ISLAMABAD: The government has decided for a quarterly review of subsidy available to export industry for both gas and electricity, in addition to seeking list of captive units enjoying subsidy both on gas and electricity, well informed sources told Business Recorder.
Cabinet Division shared the discussion of the ECC held on July 25, 2022 with the Federal Cabinet on July 27, 2022, according to which Finance Division contended that the cost of providing subsidized electricity and gas supply for FY 2022-23 is Rs.20 billion and Rs.40 billion, respectively. There was an understanding with the IMF to stay within the allocated budget. It was added that the proposed rates of electricity at US cents 9 per kWh and of RLNG at US$ 9 has to be seen in the context of budgetary allocations.
Finance Division further opined that in case of any additional funding requirements, the matter will have to be discussed with IMF, in consultation with Ministry of Energy, as and when required. It was also emphasized that the agreement with IMF hardly provided any additional space for subsequent incremental support; therefore, with a view to stay within budgetary allocation, Ministry of Energy was to keep an eye on the required amount of subsidy implications vis-à-vis the budgeted amount on monthly basis and to make recommendations for re-adjustment of the subsidized rates on quarterly basis accordingly.
Minister for Commerce stated that in order to enhance exports it was essential to provide competitive energy tariffs to export-oriented industry across the country without any discrimination. It was added that consultations were also held with Power Division, Petroleum Division and Finance Division on the subject.
The ECC also observed that for any reduction in international price of gas, ECC would also consider a review.
Five export-oriented sectors: ECC decides to increase RLNG rate to $9 per MMBTU
Secretary Petroleum Division stated that it supported the proposal made in the summary; however, since concessionary tariff on RLNG was being extended to export-oriented consumers of SSGCL; therefore, a subsidy of Rs 11 billion would be additionally required which would be reviewed on quarterly basis before raising requirements to Finance Division. It was also suggested that in order to avoid any discrimination within similar consumers of SSGCL and SNGPL, indigenous gas tariff for export-oriented consumers may also be revised to Rs 1350 per mmbtu.
Minister for Commerce argued that the concessionary tariff on RLNG may be extended to consumers on SSGCL so as to avoid any discrimination under Article 158 of the Constitution.
Power Division stated that though it was committed to give concessionary rates to the export-oriented industries yet it did not have sufficient funds to meet the demand. Moreover, it was already carrying liability/ arrears of Rs 26 billion from the previous year and required Rs.84 billion in all, including arrears.
Finance Division noted that the budgeted subsidy for Power Division was not sufficient to cover the pending past claims of subsidy on electricity.
Shahid Khaqan Abbasi, former Prime Minister/ MNA maintained that the captive units should avail either one of the two subsidized energy tariffs: gas or electricity. It was observed that it would heavily inflate the subsidy envelope. Minister for Finance supported the viewpoint of Shahid Khaqan Abbasi; however, Secretary Commerce and Secretary Power argued that it would be difficult to segregate and then restrict such units which have adequate electricity/ gas loads and were using both fuels for availing subsidy.
Shahid Khaqan Abbasi noted that Petroleum Division may bring a list of all such units availing both subsidized electricity and gas tariffs within a month for review by the ECC.
Minister of State for Petroleum Division stated that competitive energy tariffs and fuel availability to be ensured to export-oriented industry for enhancing exports. It was suggested that Ministries of Commerce, Power and Petroleum meet and formulate a mid-year plan. Moreover, it was pointed out that export sector should not be restricted to only five sectors but expanded to the entire export-oriented industry.
It was also recommended to analyze the effectiveness of provision of subsidy to the export-oriented industry. It was added that zero rated sector merits attention and needs to be linked to actual exports.
The ECC observed that there should be same concessionary benefits across Pakistan for the export-oriented industries and efforts should be made to provide them a level playing field to access energy. Finance Division stated that export related concessional incentives provided by the government may also be evaluated to assess the impact.
Moreover, the Secretary Finance pointed out that there was no distinction in industrial coding between export and local industry. Power Division was requested to assign the respective codes in consultation with Ministry of Finance.
Minister of Power, Khurram Dastgir, stated that there was a need to review the energy prices worldwide and to decide for Pakistan accordingly.
After detailed discussion the ECC approved the following decisions: (i) RLNG would be provided at $9 per MMBtu all inclusive, to five export-oriented industries across Pakistan for all existing connections remaining with the allocation a total subsidy of Rs.40 billion as already made by the Finance Division in the budget; (ii) ECC recommends the Federal Cabinet to raise existing indigenous gas tariff across Pakistan to Rs.1350/MMBtu for export-oriented industries and Rs 1550/ MMBtu for general industry (non-export); (iii) Petroleum Division in consultation with Finance Division and Commerce Division will review the subsidy requirements and its release on quarterly basis; (iv) there shall be quarterly review of the subsidy provided to export industry for both gas and electricity.
A report will be prepared by the Petroleum Division, providing list and amounts of all captive units of export-oriented sector who are getting subsidy on account of supply gas/ RLNG and subsidized electricity. A similar report on subsidized electricity shall be provided by the Power Division. The report shall be presented to the ECC within a month; (v) electricity will be provided at US cents 9 per kWh all-inclusive to five export-oriented industries subject to subsidy cover of Rs.20 billion already provided by the Finance Division from August 1, 2022. Power Division will notify the tariff for first quarter.
The Cabinet, in its meeting on July 27, 2022 approved the recommendations of the ECC taken on July 25, 2022.
Copyright Business Recorder, 2022
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