Export sector likely to face gas supply disruptions

ISLAMABAD: The Ministry of Energy (Petroleum Division) has reportedly hinted at occasional disruptions in supply of gas/RLNG to exporters during the winter, due to increase in demand by domestic, power and fertilizer sectors, well informed sources told Business Recorder.

These apprehensions were expressed at a recent meeting of federal cabinet during which concerns over under invoicing by the industry and misuse of subsidy were also expressed by the authorities.

The Petroleum Division stated that the ECC of the Cabinet in its meeting held on September 17, 2018, while considering a summary on ‘Natural Gas Sale Pricing’, directed: “gas supply to the industrial sector (exporters of five zero-rated sectors namely textile including jute, carpets, leather, sports and surgical goods) in Punjab would be revised from 28:72 to 50:50 for domestic gas and RLNG, respectively. The weighted average gas tariff of such consumers should be US$6.5 per MMBTU. Gas price of similar consumers of SSGCL and those of SNGPL in Khyber Pakhtunkhwa would remain unchanged.”

In a subsequent decision, the ECC of the Cabinet in its meeting held on October 16, 2018 directed that 100% RLNG should be provided to zero-rated industry every year for three months, i.e., December to February whereas a blend of system gas and RLNG (50:50) should be provided to zero-rated industry every year during remaining nine months, i.e., March to November.

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Subsequently, the ECC of the Cabinet on November 12, 2018 while reviewing its earlier decision of October 16, 2018 clarified that system gas/RLNG would be supplied to export oriented sector (formerly zero-rated sector) including its process units, as well as, captive power plants.

Based on the above decisions of the ECC of the Cabinet, the export sector on M/s SNGPL system (Punjab) was being supplied system gas and RLNG at a fixed tariff of US$6.5/ MMBTU while the Government was financing the differential price exceeding the said tariff in the form of budgeted subsidy.

On an average, a subsidy of Rs.14 billion per year had been released to M/s SNGPL during FY 2019 to FY 2021. For the current financial year 2021-22, the estimated demand for subsidy amounted to approximately Rs.52.292 billion (on prevailing RLNG prices) whereas the arrears up to September, 2021 amounted to Rs.20.636 billion.

In a nutshell, against cumulative demand of Rs.72.928 billion (Rs.52.292 billion plus Rs.20.636 billion), the budget for financial year 2021-22 had provision for only Rs.10 billion.

According to Petroleum Division, indigenous gas quantum was on the decline at the rate of 9% per year apart from highly inflated prices for LNG in the global markets.

During the current winter season, there were serious apprehensions that sustained supply of gas/RLNG to export sector may encounter occasional disruption owing to enhanced demand for domestic, power and fertilizer sectors.

In order to ensure sustained supply to critical sectors of the economy while safeguarding the most vulnerable segment of domestic consumers, Petroleum Division had crafted following proposals which would contribute towards curtailing misuse of gas, as well as, saving extra burden on national exchequer: (i) existing tariff of US$ 6.5/mmbtu for Captive Power (self-power generation) use in export sectors may be revised to US$ 9/mmbtu from November 15, 2021 March 31, 2022; and (ii) existing tariff of US$ 6.5/mmbtu may continue to be provided to export sectors for gas/RLNG usage in processing (general industrial use) only.

During discussion, it was stressed that while the proposed measure would help curtail the problem of gas shortage in the short-term, there was a need to find medium-term and long-term solutions, as well.

The Prime Minister urged that Ministries/ Divisions, which were preoccupied with day to day affairs, should create think tanks to brainstorm the emerging specific problems and find out of the box solutions.

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In response to a query as to whether all the export proceeds were being remitted by the exporters, it was clarified that the State Bank of Pakistan monitors the remittances as per the stated price of exported goods; however, the possibility of under invoicing could not be ruled out. The need for measuring benefits subsidies vis-à-vis the increase in exports was also highlighted.

Advisor to Prime Minister on Finance and Revenue Shaukat Tarin agreed to conduct a study to determine whether subsidies being given by the government were commensurate with increase in exports.

Advisor to the Prime Minister on Commerce and Investment, Abdul Razak Dawood, while highlighting the quantum leap in textile exports as a result of incentives given by the government, argued against the increase in gas tariff for the export sector.

It was clarified that the gas tariff for processing would remain unchanged; the increase was directed towards stopping misuse of the concessionary tariff for captive power generation. Since the country had surplus electricity and shortage of gas, the export industry was being encouraged to switch from gas- based power generation to electricity from the grid.

The proposed measure; however, would only affect the units using captive power plants. After detailed discussion the cabinet approved the proposal of Petroleum Division titled “revision in tariff of gas/ RLNG for export oriented industry.”

The cabinet also directed that key Ministries/ Divisions create think tanks to brainstorm the emerging specific problems and find out-of-the-box solutions

Copyright Business Recorder, 2021