LC limits cut import of solar equipment in half

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Solar panels and inverter imports from China were prohibited by the State Bank of Pakistan’s restrictions on the opening of new letters of credit (LCs), which reduced their value from $2.4 billion in FY22 to just $1 billion in FY23.

This amount was last seen in FY17, but once customers became more aware of alternative energy sources, it increased to $1.8 billion in FY19.

To combat a lack of foreign currency that kept complicating the purchase of solar panels and inverters, the central bank took action to reduce demand for imported goods starting in July 2022.

Since commercial banks don’t appear inclined to support the solar energy sector, traders and importers have had difficulty creating new LCs and clearing shipments locked up in hundreds of containers at the ports over the past two months, according to leaders in the industry.

Senior Vice Chairman of Pakistan Solar Association (PSA), Mohammad Zakir Ali, stated that the shipments of his members, which were processed after receiving prior approval from the commercial banks, are awaiting clearance from the ports.

Due to import limitations, commercial banks are retaining and profiting from the cash margin obtained from importers, while international shipping lines would impose detention fees because the containers were not returning on schedule. According to him, ports would continue to impose demurrage on the delayed shipments.

End users would be forced to pay exorbitant pricing for panels and inverters as a result, according to Ali.

To prevent significant financial losses due to detention and demurrage fees, he said that the association had asked Finance Minister Ishaq Dar on July 6 to facilitate the import contracts for solar energy and related equipment that are already in the works.

He said that the commercial banks’ list of non-essential goods still included the solar energy sector, and he urged Dar to direct the banks to make it easier for imports to boost Pakistan’s renewable energy sector.

A favorable, long-term policy, fewer risks, a secure and predictable environment, and recent government initiatives to support domestic production of solar panels and inverters, according to him, would only attract foreign investors for joint ventures with global technology companies.

To entice international investors, he said, the government must ensure ease of doing business by streamlining bureaucratic processes and making administrative procedures connected to investment applications, licenses, and permissions simpler.