Minutes of the Meeting


A meeting of the Senate Standing Committee on Defence and Defence Production was held on 15th August 2012 at 11:00 a.m. in Committee Room No. 1, at the Parliament House, Islamabad. The meeting was presided over by Senator Mushahid Hussain Sayed, Chairman SSC on Defence and Defence Production. Following Members attended the meeting:-

1) Senator Mushahid Hussain Sayed – Chairman
2) Senator Chaudhry Shujaat Hussain – Member    
3) Senator Farhatullah Babar – Member    
4) Senator Sardar Ali Khan – Member    
5) Senator Faisal Raza Abidi – Member    
6) Senator Col. ® Syed Tahir Hussain Mashhadi – Member    
7) Senator Haji Mohammad Adeel Khan – Member    
8) Senator Raja Muhammad Zafar-ul-Haq – Member

2. The meeting started with the recitation from the Holy Quran by Senator Farhatullah Babar.

3. Welcoming the Honourable Members and senior ranking officers of the Ministry of Defence Production and the organizations working under its control, the Chairman of the Committee, Senator Mushahid Hussain Sayed said that while it was the first meeting for an official briefing by the Ministry of Defence Production, the Committee had already set some new standards and achieved milestones in record time.

He said that in addition to meetings with the Ministry of Defence and attached departments working under its control, the Committee had set the new tradition of approving a concrete plan of action for the year, visited bereaved families of the Shaheeds of Gyari Sector, held interactive sessions with students of National Defence University, formed Defence Reporters Forum and had the distinction of first Parliamentary Committee to present its Report and launch its website within few weeks of its formation.

4. Senator Mushahid Hussain Sayed further said that the Committee was fully conscious of the important role of the Ministry of Defence Production and the strategically important units working under it to provide material and equipment for the defense forces of the country.

He said that the Committee placed equal importance on the role of the Defence Production Ministry and units in the economy of Pakistan through import substitution as well as exports and commercialization activities.
5. The Secretary Defence Production Lt. Gen. (Retd), Shahid Iqbal in his brief opening remarks informed the Committee Members that the primary responsibility of the Defence Production Division is to provide a coordinated base for self-reliance in the production of Defence stores and materials. He informed the Committee about the history and expansion in the role and production units of the Ministry since the start of POF Wah in 1951.

He said that 29 production units were successfully producing equipment from basic to hi-tech through progressive indigenization and collaborative joint venturing with China.

He said that while the progress and performance of the Defence Production units were well established and recognized, the operational autonomy to work as competitive commercial enterprises and drastic cuts and changes in budgetary allocation cycle have affected the performance, economies of scale and profitability of many units.

After introducing the heads/representatives of the five major Defence Production units and facilities who were to brief the Committee, the Secretary Defence Production asked the Chairman Heavy Industries (HIT) Taxila to start the briefing.

6. The Chairman HIT, Lt. Gen. Ayyaz Salim Rana in his briefing said that HIT was conceived in the 1970s with the objective to rebuild T-59 tanks of Chinese origins. He said that from one unit, it has grown to nine and it comprises six production units, two support facilities and an R & D center.

He said that rebuilding, upgrading, developing and manufacturing Tanks and APCs was the primary mission of HIT. The Chairman informed the Committee about the Board which governs HIT. He said that it was enacted by the Parliament through Act No. XII of 1997.

7. The Chairman HIT informed the Committee about some of the achievements which included manufacturing of 300 Al-Khalid Tanks and 250 APC Talha. He said that rebuilding and up-gradation was continuous activity as so far 460 Tanks Al-Zarrar, 132 Tanks T-59, 1379 APCs, 50 ARVs and 14 SP Guns have been rebuilt and upgraded.

He informed that the surplus capacity of HIT is being utilized through provisions of revolving fund and the commercial activity generated under it includes export earnings of US$ 31.760 million as well as domestic sales of Rs.5.817 billion.

He said that profit deposited in government treasury in the past was Rs.585.435 million and Rs.340 million were expected deposits in 2012-13. The Chairman HIT shared with the Committee the future plans under 2010-2025 long term plan.

He also informed the Committee about the future commercial activities utilizing surplus capacity under public private partnership.

8. The Chairman of HIT informed the Committee about the constraints and difficulties being faced by HIT. He said that gradually increasing restrictions on the autonomy and delegated powers of HIT were hindering competitive commercial activities, besides fully exploiting the export potential and necessary technological up-gradation.

Added to these were budgetary constraints and the re-appropriation of funds from the Army instead of direct allocation, absence of a framework for implementation of public-private partnership, and skill dilution due to manpower retirement and no timely or matching fresh induction.

