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r ILL IU1 I Report No. AA- la

This report was prepared tor use within the Bank and its affiliated organizations.They do not accept responsibility for its accuracy or completeness. The report maynot be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

INTERNATIONAL FINANCE CORPORATION

INTERNATIONAL DEVELOPMENT ASSOCIATION

APPRAISAL OF

A PROJECT FOR MODERNIZATION AND EXPANSION

OF THE COMMERCIAL VEHICLE FLEET

PAKISTAN

December 30, 1965

IFC-Department of InvestmentsAfrica, Asia and Middle East

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C UR R EN.CjY E Q UI VA1'.LEJNTI S

U.S. $1 = 4.76 Rs.Rs 1 = 0. 21 U.S. $

PAKISTAN

APPRAISAL OF A PROJECT FORMODERNIZATION AND EXPANSION OF THE

COMMERCIAL VEHICLE FLEET

Table of Contents

Paragranhs

S~TNTvTAV tAM rTfl CT.TITn1IO5J-,

T TW1'TPnTjrTr"1TChT1

TT. D AnT rrvDAMcTh'DmDr TAT DAWTQrrAMj£.L.L £LW A.'JU L.fAdJ.'J± JU 9.L±l

A f

I. If.J..DCTO 1-2ra'

B. The Road Networks 4-6ml_ The -- vehcl et 17-

D. Ownership 9-13- -os9. -t-i --I

E,.Operating Cost L 1-16

F. Charges 17-18G. Operational Features and Services 19-24H. The Need for Additional Vehicles 25-29

III. THE ASSEMBLY PLANTS 30-55

A. Background 30B. History of Assembly of Vehicles

in Pakistan 31-36C. The Assemblers for Commercial Vehicles

(a) Ali Automobiles Limited (FordProducts) 37-39

(b) Ghandhara Industries Limited(General Motors products) 40-41

(c) Haroon Industries Limited (Dodgeproducts) 42-43

(d) Mack Trucks of Pakistan Limited(Mack products) 44-46

D. Overall Performance of the Assemblers 47-49E. Economics of Assembly Operations 50-53F. Evaluation of Government Policies 54-55

IV. THE PROPOSED CREDIT 56-70

A. The Projoct 56-60B. Licensing Procedures 61-62C. Spare Parts Supplies 63D. Evaluation of the Projeot 64-66

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E. Procurement 67-70

V. BENEFITS OF THE CREDIT 71-74

VI. RECOMNENDATIONS 75

ANNEXES

1. Motor Vehicle Fleet 1963

2. Profitability of Truck Operators

3. Ali Automobiles Limited

4. Ghandhara Industries Limited

5. Haroon Industries Limited

6. Mack Trucks of Pakistan Limited

7. Price Structure of Selected Chassis

8. Estimated Composition of Vehicle Types to be Assembled

9. Automotive Imports 1964-65

PAKISTAN

APPRAISAL OF A PROJECT FORMODERNIZATION AND EXPANSION OF THE

GO vTMRCTAL VERTLE FLEET

SUMMARY AND CONCLUSIONS

i. The Governm.en^Pt of Pakitan has reiquser1 an TnhA Geait. of TT-R-$25 million equivalent to finance (a) imports of components for aboutR nnn enmma"nl -1Tr0MirlC +rn ho nam1cd K Pi-t (TI .A $2 35million equivalent), and (b) imports of 150 doubledecker buses to beused Ivyr +thene of +hne 1Inrg-+ n,-s4 n-,.s,r,,+ corporaio snd ' oher

common carriers (U.S. $1.5 million equivalent). Of the 8,000 commerc:ialvrehCiles to be nsse,,,bled A , -D.1,t4.4- abu . 300 -OruI A be +trul-, .bun+

2,100 buses, and about 600 pickup vans.

ii. Over recent years imports of capital equipment for some sectorsoL theu UcnVoLiLuiy h±ave Ubeen keptr UbelUW actua-L req£uiLeet dLU0 uu UV t .LVLrJ l

exchange shortages. In the road transport sector imports of commercialvehicles ha-ve a-veraged abo-ut 5,000 units per -yer, a ra-te -w-ich has beentoo low. As a result, a large proportion of the existing vehicles isbeyonld con,virac age, and the fleet of trucks ald buses is not adequate3to cover the current demand for road transport.

iii. The proposed vehicle components (U.S. $2345 million equivalent)would be imported by the four companies presently assembliLng commercialvehicles in Pakistan. An analysis of the economics of assembly plantoperations as compared to imports of complete vehicles shows substantLalsavings both in foreign exchange and real cost in favor of assemblyplant operations.

iv. Procurement of components will be based on the needs andsources of supply for the four assembly plants. The components wouldcome largely from Canada, Japan, the United Kingdom and the UnitedStates. The doubledecker buses would be procured on the basis ofinternational competitive bidding.

v. The credit would be made available to the Government of Pakistanon the normal IDA terms: The Government in turn would make the foreignexchange available through the State Bank of Pakistanto the beneficiaries(four assembly plants for import of components and the importers of 15,0doubledecker buses) who would purchase the foreign exchange with rupeefunds. The credit would not involve any financing of the beneficiaries.

vi. The Government would license all imports under the credit inthe course of 1966. The J.icensing of imports of components for theassembly plants would be made in conformity with agreed proceduresproviding appropriate distribution between the various makes and mode]-sand assuring that no excessive stocks of vehicles be accumulated by arnyof the assembly plants. The Government would make arrangements foradequate supplies of spare parts. It is expected that disbursementswould commence in March, 1966, and be completed in early 1967.

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vii. The proposed credit of U.S. $25 million equivalent wouldprovide much neeued capital equipment for the road tranLportsector. Compared to previous years, the credit would boost thelevel of imports to a substantially higler level, i.e. from about5,000 to about 8,000 vehicles per year. This appears justified inview of the many overaged and uneconomic vehicles presently in useand the potential demand for additional capacity. The resultingimprovement in the adequacy and efficiency of road transportservices will benefit the economy, and will be complementary tomajor road projects under way, of which some are financed by IDA.

viii. Demand for new vehicles is active, and it is not expectedthat sales at the higher level of supplies will present any problems.The Government would ensure--through supervision of sales--thatvehicles assembled under the credit would be used exclusively forcommercial purposes and would not be sold for use outside the country.

ix. The Government's policy to limit supplies to a few makesbased on imports of ckd units will reduce the real cost of vehiclesand enable substantial foreign exchange savings. It will alsocontribute towards simplification of maintenace and spare partsproblems.

PAlKSTD'AN

APPRAISAL OF A PmOwJECT FUMODERNIZATION AND EXPANSION OF THE

COPDNkRCIAL VUHICLI FhEbT

I. INTRODUCTION

1. Because of foreign exchange problems, imports of certain typesof capital equipment into Pakistan have been below requirements for theefficient functioning of the economy. This has been particularly truefor imports needed to maintain an adequate stock of road transportequipment.

2. The Government of Pakistan consequently has requested an IDAcredit to cover imports of (i) components for commercial vehicles to beassembled in Pakistan and (ii) a limited number of doubledecker buses.This report gives the findings of an IDA mission visiting Pakistan fromOctober 25 to November 7, 1965, to appraise this request.

II. ROAD TRANSPORT IN PAKISTAN

A. General

3. The erowth of the economv in recent vears has been accomraniedby a rapid increase in the demand for all types of transport in bothEast and West Pakistan. While the railways in both nrovinces-and inEast Pakistan the inland waterways--will continue to bear the mainburden of bulk movements of inter-urban passeer nornneys n7rd ofminerals, fuel and low value agricultural products, road transport isnlaving7 an ine-esiriny1v imnnrnnt role+ enl speca_ly i Wt+. Pndri+.innThis is partly due to a shift towards more sophisticated industrieswhich require speedy trnnsport ww-%irrn s f^r +11heir r l a+Aiyr IgheMvalued goods. The trend to road transport is most evident in shorthaul freight traffic- in particular of perishable foodstuffs andmanufactured goods, as well as in intra-urban and short distance inter-urban passenger trnrn sport. Efficient movement of +vhis raffic req iresan expansion in the size of the present small truck and bus fleet.This requirem.en.t is intensified as the result of the 4 ".,troVemments andextensions of the highway network that are now under way or planned.

