Supply of power to 5 export-oriented sectors: Govt to arrange Rs100bn from FY23 budget

ISLAMABAD: The Federal government is to arrange Rs100 billion from federal budget to ensure supply of electricity to five export-oriented sectors at Rs 19.90 per unit during the financial year 2022-23.

Talking to Business Recorder, after addressing an event of Pakistan Single Window, Minister for Commerce, Syed Naveed Qamar said that since Pakistan is in IMF program, the required amount will be taken out from federal budget for this purpose, adding that this is the reason that Finance Minister did not announce the cushion from where this amount will be taken.

Finance Division, in its comments, last month, had made it clear that it cannot support Commerce Ministry’s proposal as the government cannot give subsidy in violation of agreement with the IMF.

According to Commerce Ministry’s summary government provided regionally competitive energy tariffs, i.e., electricity at US cents 7.5 per kwh during Jan-Aug 2019-21, US cents 9 per kwh during Sep-Jun 2021-22 and RLNG at $6.5 per MMBTU during Sep-June 2018-22 to export oriented sectors with an objective to keep them internationally competitive by reducing cost of manufacturing and boosting exports. Such measures including others provided a launching pad to export-oriented sectors and resultantly Pakistan’s exports reached a historical high of $ 31.8 billion in FY 2021-22.

The Economic Coordination Committee (ECC) of the Cabinet on July 25, 2022 considered a summary titled “Regionally Competitive Energy Rates for Export Oriented Sectors during FY 2022-23 (effective July 1, 2022)” and subsequently the Cabinet ratified the ECC’S decision on July 27, 2022). In case of electricity, the decisions recorded were as follows: 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 Finance Division from August 1, 2022 and Power Division will notify the tariff for first quarter of FY 2022-23.

Five export sectors: ECC approves continuation of regionally competitive power tariff

The Cabinet ratified the decision of the ECC in the case titled “regionally competitive energy rates for export oriented sectors during FY 2022-23 (effective July1, 202 2)” with following stipulations: (i) rate of US cents 9 per kWh for the export oriented sectors will also be applicable till the end of FY 2022- 23 as in case of RLNG; and (ii) rules will be effective from August 1, 2022.

However, during the Cabinet’s meeting held on July 27, 2022 the Minister for Finance apprised that the ECC had approved regionally competitive energy rates to the export oriented sector - electricity @ US cents per kWh and RLNG @ US $ 9 per MMBtu.

On a query by the Prime Minister as to whether the rates were for the entire financial year, the Minister for Finance apprised that RLNG rates were for the entire financial rear, while electricity rate was for two months, as funds to the tune of Rs. 20 billion only were available for subsidy at the moment. Prime Minister desired that the electricity rate to export-oriented industry should also be guaranteed for the whole year to ensure continuity and predictability.

The Minister for Finance requested that the decision of ECC may be ratified as suggested, and assured that the electricity rate to export-oriented industry would remain applicable for the whole financial year, for which requisite funds would be arranged either through expenditure cuts or revenue increases.

In pursuance of both decisions, Power Division notified electricity tariff of US cents 9 per kWh all-inclusive initially for August-2022 of August 12, 2022 and then for September-2022 of September 16, 2022. However, Cabinet Division on August 19, 2022 issued a corrigendum on the summary submitted directly by Finance Division and revised decision of the Cabinet meeting held on August 27, 2022 and deleted the paragraph “the rate of US cents 9 per kWh for the export oriented sectors will also be applicable till the end of FY 2022-23 as in case of RLNG “. Further, Power Division, in its O.M of 26, 2022 requested Ministry of Commerce to arrange and provide additional funds amounting to Rs. 33.4999 billion (Rs. 26.287 billion of pending claims of FY 2021-22 + Rs. 7.212 billion for month of September 2022) and intimate the consumers of export-oriented sectors for discontinuation of concessionary tariff from October 1, 2022.

Copyright Business Recorder, 2022