9. The Chairman HIT wanted the support of the Committee in approval and implementation of the following three recommendations:-
a.) HIT Board should be allowed to exercise its powers delegated through the Act of Parliament without any further referrals/financial scrutiny.
b.) To meet the production targets budget shortfalls may be met.
c.) Financial and legal framework for PPP implementation is formulated through an act of legislation.

10. The second presentation was made by the Chairman Pakistan Ordnance Factories (POF), Lt. Gen. Muhammad Ahsan Mehmood who informed the Committee that POF has many similar features and characteristics as those of HIT and some of the problems and constraints were also common. He informed the Committee that POF is the largest defense industrial complex of Pakistan under the Ministry of Defence Production which was established in 1951 as one unit but has now grown into a setup of 14 mainstream industries and 6 commercial subsidiaries including Wah Nobels, Wah Industries, Hi-Tech Plastics, and Attock Chemicals.

11. Terming the POF as “Force behind the Forces” the Chairman said that POF produces sixty two types of defense stores. Besides its role in the defence of the country and support to civil armed forces, POF has created jobs and helped growth of subsidiary sectors. He said that through exports to friendly countries it was earning valuable foreign exchange for the country.

He said that in the ongoing war against terrorism in the country and border areas, POF was facing the challenge to meet the enhanced requirements of defence forces and law enforcing agencies.

12. The Chairman POF informed the Committee that the day-to-day functioning of POF is governed through a Board under the Pakistan Ordinance Factories Board Ordinance, 1961. He shared with the Committee detailed statistics about factories, departments plant and machinery, workforce and turnover of POF.

Briefing on the business and financial model of POF, the Chairman said that demand of Armed Forces is given to the POFs 2 years in advance, based on which budget estimates are prepared and requirement is given to Ministry of Defence Production which sends it to Ministry of Finance routing through Ministry of Defence.

13. The Chairman POF shared with the Committee that previously the budget allocation/cycle was such that sufficient funds were available to meet the future demands of Armed Forces but during the past few years the budget allocation/cycle has been changed and reduced allocations are made which are not sufficient for the current year, leaving no space for timely procurement of raw material for future orders.

He said that since establishment charges are fixed and unavoidable very little amount is left for production which adversely affects the cost per unit of various items as economies of scale are not achieved. He said that it has an adverse impact and dangerous implications for the ongoing war on terror as well as any future challenge to the defense forces of Pakistan.

He said that since GHQ could neither compromise on nonavailability nor on expensive supply of items, it has to rely on increased imports and during the last six years import bill of ammunition has touched US$ 690 million which is adversely affecting the economy as well as indigenization policies and programs.

14. The Chairman POF further mentioned the technology deficiency due to obsolete or energy inefficient plant and machinery most of which was imported in the late 1950s. He said that challenges were also faced in the retention and replenishment of trained manpower.

15. Senator Haji Mohammad Adeel, Raja Muhammad Zafar-ul-Haq and Col. ® Syed Tahir Hussain Mashhadi who had remained Members of the Defence Committee in the past made various interventions stating that these problems had been brought to the notice of the Committee time and again and the Committee had been making recommendations for solution of these problems but nothing has been done by the government as the problems continue increasing. They also underscored the importance of continuity in the proceedings of the Committee after its reconstitution, based on past Minutes and records.

16. The Chairman of the Committee Senator Mushahid Hussain Sayed while acknowledging the genuine concern of the experienced members of the Committee regarding no action and only briefings and recommendations, assured the Committee Members as well as the Ministry of Defence Production that the current Committee will break the status quo and inertia by a very proactive approach as it has already set new traditions and records.

He said that the Committee under his chairmanship will not only make recommendations but follow these up in the form of high-powered all parties representatives delegations meetings with the Prime Minister and President besides inter-Ministerial meetings.

17. Senator Haji Mohammad Adeel asked various questions about the structure and business model of the HIT and POF and proposed looking at alternative ways/models which included advance payment by the Armed Forces for advance orders.

He had apprehensions about a longer period of research and development of Tanks and other equipment but the representatives of MODP clarified that international timeframe and standards were followed by the HIT and POF in new models/initiatives.

18. Senator Farhatullah Babar proposed that first all briefings should be completed and thereafter Members can ask questions and make recommendations. Agreeing with this proposal, the meeting continued with a briefing by the head of the Pakistan Aeronautical Complex, Kamra.