B. The Road Networks

4. Highway systems in West and East Pakistan differ widely as tom-leage, quality of constrUction, service potential ad cu--renteconomic significance. West Pakistan, with a population of 50,million,

F-tffil~~Q #1 1A A 1nt)n _ : _ ..u - _l:~^_J. | _ . n_coversan ara of 10,00sq."Iles, whle--' East Pakistan1, WithL onlLy55,000 sq. miles, has a population of around 60 million people. WestPakistanr has a largely semi-arid climae -while East Pakistan, bycontrast, has annual rainfalls varying between 85 and 200 inches. West

Pakistan includes fertile plains, barren deserts, rugged mountainsand deep forested vAlleys, VrMln V; Pnl s4tn" is mnrnlyir a l^ trng

tropical plain and delta formed by great rivers. Although providinga meas of.nen t.ransport, f o r un.-,.o.r 4bhouSC.-. -' of boa+seach, y tre

flood about one-third of the province. Tlis, together with silty

high road embankments and much bridging, and makes the constructiono.f. a road-iU ne twork-K bLotbi t,Ue CbUn Liy C .tL LUU-LLo LL. U.A..V VJLJ* c . .L-.trasL,

road construction in West Pakistan, except in the more mountainousareas, is relati-vely easy and cheap.

5. West Pakistan nowi has 12,000 miles OI paved roads out of atotal system of 31,000 miles, wihile East Pakistan has only about1,500 miles of main roads out of a network totalling arouna 3,500miles. In West Pakistan, it is possible to travel long distances byroads. in East Pakistan, by contrast, the main road system consistsof unconnected stretches, and only two routes in the province have acontinuously connected road in excess of 100 miles in length.

6. A comprehensive road construction program in East and WestPakistan is now being carried out, and a substantial part of thisprogram is being financed by IDA credits. This, and other programsnow in the planning stage, will gradually eliminate the main bottle-necks and give both provinces reasonably adequate road networks.

C. The Vehicle Fleet

7. In 1963 there were about 209,000 motor vehicles registered inPakistan (Annex 1). Of these about 47,400 were commercial-typevehicles composed of 32,800 trucks and 14,600 buses.

8. Compared with most other countries in South East Asia thenumber of commercial vehicles per 1,000 inhabitants is low, even inWest Pakistan. Another distinguishing feature is the large proportionof overaged vehicles, 32.7% of the buses and 34.0% of the trucks inWest Pakistan being more than 10 years of age.

D. Ownership

9. Truck ownership is widespread, and the single vehicle owneris quite a common feature. In addition to the many small units ofgeneral cargo carriers, trucks may be owned by Government departmentsand agencies and by manufacturing and distribution firms as anintegral part of their operations. Some large units have developed,particularly those operating tank-trucks on a contract basis for thedistribution of bulk petroleum products.

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10. Bus services within and between towns are provided by bothpublic and private enterprise. In both provinces the largest unitsare the Government-owned Road Transport Corporations. The West PakistanR.T.C. owms about 1,800 buses (nearly 200 being doubledeclkers) whichit operates over a large part of the north of West Pakistan either onfranchised routes or in competition with private owners. The EastPakistan R.T.Co owns around 300 single-decker buses and its activitiesare restricted to the Dacca area since the road network is a limitingfactor. The largest privately owned company is the Karachi RoadTransport Corporation, with nearly 500 vehicles (about 30 being double-deckers), which operates solely within the Karachi area.

11. While most of the bus companies are small units, frequentlybeing "one-man-one-bus" enterprises, the majority of buises in theprivate sector in West Pakistan are owned by firms having five or morevehicles. There are about 20 large firms in the province with 50 ormore buses. In East Pakistan there is a tendency for owners to groupinto "Assciations"' Although thev may have -0-200 vehicles operatingunder the same name, there is no joint ownership nor are they co-onperaJves in the full sense.

12. The larger, more stable onerntors of trucks and buses haveachieved their position primarily by giving responsible service andefficient operations or, for some truckers' th 7gh- con-tracts lfi th the

Government and other major shippers. In most cases, growth seems tohave com.e from. the ud ploughing bac of profits. To these firmswhich are increasingly becoming the backbone of long and medium haultrucking and bus opera}iorw as well as +te most regular group of newvehicle purchasers, access to local financing for replacement orexpan1sion of their fleets does not appear to be a signiicant problem.They may obtain short-term credit from distributors and commercialbanks or m,,edium-term loans from `nstitutions such as the ndsUtrialDevelopment Bank. Frequently, family resources or a patron are beingdraswn upon for the -Uivial cap4tal.

1 ULLfo.LLILr,.L'.Jion onJi the fir.ancia! resu'ts oL pia o is

fragmentary. Available evidence, howJever, suggests that fairlysu's'ant-2 r,e't pr0fits ar-e deri.ve. from ivustmle.4-A road transportventures, and Annex 2 illustrates a typical case.

E. Operating Cost

14. Any analysis of operating cost is complicated by theheterogeneous collection of vehicles of varying age, size, degree ofutilizaticn, type of ownership, overloading practices, functionalspecialization, sources of power, the wide spread in fuel prices betweencoastal and up-country areas, and differences in vehicle purchase price

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under open licenses and bonus vouchers.!' Various efforts, however,have been made hv hi 0hway consultants and others ton ohtain a pictureof the operating costs for a typical truck of 6-7 ton load capacity.Nea: 'v)r a1 thes-e studie-a s 1 arr;ivtMe at aU 1rigur of a-roundn R-. P 7$.n -R npervehicle mile (inclusive of taxes) to owners--a figure arrived at

favorably with most other countries.

15. Ton-rmiile costs are less determinable. There is a tendency fora 67 ton veldcle, a fter 44t has left- 4the asemby - + +- be fi,++ed~.'. I UX.AL L IC C"u J. .1 ALQ..%1 U LMJ. ~ 41 ~~ F ~ Av U'-' " ~ U

with additional springs. This increases carrying capacity, but canC". U LI.,L$Q VV.JUI.L V04. JLCL.L.V~~ J.~~. U J, U.L ~ OL'.

repairs.

16. The import of new and modern vehicles will increase theefficiency of UlIe truck. Z--IU bus flIee. I1-ver fU-l uVIni5urIInLLVIi is IIIUL.1less per mile and repair expenditures will be reduced. Greater annuaLmileages wil l be possible and can be spread over the samie amouunt offixed charges for licenses, insurance, and overheads.

F. Charges

17. Charges for truck services are not published or quoted inadvance. They are arrived at when a shipment is tentatively offered,the final result depending upon relative bargaining strength. TheGovernment does lay down ceiling charges but enforcement is impracticableif not impossible. In practice, however, most charges appear to be belowthe maximum permitted. This point is evidenced by the fact that the

1/ A bonus voucher is a document with two functions, namely, (1) toenable an exporter to obtain a premium above the official exchangerate for the proceeds of his commodity; and (2) to entitle animporter to obtain foreign exchange for the purchase of certainimports wyhich otherwise would not be licensed by the import controlauthority. At present, exports entitled to bonus vouchers (nearLyall exports, with the exception of raw cotton and jute) receive abonus voucher equal to either 20 or 30 per cent (depending on theexport) of the foreign exchange value of the export. The exportermay either use the bonus voucher to obtain foreign exchange at theofficial rate to import goods on the bonus voucher list or,alternatively, he may sell the bonus voucher to another person wlhowishes to import suc'1 goods. There is an active market for bonu.,vouchers on the Karachi Stock Exchange. Prices of vouchers werefairly stable for several years, at about 150 per cent above theofficial rate, but recently some softening of the price has beenreported. Assuming the bonus voucher is sold at 150 per centabove the official rate, the effective import rate for goodsimported with bonus vouchers would be 150 per cent above theofficial rate, or nearly Rs 12 to the dollar.

Industrial Development Bank of Pakistan, when appraising production costf"or project s it, i9 reuete to -^a.e relae -h -,xw -harges o

Rs 1.00 per vehicle mile by a charge of Rs 0.80 per vehicle mile. This..Loe r4 aL d.U._ aper Uo .Le 4 ..1l o ws J L{uuu L41 : _.31 :. L LL.-L

truck loads of six tons. HoAever, there are wide variations in chargesf.or 0 - fulereri, typjeo 0.f lUoads, ro-utes, UIIU aVaiLab.ULLY o.. return loas,

seasonal factors, length of hauls. Most charges vary between Rs 0.13-0.17per ton -ile (Rs 0U.8 01eU) per vehicle mile). However, average chargesare nearer to the upper level of this range, which is still comparableto the level of charges in most other countries. In remote areas withinsufficient supply of trucks higher figures prevail. Within urban areascharges are usua.lly on a trip charter basis, e.g. within Karachi Rs 30per trip.

