Due to the State Bank of Pakistan’s restrictions on initiating new letters of credit (LCs), imports of solar panels and inverters from China have dropped from $2.4 billion in FY22 to $1 billion in FY23, a level last observed in FY17. The bank’s measures, implemented in July 2022, aimed to curb the demand for imported goods to manage a shortage of foreign currency.
These restrictions have created difficulties for traders and importers, hindering the clearing of consignments and opening new LCs, particularly impacting the solar energy sector. This situation is worsened by commercial banks’ apparent reluctance to assist the sector, leading to delays in the clearance of shipments.
Mohammad Zakir Ali, Senior Vice Chairman of the Pakistan Solar Association (PSA), notes that import restrictions lead to commercial banks profiting from the cash margin from importers. Furthermore, delayed return of containers is incurring detention charges from foreign shipping lines and demurrage from ports.
Call for Policy Adjustments to Attract Foreign Investment
These costs will force end users to pay higher prices for panels and inverters. In response, the PSA has appealed to Finance Minister Ishaq Dar to expedite import contracts for solar energy and related equipment to avoid substantial detention and demurrage charges.
Ali criticized commercial banks’ classification of solar energy as non-essential and urged the Finance Minister to facilitate imports to support the renewable energy sector. He acknowledged the government’s efforts to promote local production of solar panels and inverters. Still, he emphasized the need for a secure and predictable environment to attract foreign investors for collaborations with international technology companies.
Ali called for simplified administrative processes, streamlined bureaucratic procedures, and easier business operations to entice foreign investment. Solar panel imports are duty-free, but inverters are subject to up to 21% general sales tax. He mentioned that most sales occur in rural Punjab, Sindh, and Khyber Pakhtunkhwa, while urban areas account for 25% of the market share.