19. Air Marshal Sohail Gul Khan, Chairman PAC Board informed the Committee about the establishment of the Complex and the increase in the number of production and refurbishing units from 1 to 4. He said that overhaul of fighter planes was one of the core missions of the organization which had ventured into manufacturing various types of aircraft.

He briefed the Committee about the performance of the organization is not only production but in overhaul, repair, maintenance and refurbishing of different types of aircraft. He also shared with the Committee about the JF-17 Thunder project executed as a co-production with China. He said that 41.7% of the production work was with China while PAC had a 58.3% share. He said that 31 aircraft have been produced and delivered so far and a sizeable number was under production / in the pipeline.

20. The Chairman PAC Board expressed similar difficulties and challenges in budgetary allocations as well as bureaucratic delays in not only production but exploring export opportunities. He said that many countries have shown interest in small Mashak aircraft.

The Committee was informed that short windows of opportunity could not be utilized under the existing centrally controlled bureaucratic system.

21. Senator Haji Mohammad Adeel and Senator Col. ® Syed Tahir Hussain Mashhadi, based on their past association with the Defence Committee, said that they had been advocating delegation of authority and adoption of commercial sales and exports model by the defense production organizations. 

Regarding the financial and budgetary difficulties, Senator Haji Mohammad Adeel was of the opinion that the whole defense budget will have to be reviewed to reallocate funds from unnecessary heads to productive and profitable heads.

22. Next briefing was by the representative of Karachi Shipyard and Engineering Works Ltd. who informed the Committee that the organization is a public limited company established in 1957, all shares of which are owned by GOP / Pakistan Navy. He said that it is an autonomous body with a Board of Directors headed by the Chief of the Naval Staff and working under Companies ordinance 1984.

The administrative control of KSEW was with the Ministry of Defence Production but it was not being regularly funded by the Government of Pakistan although GOP has provided some grants/finances occasionally. The Committee was informed that KSEW caters for all its funding, from salaries to production to utilities, from itself and was a profitable organization.

23. The Committee was briefed about the three major functions of the KSEW which included shipbuilding, ship repair, and general engineering. Details of orders completed and orders in hand in various functions were shared with the Committee. The Committee was informed that in the past, the KSEW used to be a liability facing serious difficulties in plant and machinery as well as physical and human resources and environment.

The turnaround was the result of the single-handed effort of a former Chief Executive, Admiral Iftikhar Rao who changed the whole physical and work environment. Not only state of the art plant and machinery was installed but modern and international standard production and administration systems were introduced, the Committee was informed; which was appreciative of the success story attributed to the initiative, vision, and leadership of one individual.

24. The representative of the KSEW informed the Committee about the few remaining financial problems although it had recovered from its worsening financial position through revitalization. The intervention of the Committee was solicited for another matter involving the alleged unlawful standpoint of KPT for charging land rent to KSEW.

The discontinuation of the ‘Right of First Refusal (RFR), despite ECC decision and direction in the matter by various public sector organizations in procuring items produced by KSEW, was also brought to the notice of the Committee.

25. Senator Haji Mohammad Adeel wanted to know the causes of fewer profits in a particular year. He was informed that since capital investments were made in certain years the profits for those years were less. However, Senator Haji Mohammad Adeel asked for specific reasons and details of the revenue, expenditure, and capital investment for the particular year justifying a significant decrease in profits.

He also enquired about the possibility of manufacturing French Augusta Submarine which Pakistan already has acquired from France and technology was available. The KSEW representative informed that the technology of a particular thing was just one aspect of the production of any new thing as a number of other things including the raw material to be used were equally important.

He said that if raw material can be acquired or produced within Pakistan then manufacturing capability was available. He said that the credit goes to the late Prime Minister Zulfiqar Ali Bhutto for establishing excellent manufacturing facilities and establishing import-export connections with countries ranging from Iran to Belgium.

26. The Chairman of the Committee Senator Mushahid Hussain Sayed wanted to bring on record and highlight the contribution of Mr.

Zulfiqar Ali Bhutto who not only laid the foundation of the Nuclear Program of the country but equally importantly he established organizations and units for the production of defense equipment and material which have helped the economy and defense of Pakistan in a big way.

27. The last briefing of the meeting was given by Brig. Syed Khurshid Ahmed Zaffar Zaidi, MD National Radio and Telecommunication Corporation who informed that NRTC was established on ‘War Priority’ basis in 1965 after the imposition of the embargo.

He said that the mission of the organization was to design, develop, assemble and manufacture radios and telecommunication equipment both for military and commercial use and sell its products and services in local and international markets. He informed that affairs of the organization are governed by a Board of Directors comprising representatives from GHQ, Joint Staff Headquarters, Ministry of Defence Production, Ministry of IT, and Ministry of Finance.