18. Bus schedules and fares are sanctioned by the Regional TransportAuthorities and generally negotiated with operators when route permitsare issued. In West Pakistan bus fares, in practice, seem to averagearound Rs 0.03 per mile with higher figures off the main roads and inthe remoter areas. By contrast, in East Pakistan fares are around Rs D.05per mile partly because the proportionately larger stock of older vehiclesis more costly to operate and partly because of the poor quality of theroad network. These low average fares are possible because of theintensive use of vehicles and high load factors.

G. Operational Features and Services

19. Surveys carried out by the West Pakistan Government and by highwayfeasibility study consultants in both East and West Pakistan have shownthat a clear functional specialization is developing in the truckingindustry. Apart from the large volume of pickup and delivery activity inthe ports and main cities, a great number of trucks are engaged in trans-porting bricks, sand, cement and other materials required by theconstruction industry for distances of up to 15 miles. Wool, cotton,cloth, general merchandise and manufactured goods are frequently truckedwithin a range of 100-150 miles. Certain commodities, such as coal andcement, are moved in bulk by road when offered in less than railway wagonloads. Fresh fruit and vegetables are shipped long haul from the northto Karachi regularly by truck. Foodgrains, whether locally produced orcoming in under foreign aid, are moved over distances of up to 150-200miles by road, largely determined by Governmental allocations to easepeak pressures on the railway.

20. Truck operations are carried out in one or more of the followLngcategories: (i) common carriers, (ii) contract carriers, (iii) privatecarriers. i.e. transport on own account. (iv' freight forwarders. each ofwhich has its vehicle requirements and employment characteristics. Ingeneral the trucking industry (narticularly i;n RnE.a Pnki.stan) Jq isn anearly stage of development and except for the movenent of bulk petroleumfuels on a contract basis +he bon1daries between these categor-es areflexible.

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21. The majority of buses in use are 42-44 seat vehicles with alocally built body on a standard 6-7 ton truLck chassis. Their mainfunction is the movement of large volumes of passenger traffic fromsuburban and rural areas to the cities in the mornings and in thereverse direction in the evenings. The range of such movements is upto 20 miles. With the increasing tendency towards dispersal away fromthe crowrded city centers and the general increase in business activity,these movements are growing steadily.

22. Between the main cities and towns bus transportation is alsoimportant and growing rapidly. This is partly a result of lowcompe+vtiet' fares, bt primar4ly because of the superior sneed andservice offered.

23. In East Pakistan the development of bus transport--other thanin and around t1he main townms-has been hampered by th.e appallinginadequacy of the road network. The more serious deficiencies are beingrem.edied and many of the gaps in the net+work are being closed. It canbe expected, therefore, that bus traffic will graw rapidly when more andbetter vehicles are made available in East Pk-istan.

24. Field observation leads to the conclusion that passenger de.madis not being fully met. lany schedules are being run at load factors inexcess of 100% as evidenced by the overcrowding of buses and, in- thecities, passengers clinging to the exterior of the vehicles. Manypotential passengers are passed by in peak periods and, by choice orinsufficient capacity, are forced to seek other means of getting to theirdestinations. wnenever new equipment or route miles are added intoservice, demand utilizes the ex-panded capacity quickly and fully.

H. The Need for Additional Vehicles

25. The growth of the economy which has been experienced over recentyears has caused a rising trend in the volume of road transport. inaddition, there has been a shift towards more sophisticated industrieswhich require speedy transport for their relatively higher valued goods--requirements normally met by road transport with its advantages of quickturnarounds, door-to-door delivery and flexibility of operations.

26. Available evidence indicates that the volume of road transporthas increased very substantially as a result of these trends. Petrolconsumption, for example, rose from 43 million gallons in 1959 to over71 million gallons in 1964, while high speed diesel oil sales forautomotive use increased from 20 million to alinost 60 mIllion gallonsover the same period. These increases are equivalent to annual averagerates of about 11% for petrol and 23% for diesel oil.

27. While utilization of vehicles and transport performance havebeen substantially improved, many shortcomings continue to be encountered.The railways find themselves unable to carry all the freight offered,especially during peak periods. Unprofitable passenger trains are

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generally and visibly overcrowded. Turnaround of ships in ports isadLVersey afLLece euy Lack of .i±daiU lCraisport capacity andu congestionwhen large imports of bulk commodities like foodgrains, cement andfertilizers coincide with peak periods of domestic traffic on therailways. Within the main cities there is an obvious shortage of buscapacity, particularly to meet the needs of workers going to and fromtheir places of employment. Most of these shortcomings could beoffset--at least in part--by the provision of more road vehicles.

28. A distinguished feature of the fleet of trucks and buses inPakistan is the large proportion of overagad vehicles. If all vehiclesover 10 years of age were to be replaced during the Third Five-Year Plan(1965-70) and the average life of the rest of the fleet be maintainedat about 7 years, the annual average requirement for new trucks andbuses would be about 7,000 vehicles, simply to maintain the size of theexisting fleet.

29. It can be concluded therefore that the Government's request--which involves about 8,000 vehicles in the first year of the Plan--isnot overstated. Since a large proportion of the presently overagedvehicles is likely to be replaced first, any net addition to totalcarrying capacity in the early years of the Plan is likely to be modest.

III. THE ASSEMBLY PLANTS

A. Background

30. Pakistan does not manufacture any automobiles because thedomestic market is not important enough to warrant the establishmentof an integrated production unit. Passenger cars; buses and trucksare therefore imported, either in fully built-up condition or ascompletely knocked down (ckd) u-nits for local assenbly. The assemblyrof truck and bus chassis is a rather simple operation. It consistsin fitting together separate components which the assembler receivesfrom the manufacturing company in specially packed crates. The numberof components renuired to assemble one vehicle averages 4,000. Theassembly process is carried out on a special assembly line and requiresa well-trained labor force. However, it does nrot ir.volve the use ofany major or costly equipment. Even a small assembly plant is normallyable to bui-ld several thousand vehicles per year on a one=shi-ft basis

B P Histor of Assembly of Vehicles in Pakistan

31. Pakistan has in the past been an export market for the m.aJorautomobile producers, particularly in Great Britain and the UnitedStates. Th.e re- +-ltr. ^opetitw1on. has ur.do ubledly createdI som,efavorable aspects for Pakistan, but has also left the country with awide variety of brands. In the bus and truck sector alone, there arepresently more than 30 makes registered in the country.

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32. In the early fifties, two mnajor importers, General Motors anclFord, established assembly plants in West Pakistan, the first by creatinga company of its own (which later became Ghandhara Indtustries), thesecond through collaboration with a major local distributor (AliAutomobiles Limited). Both companies were motivated by two mainconsiderations: the significant economies resulting from sea transportof ckd's instead of fully built-up chassis thus leaving increasedprofits to tIB assemblers, and the desire to be firmly established in amarket which promised to develop a considerable demand. Both companiesconfined themselves to an assembly operation wfithout nrovision for anylocally manufactured components to be included. For almost a decade thetwo assembly plants remained the on_y ones in Paki-stan.

33. Tn 1963. after receiving proposals from a nlumber of cnmpn iesin five different countries, the Government issued a permit to MackTrucks (JU.S.A) to establish facilities for the assembly of Nack trucksin conjunction with local partners. The arrangements involved increaseduse of locallv nroduced coonnents at a rate at wThich, it wa- expectedthat over half of the value of the vehicles would be composed of locallymnLiifactized items hr the fifth year of the plant's operation.

34. ~The G-avurer=_-ent agree%d, subDject tlo tbe conditi4on tWhat- 4thea I5. u JLJV u VIi' J±t .±A .L UJ.'L WI LIU uiJL

vehicles produced by Mack wTould be satisfactory, both as to quality andprice, that M-ack wol 'd havecerai preferenrtial righ,ts on impnort ofcomponents. The agreement--which leaves a considerable margin forinterpretation on a number of important issues--pro-vid that theserights would not affect imports under bonus vouchers nor imports formeeting the coun-tryls deferse requi-ements.

