Zero-rated industries: MoF clueless about how to fund concessional power

ISLAMABAD: The top bureaucracy of Finance Ministry is reportedly stumped as to where to arrange Rs 144 billion to ensure supply of electricity to five zero-rated sectors at Rs 19.99/ kWh from October 2022 to June 2023, as well as, payment of the previous amount of subsidy due to Power Division, well informed sources told Business Recorder.

International Monetary Fund (IMF) and other international financial institutions are not supportive of any subsidy to the rich, and insist that the subsidy be targeted to the poor segments.

Finance Division further stated that in case of any additional funding requirements, the matter will have to be discussed with the IMF, in consultation with Ministry of Energy, as and when required.

The then Finance Minister, Dr Miftah Ismail, who opposed continuation of concessional tariff to five zero-rated sectors after September 2022 was forced to bow down before the pressure of Prime Minister, after which the cabinet approved continuation of concessional tariff. However, later on, Finance Division, succeeded in undoing the Cabinet decision through a summary to the Prime Minister, which was not shared either with Commerce Ministry or Power Division.

Five zero-rated sectors’ concessional tariff issue to be resolved soon: MoC

Insiders claim that the government’s decision to provide electricity to five zero-rated sectors @ Rs 19.99/ kWh may become a stumbling block in the success of the forthcoming ninth quarterly IMF review.

Finance Ministry has already opposed any subsidy to five export-oriented sectors over and above the approved amount of Rs 20 billion for the entire fiscal year.

Finance Minister Senator Ishaq Dar who reportedly faced tough questions from the IMF and World Bank during their annual meeting in Washington DC (10-16 October), had, prior to his departure, agreed with the representatives of five zero-rated sectors that the government would supply electricity to them at Rs 19.99/ kWh till June 2023 – an amount that was unfunded. Later on, the ECC also ratified the decision of Finance Minister with the direction to Power Division to bring a summary for the ECC on this issue.

The sources said, power Distribution Companies (Discos) have provided subsidy amounting to Rs 103.319 billion to the export-oriented sectors from January 1, 2019 to June 2022. Finance Division; however, has provided only Rs 77.25 billion so far leaving the outstanding amount of Rs 26.069 billion.

According to sources, it is projected that concessional tariff of Rs 19.99/kWh all-inclusive to the export-oriented sectors from October 2022 to June 2023, would require an additional amount of Rs 110.757 billion.

The sources maintained that an amount of Rs 26.069 billion is still outstanding against supply of electricity at cents 6.5/ kWh as Finance Division released only Rs 77.25 billion against claims of Rs 103.319 billion from January 1, 2019 to June 2022. Another amount of Rs 7 billion is also outstanding from the period August 1, 2022 to September 30, 2022 as Finance Division released Rs 20 billion against claims of Rs 27 billion. The estimated required funds from October 1, 2022 to June 30, 2023 are Rs 110. 757 billion, which implies that Finance Division must arrange Rs 143.826 billion to ensure supply of electricity to five zero-rated sectors as agreed.

Power Division, sources said, has urged the government to approve Rs 143.826 billion as supplementary grant for continuation of concessional electricity package of Rs 19.99/kWh all-inclusive to the five export-oriented sectors from October 1, 2022 to June 30, 2023.

On October 19, 2022 Power Division in a letter advised all the Discos and K-Electric to provide electricity @ Rs 19.99/ kWh all-inclusive to the five export-oriented industries (i.e., textiles, leather, carpet, surgical and sports goods) from October 1, 2022 to June 2023.

The ECC, sources said, is likely to consider the proposal of Power Division in its forthcoming meeting to be presided over by Finance Minister Dar.

Copyright Business Recorder, 2022