Finance Division seeks Rs25bn gas price subsidy for exporters

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ISLAMABAD: As industry and big businesses fume over government’s poor decision-making served with the double whammy of interest rate hike and currency devaluation, the ministries of finance and energy are finally seeking Rs25bn supplementary grant as subsidy on gas rates.

Informed sources said that the export-oriented sectors were concerned over rising financial constraints after government had failed to enable the industry by providing them competitive input costs — especially the energy supplies promised at subsidised rates — despite commitments made by the government at multiple levels and forums.

They said the Economic Coordination Committee (ECC) of the Cabinet on Sept 17 approved provision of gas to exporters of five zero-rated sectors in Punjab at a fixed rate of $6.5 per mmBtu with 50:50 shares of local gas and RLNG.

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However, despite repeated meetings and explanatory memorandums, the industry is still being billed at about Rs1,700 per mmBtu ($12.8 or so RLNG rate).

The sources said that the industry had recently complained to the Prime Minister that majority of the industrial units had increased production, booked export orders and started consuming increased gas volumes after they were assurances of lower gas prices by ministers, ECC and the cabinet.

However, despite multiple commitments, they were billed at the full RLNG rate of $12.5 per mmBtu during October as well as during November during which even the domestic gas was billed at $12.5 per mmBtu without any promised adjustment for refund as yet.

The Sui Northern Gas Pipelines (SNGPL) filed a subsidy claim of about Rs1 billion for two weeks — Oct 16-31 — for total gas consumption of about 205mmcfd to 535 zero-rated industries — both processing and captive plants. The total impact until October 15, 2019 was worked out at Rs32.3bn.

Also Read: Gas pricing decision

However, the finance ministry declined to release funds despite announcement by Finance Minister Asad Umar to provide Rs44bn subsidy on gas rates, no such provision was available in the budget.

The finance ministry, nevertheless, suggested a supplementary grant of Rs25.75bn for gas subsidy for the current fiscal year ending June 2018 and asked the petroleum division to move a summary towards that effect. The summary was moved by the Petroleum division for approval by the federal cabinet but the division raised objections saying since the matter involved fiscal allocation through a supplementary budget and it should be countersigned by the finance division.

Now a fresh summary supported by the two ministries is seeking a supplementary grant under the demand of petroleum division and creation of a separate subsidy head. A mechanism is expected to be approved by the ECC on Tuesday under which subsidy would be disbursed on monthly basis against actual billing of SNGPL and power generation by captive plants would be restricted for self consumption and not be sold to the national grid at higher rate.

The export industry has requested billing at fixed rate of $6.5 per unit by the gas company against which the finance or petroleum division should provide direct subsidy to the company owing to about Rs200bn existing refund claims pending with the revenue division on different counts.

On top of that, the ECC approved an average increase of Rs1.27 per unit in electricity tariff on Oct 24 with subsidised fixed rate of 7.5 cents per unit — instead of previous rate of Rs18-19 — for export industry. This could not be notified even after the lapse of almost six weeks.

The finance ministry had also issued a mechanism for gas subsidy in the last week of October under which the SNGPL was to charge full cost of gas to industry and adjust the subsidy to be provided by finance ministry in subsequent billing months.

Informed sources said some influential industrialists have complained to the prime minister that the delays were being caused by an unsupportive bureaucracy. They also complained that his economic team had been wrongly advised to apply text book economic concepts to an economy that was mostly informal. Resultantly, the investment climate was eroding following last week’s currency devaluation and increase in interest rates.

The sources said that a business group had told the PM that the rupee’s devaluation from Rs125 to above Rs140 and interest rates at 10 per cent were not only anti-investment and anti-growth but were meant to benefit a group of four banks — some of whom were criticised for driving undue benefits from the previous government.

It explained that 80pc of the banking sector’s liquidity was consumed by the government borrowing and a jump of 3.5pc in interest rate meant Rs1 trillion return to four banks in a year. With only 20pc credit going to the business and negligible consumer financing, the stated objective of inflation control was impractical for Pakistan economy.

“In Pakistan there is cost-push inflation caused by devaluations that brought misery to the common people while interest rate hike by 3.5pc in one year will flow Rs1tr government money in interest payments to four banks”, read a note to the prime minister.

Published in Dawn, December 4th, 2018

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