35. Shortly before the Mack contract was concluded a localdistributor, Haroon, was granted a license for assembly of passengercars and commercial vehicles. Recently, a concession for progressivemanufacturing was also extended to Ghandhara Industries Limited, which.assembles Genera: Votors' products. Tnis company is presentlyconsidering the establishment of a new assembly plant in East Pakistanfor ar. aru±ual capacity of 1,000 units wnich would reduce freight costsubstantially. This would be the first assembly plant to come intooperation in East Pakistan.

36. The total labor force of all assembly plants is about 2,500.

C. The Assemblers for Commercial Vehicles

(a) Aii Automobiles Lmanited (Ford Products) (See Annex 3)

37. This company is one of the oldest automobile distributors in thecountry and was established in 1948. Initially the company importedcomplete units, but in 1954 it built an assembly plant for passenger carsand commercial vehicles in technical collaboration with the Ford MotorCompany. Ali has an annual capacity of about 3,000 units on a single-shift basis.

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38. In addition to a limited amount of passenger cars, the compalnyassembled nearly 1,000 bus and truck chassis in 1963, but only about ;OO

in 1964 due to a limited allocation of foreign exchange. In recent yearsal commercial vehicles were imported in ckd colldition from the United1States under a U.S. AID loan. In the future most of the units would beimported from the United 1bngdom at significaantly lower cost, proovidedadequate foreign exchange resources are made available. The companyconcentrates on six-ton diesel engine trucks and gasoline powered pick-ups of one-ton carrying capacity.

39. Ali's share capital amounts to Rs 5.0 million and investmentsin plant and machinery were Rs 6.9 million. Its sales were Rs 32.0million in 1964 while net profits reached Rs 0.75 million correspondingto a return of about 15% on share capital.

(b) Chandhara Industries Limited (General Motorsproducti) (See Annex 4)

40. The plant operated by Ghandhara was built in 1953 by a companyowned by General Motors. In 1963, this company was sold to the newlycreated Ghandhara Industries Limited whose capital is fully owned byPakistani shareholders. After completion of additional facilities inthe middle of 1965, Ghandhara's annual assembly capacity is estimated atmore than 8,000 units on a single-shift basis. The production programis almost exclusively confined to a seven-ton British Bedford dieseltruck ancl bus chassis, which has found acceptance in the country largelyas a result of its highly competitive price. Under a recent U.S. AIDloan, the company has also assembled American Chevrolet chassis. A tctalof 2,500 chassis was assembled in 1963/64 and more than 3,200 in 1964/65.Over two-thi-rds of the unit-s were imported under the bonus voucher system.

)1. - Ghandhara ts share capital am ouLnts to Rs 7 5 million, and thecompany has invested about Rs 9.0 million in plant and machinery. Thecompany's sales reached Rs 82.0 mrillion in 196),/65 and the net profitafter taxes was Rs 2.9 million, which corresponds to a return ofapproximately )to% on the share capital. The shares have a par value ofRs 10 and are presently quoted at more than Rs 20 on the Karachi StockExchange .

(c) a-onn Industries Li-imited (Dodge products) ( Annex 5)

)42. Since 1948 thUls compan, has been the distribu-or of Ch-rslervehicles in Pakistan. At the beginning of 1962 the Government sanctioneduaroon as an assembler of passenger cars and com.ercial vehicles Tassembly facilities have a capacity of about 5,000 units a year on aswr l =s4<+ b-- -s Ln s , t e a-' h y o erat+i4on, +1he plant iI!s

assembled over 1,800 truck and bus chassis, of which more than 1,000-uder TT CS AiT lo . The main type assembled by Haroon is a Dodge six=ton bus and truck chassis with a diesel engine. In addition to assemblingco200e,al I uehi'I s Y h also asseibmcap rseorne 4gr cs7. Dodge ad

200 Simca passenger cars.

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43. The company's share capital of Rs 8.7 million is almostexc'L-U0±V±` ±ivLe uWi1eU. "WOLV 1 -"Its i, GI.4d maILc.aL1erJ am,u,t4 4.

about Rs 10.6 million. Sales in the last financial year were Rs 52.8million and net profit after taxes arnut Rs 2. 4 million. Thi;s is areturn of appraximately 28% on share capital.

(d) Mack Trucks of Pakistan Limited (Mack products) (See Annex 6)

44. The company was established in 1963 and started assemblyoperations in the middle of 1964. The annual capacity of the plant is4,000 units which is to be reached progressively over a period of fivayears. In each of these years a quantity of locally produced componentshas to be included progressively in the assembled chassis so that fromzthe fifth year on 53% of locally produced items will be incorporated.The capacity for 1966 is 1,500 units on a single shift. The companyconcentrates on heavier type vehicles and its typical chassis is designedto carry seven tons. AU units are equipped with diesel engines, andsell at a comparatively high price.

45. Until now, Mack has received licenses for about 1,500 vehiclesunder two U.S. AID loans . About 670 ckd units have been imported ofwhich about 400 have been assembled. However, only 205 units have beensold so far. In view of the company's delay in utilizing its licenses,the Government has recently cancelled an outstanding balance of U.S. $4.0million equivalent and reallocated this amount from Mack to Ghandharafor import of Chevrolet components.

h6. The company has a subscribed share capital of Rs 19.2 million,and by the end of June 196k total investments in plant and machinerywere about Rs 4.9 million. The accounts for the first year of operation,ending June 305 1965, have not vet been nublished and could not be madeavailable. Company representatives have, however, indicated that totalsales during the vear were onlv abonit Rs h.0 million so that a sizeableloss may be expected. Shares which have a par value of Rs 10 are presentlyquoted at RIs 6.80 on the Karachi S+ock Exchange.

D. rvp-r&ll Pnrfnrmnnee of the Assemblsrs

Because of irregular allocati ons of foregpn nychange no assemhlerhas been able. to maintain a reasonably steady rate of operation. The onlyexception may be Ghandhara, which--thrmlah imnorts aoainst bonus vouchers--has assembled about half of the new commercial vehicles brought intoPakistan over the lasnt two, years.. 7his was posihla hnr.aubse of the

coTparatively low cost, even at bonus voucher price, of the Bedford chassis.

48. All plants are well laid out and equipped with modern and -.

reff4nicnnt. m>a-whinv,r,r Tho niinl4+v' nP +Vha ncaawmI-.nlo n1,nca4;a 4a aa+4C!ifn+t r

and generally no technical problems have been experienced by the users.'Pho nvVlr excetion4n is ;n +hn. case of' Mc.l 'TtIrn..n hav.e, nr b e4nrsi4-P4cnn

difficulties with the high priced Mack vehicles in Pakistan and operatorsha- eJ1.jI Aou0 4s J f L .L LU-- the U -kds- bU qua' tyoLflJcI..L.

assembled vehicle is adapted to the specific conditions prevailing inthe country-. ±lJ±W1 4Jere also ap-pears to 'be a widespreadU consensus amiong 1U-I >operators that the Mack chassis is too heavy for passenger transportation.Tne apprenensions Of the customers are clearly reflected in the lowvolume of sales of Mtack vehicles, which was already mentioned above.Mack is now trying to adjust its model to local requirements, 'Dut itremains to be seen to what extent this attempt will be successful.

49. Generally, the marketing of vehicles has not caused any problemssince demand has always exceeded supply. -with the exception of HTlack, allassemblers maintain a fairly well developed dealer and servicing systemin East and West Pakistan. The allocation of vehicles to the ultimateuser is made by the dealers, and is not controlled by the 'Uovernment.Hawever, to prevent abuses which might result from the shortage ofvehicles, ceiling prices are fixed by the Controller of Prices and Supplies,a Central Government agency.

E. Economics of Assembly Operations

50. The assembly of ckd units in Pakistan compares very favorably toimport of complete vehicles. The price differential varies with typesand sources of supply. Details for the most representative typesassembled in Pakistan are given in Annex 7. It will be seen that pricesfor vehicles imported in fully built-up condition are on the average 20%higher than prices for vehicles assembled locally. Before taxes andimport duties, the difference is normally from 10% to 14% in favor oflocally assembled units. Foreign exchange savings are still moreimpressive. They represent on the average 25% but reach in some casesup to 35% of the ckd price.

51. The analysis reveals that as a rule the assembly cost of vehiclesin Pakistan is higher than in the plant of the manufacturer overseas. Theeconomy of local assembly is therefore mainly the result of savings ofocean freight, since ckd's stow much better than fully built-up units.

