressors and motors are imported into the country and then disassembled, the copper is then melted and converted into inferior quality copper rods that do not meet international standards. There is a large industry in Gujranwala that is manufacturing low quality copper, but it is not just restricted to that territory alone. It is prevalent in other cities and towns as well. Cable manufacturers then use this (low quality) copper to make substandard cable.
Why electricity distribution companies are switching over to aluminum wires from copper wires?
Chinoy: Copper is over three times the price of aluminum but yet it is a much more superior conductor. Naturally, with the huge quantity of cable and conductors required by utilities, they cannot afford to purchase copper products. It wouldn’t make financial sense to them. This is a global phenomenon for utilities.
Can cables coming from China be considered a major threat for local manufacturers?
Chinoy: It is a major threat that can have an impact on the survival of our industry. Imports of wire and cable have increased from USD 56 million to USD 124 million in the span of the last two years. Pakistan Cables and our close competitors set up plants years ago to cater to medium voltage cable requirements of K-Electric. K-Electric initially used to buy from us but then they moved to Chinese product and this coincided with Abraaj coming in. In the last three years, an estimated Rs4 billion of cable has been imported by K-Electric alone from China. It is cheaper because of extra incentives and lower priced raw materials that China offers its companies.
In Pakistan, we import almost all our raw materials and these attract import duty, whereas the Chinese have the benefit of locally available raw materials. This coupled with an export subsidy that is estimated to be between 13% – 15%, makes it very difficult to compete with certain Chinese products.
Power outages happen on a daily basis in Pakistan and that is a big hindrance. There’s no such issue in China, which makes them more efficient.
Similarly, with the recent phenomena of large Chinese contractors entering Pakistan and working on several mega projects including power plants, ports and shipping and several other mega projects, we are starting to see a major influx of all types of Chinese cables in the Pakistan market.
The concessions given by Pakistan’s government to Chinese, due to CPEC, are completely against Pakistani industry. There is 17 percent sales tax on the products that we supply, whereas if CPEC projects purchase imported cable and wire they are exempt from paying sales tax and customs duties. Import is not just focused only on China, imports can be done from other countries as well and the CPEC project importing would never choose local products, because of the huge advantage they would get from importing. So, the whole world has the advantage to supply to any special project in Pakistan as compared to the Pakistan industry. We demand that the local industry be given the facility to sell to CPEC projects on a zero rated basis, otherwise there is a strong chance that the local industry will get wiped out.