He shared with the Committee a number of technological innovations and success stories that were helping fight traditional as well as within countries wars both inside the country as well as by other friendly countries. He gave details of various equipment development and their usage which need not be made public.

28. After the formal briefings, the Chairman of the Committee and some Members wanted to know details of various initiatives being taken by the Defence Production Organizations for export. The Secretary MODP and Chairman HIT gave details of export of manufactured equipment to some countries saying that a much more successful model has been to have joint ventures for establishing similar facilities in two regional countries, primarily for repair maintenance and refurbishing of various types of equipment. This approach was about to show clear results and success in the near future with some friendly countries in the region. The Committee was informed that since making inroads in the highly competitive fully manufactured defence arsenal and equipment was almost impossible in the face of tough competition and state of the art technology, marketing, etc.

by developed countries, the alternate model of focusing on parts, repair, and maintenance was the best option proving successful. The Ministry representatives shared with the Committee some of the ‘out of the way’ efforts to attract the potential buyers from the region. They however pointed out the bureaucratic hurdles and delays in pursuing effective export policies and programs.

29. The Chairman asked the Members of the Committee for their questions and remarks. Senator Farhatullah Babar started by appreciating the full-fledged appearance by the heads and representatives of the Ministry of Defence Production which showed their respect for Parliament and its Committee.

He said that Defence production was a highly specialized sector that required massive investments, a strong R&D backup, and capabilities ranging from design to production and a long gestation period. Expressing the need to develop indigenous capability, Senator Farhatullah Babar said that India in a major policy decision about a decade ago liberalized its defense industry by allowing 100 percent participation by the private sector and 26% of foreign direct investment (FDI) both subject to licensing and security clearance.

In 2006 in another policy decision the defense procurement procedures were changed, he said. He said that while the world is moving away from bureaucratization and militarization and towards public-private partnership we were moving in the direction of militarization. He gave examples of the POF and Heavy Industries, Taxila.

He said that the original Act XII of 1997 provided for two sitting MNAs as HIT Board members, but soon after the military government of Musharraf took over this provision was removed. He said that the elected members could have injected an element of civilian oversight as well as promoted public-private partnership.

He wondered as to why the elected members were removed from the Board and asked that their membership of the Board be restored. He said that in the light of modern experience we needed to de-bureaucratize the defence production units and adopt the model of public-private partnership in defense production.

He said that the current administrative and financial model of the POF in which the Board has no powers to appropriate amounts from one head to the other was not consistent with the provisions of the Ordinance of 1961.

He said that running the factories on sound commercial lines calls for involving the private sector as well but the government has failed to appoint Member (Private) for a very long time in both the POF and HIT. He expressed surprise that no Rules have been framed under section 14 of the 1961 Ordinance and called for the immediate framing of the relevant rules.

30. Senator Farhatullah Babar proposed that the Senate Committee may propose two sets of recommendations; one that could be undertaken immediately within the existing legal and financial structure and the other that was long-term and required discussion and debate and consultation with different stakeholders.

As for the short-term measures, he proposed that the Committee may adopt appropriate resolutions calling upon the government to address specific issues of concern which may then also be placed before the House / Senate for adoption.

Another option was to constitute a subcommittee to follow up on the recommendations/resolutions of the Committee. The members of the sub-committee/Committee may call on the Finance Minister, the Prime Minister, or even the President for expediting the implementation of recommendations. He proposed that Media may be appropriately employed for highlighting the issues and building an opinion for implementing recommendations of the Committee.

31. Senator Farhatullah Babar then moved the following Resolution which was adopted by the Committee.                                                                                                     
Resolution                                                                                                                     “The Senate Standing Committee on Defence and Defence Production has noted that the Board of POF has not been allowed to exercise full powers available to it under the Ordinance XVII of 1961 which was hampering the smooth functioning of the factories. It calls upon the government that the Board be allowed to fully exercise all powers conferred on it under the said Ordinance.

Taking notice that Member (Private) of the Board has still not been appointed in accordance with section (3) of the said Ordinance, the Committee calls upon the federal government to immediately appoint Member (Private) so as to run the affairs of the factories o sound commercial lines.

The Committee notes that rules have still not been framed as required under Section 14 and calls upon the federal government to frame rules for carrying out the purpose of the Ordinance at an early date.

The Committee further notes that the Financial Rules framed by the HIT Board are awaiting government approval for the past several years and calls upon the government to remove the bureaucratic hurdles and finalize approval of the HIT Finance rules at an early date to enable it carry out the purpose of ACT XII of 1997”.