52. In addition to the benefits derived from foreign exchange savings,the development of local production of components under the new Goverr-mentpolicy should result in additional advantages. Pakistan has already afairly competent industry producing automotive parts like springs; ps tonsand tires. Because the number of vehicles assembled in Pakistan has beenrestricted and the local components included have been lirnitedj the srarnparts industry has always worked below capacity. The expected increasein the tvyes of locallv produced narts will contribute to betterutilization of available capacities and will also create additional linesof production. Cooperation with experienoed foreign truck producersshould help to make local enterprises more efficient: new jobs should. becreated; and the skill of local labor improved.

53 ~The tot-a! estim.ated --. as.bly --pcity for comumerciallvehicles is at present in excess of 20,000 on a one-shift basis. Since+the av-nual out+put is rc-h-N lr- ir + is 0-ious that a wi m o~ sJ * -aV ~ .ia- ,,jh.a u .. A' sl ,j.j .L j

- 12 -

excess capacity prevails. However, these over-capacities do not resultin any signific-ant economic disadvantage because the order of magnituaeof investment in an assembly plant is fairly low and its break-evenpoint is reached at a fraction of its capacity. Tn fac,+ +Jhe cst nf 2

typical plant in Pakistan with an annual one-shift capacity of 4,OOOts, is presently about 1J.S. $1.3 -- l.ion equi- ntale . Of this a 'o'l

roughly U.S. $0.5 million equivalent is for machinery, including afLoreign echange co,,aporeent ofL about ,JSv $.4 rlcn qL^e hLU±~±~.L eM~~Iid%~ ~ 'JJ ~JI,AU VO WV L4 1ILL-J"w.JJLA

foreign exchange invested in a typical plant therefore corresponds tothe foreign exchange savings obtained by tshe asseMrbly of only about5oo units.

F. Evaluation-of Government Policies

54. The Government policy has two targets: (i) standardization ofmakes and (ii) progressive manufacturing of local components. 'The first target has largely been reached by confining licenses from foreignexchange loans and cash resources to those makes which are being assembledin the country. The second target is being pursued by sanctioningassembly plants which are willing to increase the use of locailymanufactured components.

55. Both policies are basically sound. They secure the country'sneeds for commercial vehicles at the lowest possible price to theconsumer while at the same time saving scarce foreign exchange. Theyalso prevent a further proliferation of makes and should graduallysimplify the problem of maintenance and spare parts. If a user desiresto import any other make or special type of vehicle he can still do so(at a premium) through the system of bonus vouchers.

IV.. THE PROPOSED CREDIT

A. The Project

56. The Government of Pakistan has requested an IDA credit of U.S.$25 million equivalent to finance imports of ckd units for the fourassembly plants totalling U.S. $23.5 million equivalent and imports ofdoubledecker buses totalling U.S. $1.5 million equivalent. The amount;for each category represents the value of the licenses which theGovernment will issue for such imports during 1966. Since an averageperiod of two months will elapse from the time licenses are issued untilpayment to the foreign manufacturers takes place, it is expected thatdisbursements against a possible credit would start in March 1966 and becorapleted early in 1967.

57. The Government estimates that the approximate composition ofthe proposed imports will be as follows:

- 13 -

Number of ckd units Value of

(US millionr,-.-

4-- + rA'I

LJ'L. VO4 . aI."S'

Assernbly Plants:LULLiUL1I..La IIrUJtrU 51 LBIU." LtBU

(Bedford) 3750 11.00,I"ack- Triucrus of Faki tUnU ILUI,wted

(IMack) 750 2.98A A -- om,, o- bed(Ford) 1000 3.16

Haroon Industries limited(Dodge) 2500 6.36

8000 23.50

(b) Doubledecker Buses 150 1.50

Total 8150 25e00

(For further details see Annex 8)

58. The above estimates reflect the capacity of each plant assanctioned by the Government and also their sales over the last two yearsas well as expected future sales.

59. Of the 8,000 vehicles to be assembled it is expected that about5,300 units will be trucks, about 2,100 buses and about 600 pick-up vans.All vehicles are limited to the makes defined above and to the standardtypes most commonly used in Pakistan.

60. It is proposed that the 150 doubledecker buses be imported in asemi-assembled condition, and that final assembly be undertaken by themanufacturers' representatives in Pakistan.

B. Licensing Procedures

610 Licensing of the proposed imports will not be done in accordancewith any rigid formuLa. Instead, the Government intends to followprocedures which will introduce an element of competition between thevarious plants so that users' preference for specific makes andmodels can be favored. Another consideration by the Government is toensure that no plant will obtain imports in excess of the current orprospective demand for thoir particular makes and thus build up higherthan normal stocks of vehicles. To achieve these objectives theGovernment intends to issue licenses initially for a value of only U.S.$1.5 million eQuivalent to each company. At the same time the Governmentwill request the companies to furnish information on their immediatevehicle supply and sales position before the companies open letters oicredit against their license. If--in the Government's opinion--suchinformation indicates that a nlant would accumulate excessive stocks. itwould request the plant to postpone the opening of the letter of credLtor to redlGei its amonint to an anrnpntahle vnel.1

62. After the initial licenses have been granted, the GovernmentWJ..L-I -L UdV UtU.,L U4.L J':censes WI±WL.henever Ca. plantJ is aL.L 0. Uoit.1i to

submit manufacturers' invoices, evidence of payment, and bills of ladingpruvi-ng uihab Ulet enU.re val-ue Uot Uthe pr=r-ouv_us iice,su h1as beenI -utXz!td

and that the components have been shipped. In addition, the plants willhave to prove that sales--including advance sales -- in tha niburim periodhave corresponded to at least 70% of the number of ckd units importedagainst the previous iicense. In this fashion the pliantWs assembling thevehicles wrhich are in most popular demand will be in a position to obtainlicenses at a faster rate than less comepetitive plants. However, as asafeguard against any plant preempting an undue portion of the availablefunds--e.g. by advancing orders with foreign manufacturers and claimingadvance sales which might not be realized--the Government intends to keeplicensing as well as imports, assembly and sales of vehicles byindividual plants under constant review. In addition the Government nasundertaken to limit variations in the estimated allocations forindividual plants (Para. 57) to U.S. $3 million equivalent, andvariations beyond this amount will be subject to prior approval by theAssociation.

C. Spare Parts Supplies

63. Arrangements will be made to secure adequate supplies of spareparts. Recently the Government placed spare parts on the list of itemswhich can only be imported against bonus vouchers. To secure the spareparts position for the makes and models turned out by the assembly plants,each license for imports of ckd units will be conditional upon evidencethat simultaneous imports of spare parts against bonus vouchers will beeffectuated for an amount corresponding to about 10% of the value of thelicense for ckd units. Spare parts imports at this rate are traditionaland have proved sufficient to cover requirements for both old and newvehicles of the particular makes turned out by the assembly plants. Spareparts for other makes will be imported aeainst bonus vouchers by theirauthorized agents and by about 1800 spare parts dealers scattered through-out Pakistan. As a rule. the supplv of snare Parts is satisfactory forall makes presently used in Pakistan. Until recently a substantialportion of the spare parts imports was made on the basis of directlicensing, and it will be noted that the new policy for exclusive importsagainst bonus vouchers will eliminate the nrofiteerinp which was cornuonfor spares previously imported at much lower cost under direct licenses.It is orobable that the overall cost of spnares will he somewhat higherunder the new system. Such cost increases to the road transport sector,however. will be small in comnarison with the Gost reduction of vehiclesupplies, since more than half of the previous imports of vehicles weremade agyainst honus vonnhers

T= mralation of the Pronect

6L- h proose ieont is.~ Aj- designed +o cover the ,n ,u¶ iro,,,¶

for imports of commercial vehicles during the next year or so. Importso previous years havre averaged about+ ,000 vehicles per yer-, and the

proposed project will boost supp'Les substantiaally above previous ievels,i.e. to about 8,000 vehicles per year. However, as concluded above(Section II), imports at this level appear justified in view of the manyoveraged and uneconomic vehicles presently in use and the potentialdemand for additional capacity. The resulting improvement in theadequacy and efficiency of road transport services will undoubtedly bebeneficial to the economy. On the basis of information obtained from theassembly plants and other sources there is little doubt that the presentdemand for new vehicles is sufficient to absorb supplies at the levelproposed for the period under review. The inherent policy to limitsupplies to a few makes based on imports of ckd units is also commendable.This will contribut significantly towards simplification of maintenanceand will enable substantial foreign exchange savings.

65. The proposed imports of 150 doubledecker buses are expected tobe allocated to the West Pakistan Road Transport Corporation (100), theEast Pakistan Road Transport Corporation (30), the Karachi Road TransportCorporation(20) or other common carriers for use in large cities likeLahore, Karachi and Dacca which invariably suffer from congestion oftraffic. A number of doubledecker buses are already in use in Pakistanand have proved very successful and economic. Generally, bus servicesare inadequate and vehicles are heavily overcrowded as a rule.

66. With the much hiaher allocation nov proposed for imports againstthis credit, it is expected that the number of vehicles imported againstbonus vouchers will be nominal and limited to special purpose vehiclesnot otherwise available.

E. Procurement

67. All components for the Ghandhara plant would be made in theUnited Kingdom and for th-e Mack plant in the TT S-A - oTmronents for theAli plant would be from the United Kingdom, Canada and U.S.A., whereastho-e for the waroon plant n uTlrd be from the TTnitted Kingdo.m and Japan.For the project. as a whole, about 77% of the procurement would be fromthe United Xingdom. about 1'3• from TTUS_A_j about 8% from.n Jann and aboilt2% from Canada.

68. The doubledecker buses will be subject to internationaloomnpetiti ye biddring.

69. In the ps-t, prou.rement of commercial veh cles has also beenlargely limited to U.S.A. and the United Kingdom. Other automotiveimnnr1-*^ nrp: .RiihR.Ql.qn+Anl n-nA o-r; a4Ym+.n f-nrom n T.Ti xarb 7"n-nco r-P rr%ivM 7V; aQimpors eiqt~n1A ~1~rw1on ci na froawide_ _rang of countres(Annex 9).

70. All imports under the proposed project will be for commercialuse* Proce.m.entI by the armed forces is based on makes and models whic"h

are different from commercial vehicles, and are subject to separate importprogram,s and a'locations Of foreign. excha.ge . In addition the Govern1ImerLt

has undertaken to ensure--through supervision of sales--that vehiclesasse-r1bA .L.-, -U- the credit -woul be -used xl-Vey -UL -U-L-----!-'

- 16 -

purposes, and also that they would not be sold for use outside thecountry.

V. BENEFITS OF THE CREDIT

71. The proposed IDA credit will finance much needed capital equip-ment for the road transport sector in Pakistan. For a number of yearsimports of commercial vehicles have been kept below actual requirementsdue to foreimn exchange shortages. As a result. the fleet of commercialvehicles is inadequate to meet demand and a high proportion of the fleetis overa'e_ inefficie-nt and costly to oaerat.A This situation hashampered the development of road services on a countrywide basis.Whereas services of vnrving qualit.y are anvailnhle witbin And between themain urban areas, operators have no incentive to extend their operationsinto r'.ore rural areas * Thelo torequirement for truck tlr+.lnport-e in somek ofthe rural areas are therefore covered only sporadically, and frequentLyat very hih co.st. -- s --- e ar --- e also -- 4 *- - ,.r.ere such seruicesexist, vehicles are heavily overcrowded as a rule while--at the sametir.e--+en lTray ^arr a harv,- l1-A of .fprofit&le ehn..+ A4c+anr.o~J.I*.'~ JC~ o.I.J.la I. S S j - L&rG1,VJ J.A.C&'. -.JL -4JJ JJ.U nao -IUJ J~4 .h

passenger traffic. Meanwhile the economy is growdng and its structurecnhngig; m_ n r- ore tMar&s in-dt -An 4_m m_ thus increasin +the Adema-r

for the specific features road transport has to offer, such as speed,flexiblityv ofL operLU%ation d00r-to-0d00r or site-t1.o-ase i der-WliLverJLy, _ArL

more secure and prompt movement of high value manufactured goods.

72. Vhile annual licensing of commercial vehicles has averaged about5,0 Lunlis aJ.U± receint-u years, v.e proposed credit wii buoous this rate uo

8,000 units during 1966. Imports in 1966 at the proposed higher levelwill not come near to eliminating the prevailing shortcomings in the roadtransport sector, but they nevertheless represent a significant reversalof the previous trends towards steadily increasing shortages of roadtransport capacity. The provision of a more adequate supply of commercialvehicles will also permit a more effective utilization of the improvingroad network and is complementary to major road projects such as the IDAf±inuiced Karachi-nyderabad and Dacca-Chittagong roads.

73. it snouid be noted tnat imports in 1906 wilu be almost exciusivelyon licenses permitting purchases of foreign exchange at official rates.Compared to the heavy imports in previous years against bonus vouchers,imports in 1966 will therefore be at much lower cost to operators. Thiswill reduce the operating cost for the new vehicles, and may to someextent counteract trends towards higher charges.

74. The credit will facilitate and strengthen the Government's policyto limit supplies of commercial vehicles to four makes based on imports ofckd units. This policy will contribut significantly to simplifyingmaintenance, will make possible substantial foreign exchange savings, andfurther reduce the cost of new vehicles. As a result of the credit, theassembly plants will be in a position to plan their productionsystematically and thus obtain a better utilization of their facilities.

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VI. RECOMMENDATIONS

75. It is reconm-mnded that tn lIDA cGredit of T1 . .A25-0 millionequivalent be extended on conventional terms to the Government ofPnkistnn for the imnort Of (i) hmit-. tAnnn00 ckid i-it for nsmh1v inlocal plants and (ii) 150 doubledecker buses. The credit would bemande on the following co-nnitio. :

(a) Tn order to enrure eff4ciert execution of' the project,the Government would undertake to issue import1li c-Qnses prom-pty toly +r% -1-4- v.to _ h -e.bnl, f

commercial vehicles in Pakistan.

(b) Import licenses for components would be confined tothI'e fLouar-.,kes asser,ibulted SnPaistn CUL UV VU-certat

agreed types.

(c) Letters of Credit could only be opened to the extentthat each as-sembly plant iurnish satisfactory evidencethat its position warrants further imports.

(d) The Government would ensure that the assembly plantsimport--against bonus vouchers--spare parts correspondingin value to about 10% of the total amount of licensesissued under the credit.

(e) Procurement of doubledecker buses would be made on thebasis of international competitive bidding.

(f) The Government would also ensure--through supervisionof sales-that vehicles assembled under the creditwould be used exclusively for commercial purposes andwou'ld not be sold for use outside the country.

Annex 1

Pakistan Pakistan Total

Typesof Motor Vehicles 176.9 32.2 209.1

Buses 12.0 2.6 14.6Trucks 26.1 6. 32.8Motor Cars 76.6 10.8 87.4Taxi Cabs 6.3 0.6 6.9Motor Cycles 40.1 4.9 45.03-Wheelers 2/ 10.2 4.7 14.9Others 3/ 5.6 1.9 7.5

Notes: 1/ Excludes military vehicles

2/ i'ainly motorized rickshaws

3/ Oil tank trucks, fire trucks, ambulances and otherspecialized vehicles.

Annex 2PAKISTAN

Profitability of Truck Operators

(Firm X. (Lahore)

1. Loan request to Bar fon --,o 12(W00 r 're le opart of a total project costing Rs. 234,000 to acquire 5 trucks tostart as a common carrier:

'A"ruk- (Ch-assis19Body Building 23Inland freigi9t LI

Registration etc. )

23h

2. Summary of estimated financial results for first year of operation:

Rs. C000

Total Earnings 360Cost of Operation - variable (1hi2)

- fixed (22)Depreciation (39)

Operating Profit lg7Interest and other charges (9)

Income before Tax ibIncome Tax (30)

Income after Tax 118

Add Back Depreciation 39

Total Cash Generated 157

1st year debt amortization 63

PAKISTAN Annex 3

Ali Automobiles Limited

AIX auuoiriuu±± J LjLUi±ju w V u±.0.1iUL -" .L.7141 W-LUJA VILL LI1. ~ ~AU. -gOOXlsT,we as estbls he In a'7 the bead off:icein Karachi. In 1950 it was changed into a Private Limited company with anissued and paid-up share capital of Rs.0 1[llon. This was UVRs 5.0 million in 1961. All shares are family owned.

2. The company is the exclusive assembler and dealer for all Ford MotorCompany vehicles in Pakistan. In i9'3 Aii Automobiles erected a , asmbly plant in Karachi which started operations in 1954. Initially only ckd 'Fordtrucks were assembled, but in 1956 the company added the assembly Of Fordpassenger cars to its program. In 1963, Ali Automobiles set up a manufac-turing plant for motor scooters in collaboration with an Itaiian firm.