32. The representatives of the KSEW wanted to mention, the issue of non-compliance with the ECC decision regarding the First Right of Refusal by the maritime sector of Pakistan to which the Committee was sympathetic and supportive.

Inclusion of the proposal in the Resolution / Minutes was agreed subject to no violation of PPRA Rules without formal procedure and approval for exemption of KSEW by PPRA as in the case of some other organizations.

33. Senator Haji Mohammad Adeel raised the issue of media reports saying that the APC manufactured and provided by HIT to the Sindh Police was penetrated by bullets and a Sindh Police official died inside the APC.

The Secretary Ministry of Defence Production said on record that no death took place in any of the APC provided by HIT but since APCs of other countries/contractors were used in the Lyari operation, the incident of death took place in some other suppliers’ APC.

Senator Haji Mohammad Adeel was not fully satisfied with the statement and said that he will check the facts as stated but he wanted to know the issue of Grade and capability of Mohafiz APC manufactured by the HIT.

34. The Chairman HIT said in unequivocal words that the APCs manufactured by HIT provided to the Army as well as the other law enforcing agencies were of the standards which were clearly mentioned and conveyed to the buyers/clients. The Committee was shown a video of the rigorous test by the Sindh Home Minister and Police officers prior to the purchase of APCs.

The Committee was informed that the tussle between defence and shield equipment with the attacking technology and products was a continuous thing and the standards mentioned with a particular APC should be clearly noted before challenging its protection against any particular type of equipment.

The Committee was informed that in the Lyari operation, it was not a matter of firing of one or few bullets but more than 448 bullets were fired on one APC, and not only bullets of higher caliber but mortars were used which penetrated the protective shield.

35. The Committee was also shown copy/slide of the report of the Joint Investigation Time (JIT) wherein it was clearly mentioned that no death took place in any of the APC, supplied by HIT.

The Committee Chairman and Members expressed their displeasure on the unfounded propaganda and media reports in the matter which were damaging to the reputation of a great organization with potential for exports.

36. Senator Syed Faisal Raza Abdi in his remarks expressed the fullest possible support and stood side by side the defence forces of Pakistan either fighting enemy countries or the enemies within, who were posing serious threats to not only the reputation and image of the country but its stability and security.

On his proposal, the Committee unanimously adopted the Resolution that “Youm-e-Shohada” (Day of Martyrs) should be observed at the State and National level instead of just by the defence forces. He further proposed that the government should try to provide maximum facilities including plots for the families of the Martyrs.

37. The Chairman of the Committee concluded the proceedings by saying that the meeting was well organized and very informative.

He said that without undermining the concern expressed by some Members about lack of implementation of Committee recommendations, he was confident that the performance of the current Committee will be different as it has already set new standards and milestones including a major role in bridging the gap between Khaki and Mufti.

38. The Chairman of the Committee, Senator Mushahid Hussain Sayed gave the following decisions/course of action for the Committee and Defence Production Ministry for a breakthrough in the long outstanding matters:-
a) The Ministry of Defence Production and the organizations under its control specially HIT and POFs must submit two sets of demands/proposals. The first ones, of short-term and immediate nature, should be those related to the non-implementation of the autonomy and other provisions in the Laws (Acts and Ordinances) as well as various restrictions imposed by the Ministry of Finance and other Divisions contrary to the autonomy provided in the laws.

The second set of demands/proposals should be for the long term wherein new legislation or policy decisions were required by the government.

b) A special meeting of the Committee will be held in which Ministries of Finance, Defence and Defence Production, as well as any other Ministry / Organization involved in the financial or administrative matters of the Defence Production Organizations, will be invited along with all the other stakeholders to discuss the inter-ministerial issues and recommend a solution.

c) The Committee will take the matter to the Senate in the form of a special Report and after the adoption of the Report/recommendations by the House, the relevant Ministries will be made bound to implement. The Committee may meet the Prime Minister / President in the form of a delegation to ask for various administrative measures required for the removal of hurdles inefficient functioning and growth of Defence Production Organizations.

d) In the comprehensive Defence Strategy Paper to be prepared by the Committee by the end of the year, new ideas, models, and out of box solutions will be given for the revival and future growth of Defence Production Units for the defence of the country as well as enhanced contribution to the economy and foreign exchange resources of the country.

39. The meeting ended with a vote of thanks to the Chair.

(Amjed Pervez)                                                                  (Mushahid Hussain Sayed)
Special Secretary /Secretary Committee                              Chairman Committee

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