3. The installed assembly capacity for commercial vehicles is 3,000 unitsper year on a single-shift basis. As of December 31, 1964 the companyemployed 502 persons. Its distribution system includes five branches and29 spare parts dealers in West Pakistan and one branch in East Pakistan.

II. Commercial Vehicles Assembled

Truck Chassis 1962 1963 1964

Diesel - 10 ton (U.S.) - 38 14Diesel - 6 ton (U.S.) 3 436 34'5Diesel - 5 ton (U.K.) 4 - -Diesel - 3 ton (U.S.) - 24 16Diesel - 3 ton (U.K.) 4 - -Petrol - 3 ton (U.S.) 53 90 -

Bus Chassis

Diesel (U.S.) - 24 -

Diesel (U.K.) 5 - -

Pick-ups

Petrol - 3/4 ton (U.S.) 82 281 109Petrol - Vi ton (U.S.) - 24 -Petrol - 1½< ton (U.K.) 7 - _

Total 158 917 h8h

Annex h

PAKISTAi'J

Ghandhara Industries L;mited

I. Background

1. This company was established in Karachi on April 1, 1963, and isthe exclusive assembler and distributor for all General Motors vehicles.Its authorized share capital is Rs. 50.0 million of which Rs. 7.5 millionare issued, subscribed and fully paid in, There are approximately 6,000shareholders, but three shareholders own nearly 44% of the entire sharecapital. The administration of the company is in the hands of GoharHabib Ltd., a management firm.

2. Ghandhara operates an assembly plant, in Ka.rachi with an installedcapacity of 8,200 vehicles a year on a single shift basis. Untilrecently, when an expansion program was completed, the assembly capacitywas limited to 3;700 units a year. Before the annis-ition bhv fhanndharain 1963, the plant was owned by a subsidiary of the General Motors Company.

3. In addition to its present facilities, the company plans to buildnn ~asczcmh 1,lnn *.in Erast - PnlakijnY.% a-r-9-1. v"in.i s4ing-le shift capacityof about 1,000 units. Recently, Ghandhara has been granted the statusof a progressive man facturer of componens, but a letter of peri-sionhas not yet been completed.

4. As of March 31, 1965, the company employed 1,394 persons. Itsdealer systemm L ni 12. ..-.' dea'I id - 5 spare parts dealers -- West

Pakistan and 5 dealers and 1 spare parts dealer in East Pakistan.

II. Commercial vehicles assembled

Iruckn cha-sisiSBJ.LCK Lul U b± ll

6 tons 1h4 87 tons 754 2,320

Chevrolet 5 tons 830 288

Bus chassis

Bedford 124 240

Pick-ups

Chevrolet 312 180

Total 2,536 3,217

Annex 4 (c:ont.)

-2-

III. Financial Results

Summarized Profit and Loss S tatements (Rs. '000)

Year ending Mlarch 31 1964 1965

Net Sales 66,299 82,086Cost of Sales (incl. Depreciation) 60,92n 7Q, 797

C-ross Profit 5,375 6,289rvth11ar Cro st-us I0

Net Income before Taxes 5,272 6,289rincome ml,>Aes (provision) '70 2,7,

Net Income after Taxes 2,572 2,889

Return on Share Capital % 34.3 38.5

Dividend 1,125 1,313Dividend per share of Rs. i0 Rs. 1.,50 1.75

Swnmarized Balance Sheets (Rs. '000)

As at March 31 1964 1965

Assets

Cash and Bank 172 2,131Inventories 29,414 24,914Accounts Receivable and Otliers 3,761 9,717

Total Current Assets 33,347 36,762Investrnents 100 1OD

Gross Fixed Assets 5,6 ,66Depreciat:Lon 592 1,:305

Net Fixed Assets 5,372 7,661

TOTAL ASSETS 38,819 44,523

Liabilities and Equity

Current Tiabilities 7,647 L,2oOLong-Term Debt 22 225 19,580

Share Capital 7,500Retained Earnings 1,447 2,323

Total Equity 8,947 10,323

TOTAL LIABILITIES AND EQUITY 38,819 44, 523

PAKISTANAnnex >

Haroon Industries LUmited

T. Backgroznd

Corporation vehicles in Pakistan since its establishment in 1948.±The .LAJ -- is 1 &" -eA. -A, s1 - capi+a - Do 14. 4S atthe end of 1963/64 - was raised to Rs 8.7 million during 1964/65.

2. The Haroon assembly plant was sanctioned by the Government: _ n4 -- _8 s_ :A _ 4-4-7 T4-- l:_4oS4- A_..

*L. I.L7UJ cuuAI Q L.LLUU VJFJ.LCvU.LL1O "LL .L,7'jPq .LO -J I O.GO W MA l

capacity is 5,000 commercial vehicles on a single-shift basis. InadUULtioLUn UU tLUr u chk nd .bus chassis,U the plL. t is able to asser,,bLe

Dodge and Simca passenger cars at a rate of about 1,800 a year.i as l,ine of. acMviLxy has been particular.Ly succU.essfu.. .I tihe ±last

two years of operation and is expected to be further expanded.

3. As at the end of Warch 1965, Haroon employed 440 persons.Thle distribution system is composed of nine dealers in 'west Pakistanand two dealers in East Pakistan.

II. Commercial Vehicles Assembled

1963 1964 1965

Buses and Trucks - 6 tons 634 5h1 515Pick-ups - 1 ton 78 54 -

Total 712 595 515

4. Assembly of passenger cars started in 1964. About 380 unitswere assembled in 1964, and another 544 units from January untilOctober 1965.

Annex 6

PArKSTAN

Mack Trucks of Pakistan Limited

Background

1. The company was incorporated in Karachi on June 17, 1963 to assembleand progressively manufacture Mack trucks and bus chassis. The establishmentof MIack Trucks followed a successful bid for the first licence to be issuedby the Goverrment for assembly combined with progressive manufacturing ofcomponents. Bidding was made on an international competitive basis and inaddition to Mack the following firms had submitted tenders Knckner,Mercedes (Germany), Leyland (G.B.), Dodge, Ford, International Harvester (U.S.),Fiat (Italy), and Isuzu (Japan).

2. A letter granting "Permission for the establishment of an industrialundertaking in Pakistan for the progressive manufacture/assembly of M4ack Tlucks"was addressed prior to the establishment of the company to Mack Trucks Inc.,U.S.A., setting forth the obligations and privileges for the new company. Theletter specified in particular that:

- the machinery to be imported must be new and modern; the foreignexchange component estimated at U.S. $2.9 million had to beprovided by Mack Trucks Inc.

- the assembly program of the plant should be developed in separatestages, starting from 500 units in the first year and increasingto 4,000 units from the fourth year onwards. During each stagean increasing number of snecified locally manlufactured componentswould have to be included in the chassis. Its proportion shouldincrease from lh-69, of thp vphifIe'I uIiine in the. firnqt. ve'r tn

53% in the fifth year of operation.

In return, the letter of permission provided that the Government undertake tohan the import of trucks siilnr to those to b e produced by Mack for a peno dof 10 years subject, inter alia, to the following conditions:

"- that Mack Trucks (Pakistan) Limited are able to producesiiffinient rninhr of trucks to meet the reqpiirempn+. q ofPakistan.

- the trucks to be produced by them are satisfactory both forqua1i+y7 andnt prVice.

-the ballw on -4mport *Till appl orl for -the -perio te reurem,.ents

of trucks in the country remain up to 4,000. If the requirementsexceed this nr-imber, C-o.,.-",,1 A 1- 4-, ha,v-e h o , of,.P us,. ng

either Mack plant or other sources for meeting the excessreqh rements

2-

- the ban Will apply only to imports from Pakistan's own resourceswhich would include imports against loans. It will not apply toimports against bonus vouchers nor will tnis apply to ireeimports under AID to meet this Defence requirement."

3. Tha company has an authorized share capital of Rs 100 million, of whichRs 19.24 million have been issued. The capital is distributed as foluows:

Mack Trucks Inc., U.S.A. 26%Industrial Development Bankc of Pakistan 10%Hyesons Group (Pakistani owned) 25%Private subscribers 39%

According to information obtained from the management of the company, theissued capital is fully paid in with the exception of Mack's share, haLlf ofwhich is still outstanding.

4. Mack Trucks is administered by a managing agent, which is owned ',1% bythe Hyesons Group and 49% by Mack Trucks Inc., U.S.A. As of October 1, 1965,the company employed 183 persons. Its dealer system has been expandedrecently and now includes seven dealers in West Pakistan and six dealerS inEast Pakistan.

II. Ccmmercial Vehicles Assembled

Julv 196L/June 1965 July 1965/SeT)t.l965

5 ton Chassis 31 307 ton Chassis 198 144

229 174

5. Slnce beginning its assembly operations in July 1964, the company hasobtained licences for the import of 1,500 units. As of October 31, 1965,667 ckd units had been ordered and received. However only 403 units hadl beenassembhled of which 205 had been sold. Tn view of the corrnanv's slow

utilization of its licences, the Government recently decided to cancel thebalance nf the lip not yet utilized, totalling abou+t. TT-9 14 million.

TTT. Vin.n-^inl PResults_

6. The orly anvai1ble firnres m re t-ohos for%w th+. ho truction periodending in June 1964, which are given below. No figures could be obtainedfor the financial year 19614/65, but the co^n-yr's noragemenrt inrdicated thj.atsales amounted to about Rs 4 million and that a substantial loss is expected.

Annex 6 (Cont.)

Summarized Balance Sheet(Rs '000)

as of June 30, 1964

Assets

Cash and Banks 9,832Inventories 7,271Advances and other 1,240

Total Current Assets 18,343Gross Fixed Assets 768Work in Progress 4,093

Total Fixed Assets 4,861Deferred Expenditures and other 331Preliminary Expenses 1,3

TOTAL ASSETS 23,678

Liabilities and Eauitv

Current Liabilities 13.332Share Capital 10,346

TOTAL LIABILITIES AND EQUITY 23,678

Annex 7PAKISTAN

Price Structure of Selected C:hassis -/

DODGE C,.M. FORD MACKHaroon IzTdhustries GhandharFaTdustries

LintLted Limited _ Ali Automobiles Limited Mack Trucks of Pakistan Lirirted

U.K. Dodge IJ.K. Bedford U.S. Ford U.K. Ford U.S. MNack U.S. }ackFive-ton Diesel Seven-ton Diesel Six-ton D:Lesel Six-ton Diesel Seven-ton Diesel Five-ton Diesel

Fully Fully Fully Fully Fully Fullyckd built-tp ckl built-up ckd bullt-u]j ckd built-up ckd buiLt-l 2 ckd built-up

F.0.B. U.S. $ 2,175 2,1811 2,6S15 2,713 3,770 3,690 2,758 2,72E8 3,82-? ,hO3L 3,100 3,565Ocean Freight U.S. $;) 129 700 :115 927 272 :1,080 182 728 259? 1,110 2C0 900C & F Karachi U.S. $ rp;I ny5I 14,770 2,9b0 94S g3 45 6

C & F Price converted Rs. 12,396 16,712 12,995 17,326 19,0240 22,705 13,99 i.6,451 19,44',3 26232 15,751 21,253into Local Currency

Insurance and Fees Rs. ';78 710 ,213 633 583 917 L24 665; 1,103 1,832 894 l,h76Assenbly Cost Rs. 1,000 300 1,000 300 1S000 150 1,000C 150 1,000) - 1,00oLocal ConpDnents Rs. 325 - 713 - 181 181 181 181 4,201) - 3, 800 -Overhead al1d Profit Rs. 3,_38 546 6593 563 1 10,82 1I627 7,072 8, 006 6,761,5 . 5 5,Cfl 0 7_297

Price boeforea nes d Duties Rs. 17,637 23,168 21,5T114 23,722 3'L,O86 35,580 22,671. 25,453 32,517 37,069 26, 985 30,026

Customs Du ty andSales Tax J Rs. 6,213 8X678 6S76 8,65h 11.370 13,498 7,003 8.281 i1,6O4 15,317 9,3517 12LhiL0

Sales Price RS. 23,850 31,8L6 28,390 32,376 bI2,456 h9,07 8 29,67T. 33,734. 1d4 121 52,386 36, 382 I4,l.36

Average Bonus Rs. 42hbt 57J124 h3,280 55,340 71,617 83,1.914 50,8931 58673 73,60? 92,138 60,25;6 74,652

VoucheBr Price 3

11 Prices for the year 2965.A s a result of recent surcharges introduced for cussoms duties and sales taxes,these amounts . ill be increased by abou- 25%S.

_/ Ceiling price as establishled by the Controlller General of Prices and Supplies.

Annex 8

PAKISTAN

Project for Imports of Commercial Vehicles/Estimated Composition o' Vehicle Types to be Assembled

(in U.S.$)

Description of' Vehie s. N umhr of C&F Price Total Rotnd FiauresUnits per Unit

1. Dhandhara Industries Limited (CKD)

Bedford Truck Chassis - 7 ton 2,600 2,730 7,098,000Bedford Bus Chassis - 6 ton 1,000 2,890 2,890,000Bedford Pickup/Light Truck Chassis 150 2,233 334,950

-1½'/3 ton3,750 10,322,950

Contingency to cover 5-l0I PriceIncrease for 1966 Model 680,000

Total 11,002,950 11.00 million

2. Mack Trucks of Pakistan Limited

Truck Chassis - 158½1" W.B., 3 ton 13 2,774 36,062Truck Chassis - 176½"2' W.B., 3 ton 12 2,890 34,680Bus Chassis - 176½-," W.B., 3 ton 10 2,774 27.74t0Bus Chassis 194½-s" W.B., 3 ton 9 2,821 25,389PK-5 - 176-½" W.B., 5 ton 50 3,262 163,100PK-5 - 194½s" W.B., 5 ton 50 3,309 165,450Bus Chassis - 1941X2" W.B., 5 ton 75 3,309 248,175Bus Chassis - 212½"*'' W.B., 5 ton 31 3,511 108,841Pf-7 Truck Chassis - 176½'-Q W.B., 7 ton 75 3,776 283,200PK-7 Truck Chassis - 1914½" W.B., 7 ton 12, 3,8 147 7,17

Bus Chassis - 194½" W.B., 7 ton 150 3,707 556,050PK=9T'ruck Chassis - 17A" W 8,R/o ton 13 1.,r 61,581PK-9 Truck Chassis - 19414½" W.B., 8/9 ton 12 4,784 57,408FCPK-9 - 1941-,'1 W.B., 8/9 ton 100 4,668 466,800PK-16C - 2221-"1 W.B., 16 ton 12 10,277 123,324PK-16T *- 17O1" W.B., 16 ton 13 11,200 145,600

Total 750 2,981,275 2.98 million

3. Ali Automobiles Limited

Ford Diesel Truck Chassis - 174" W B., 360 3,234 1,164,2406-7 ton

Ford Diesel Bus Chassis - 1904" W.B., 420 3,394 1,425,4806-7 ton

Ford Petrol Pick-up - 11 ton 40 2,300 92,000

Ford Petrol Truck Chassis - 156 V W.B., 96 2,800 268,8003 ton

rord Petrol PNnk-irn - i-; ton. 120"1 WR B 8 2j00n 210;000

Total 1,000 3,160,520 3.16 million

. Haroon Industries Limited

Dodge Truck Chassis with Perkin Engine 1,600 2,604 4,166,400- ton

Dodge Bus Chassis with Perkin Engine - 696 2,786 1,939,0566 ton, 1914" U.B.

Dodge Van/'Pickups - 1 ton 204 1,288 262,752

Total 2,500 6,363,208 6.36 million

TOTAL 8,000 23.'0 million

Annex 9

PAKISTAN

Automotive Imports 1964-65

(Rupees million)

WestUK USA Germany Italy Japan France Other Total

Commercial:

Trucks, Paneltrucks, andPick-uDs: 23.3L 53.5h ..98 .10 82.96

Others:

Jep*ns 18.97 1RA-47Automobiles 18.13 1.75 7.64 3.37 6.17 .30 1.21 38.',7IMtn r r,vr1 .60n& scooters :3.62 .10 20.54 4.94 .27 .44 30451

Total other: 21.75 20.82 8.24 23.91 11.11 .57 1.o5 88.05

Spares,

and other): 1.78 11.64 6.88 1.81 .92 .37 .74 37.J]`4

Grand Total: 64.87 86.00 16.10 25.72 12.03 .94 2.49 208,L5

Source: Chief Cointroller of Exports and Imports.