Embittered PM starts arm-twisting MoE

Prime Minister Imran Khan has reportedly started arm-twisting Ministry of Energy - Petroleum Division and Power Division - to pass on all efficiencies of power and gas sectors to the end consumers, well informed sources told Business Recorder.

This, sources said, was seen at a meeting on price control presided over by Prime Minister Imran Khan on January 20, 2020 when issues related to electricity tariff and energy prices came under discussion. This is one of the key reasons that the Economic Coordination Committee (ECC) of the Cabinet deferred its decision to increase gas prices which were due to be effective from January 1, 2020.

According to sources, the Prime Minister directed Ministry of Finance and Ministry of Energy (Petroleum Division) to immediately submit different proposals for reducing petroleum prices with financial implications of each step. Options like modernization of procurement methodologies, changes in petroleum levy, General Sales Tax (GST), customs duty etc may be considered.

The issue of deemed duty also came under discussion. Deemed duty at the rate of 7.5 per cent is levied by refineries on locally produced diesel. The Prime Minister directed the Petroleum Division to look into possibility of reduction in deemed duty. However, refineries will also have to be consulted.

The sources said that the issue of gas prices was also discussed in detail and the authorities concerned presented their viewpoints with respect to proposed increase in gas prices. The Prime Minister, who is facing criticism not only from political parties but also general public after the massive rise in prices, particularly food prices, attributable to government's economic policies, directed the Ministry to submit for his perusal practical proposals on how to reduce gas price for domestic consumers.

"All options like reduction in royalty, General Sales Tax, changes in supply of subsidized gas for captive power generation, lowering the limit of allowable Unaccounted For Gas (UFG) benchmarks, changes in dollar indexation for local companies and postponement of payment of outstanding previous liabilities etc. may be taken into account," was the outcome of the meeting.

The Ogra Ordinance, 2002 empowers the federal government to advise category-wise gas sale price to Ogra for notification in the official gazette within 40 days of its decision i.e. January 20, 2020. Ogra's recommendations were examined and Petroleum Division worked out the following revisions in sector wise gas sale prices from February 1, 2020 which was estimated to generate total revenue of Rs 528 billion: (i) Rs 60 per month increase in meter rent for domestic consumers from Rs 20 per month to Rs 80 per month. The price of Rs 20 per month was sent on April 7, 1999; (ii) 5 per cent increase in tariff of commercial, cement and general industry; (iii) ) 15 per cent increase in power sector tariff; (iv) tariff of zero-rated general industry and their captive power units at $ 6.5/ MMBTU ( Rs 1,000/ MMBTU) regardless of location (i.e. both SNGPL and SSGCL); (v) 15 per cent increase in tariff of captive power units other than zero rated; (vi) 15 per cent increase in tariff of CNG; (vii) 32 per cent increase in tariff of fertilizer fuel i.e. Rs 1,346/ MMBTU. No change in tariff for fertilizer feed stock (old and new plants); (viii) minimum monthly charges will be determined by Ogra considering consumption of 140 cm per month for bulk domestic, commercial, ice factories and 1,000 cm per month for other sectors using average GCV of system gas in the country; (ix) no change in tariff for domestic sector and special commercial (Roti Tandoors) however, minimum billing volume for domestic sector may be revised from 40 cm per month to 50 cm per month for which the bill against charges would be Rs 220 per month; and (x) one preceding slab benefit will be available for domestic consumers (residential use).

The sources said that the meeting also discussed electricity tariff and its impact on domestic, commercial and industry consumers and with special reference to Pakistan's economic growth. The Power Division was directed to submit practical proposal for approval of the Prime Minister on how to reduce the price of electricity for the poorer segment of society. The more than two-fold increase in cost of electricity for the lowest three slabs of domestic consumers, the decrease in price of electricity for the top two slabs of highest consumers may be looked into and made part of the proposal.

Power Division has also directed to submit a proposal for perusal of the Prime Minister on how to provide to industry at lower rates, the electricity that becomes surplus in winters. The Power Division was warned over not implementing similar instructions in the past.

"Similar directions have been issued from Prime Minister Office (PMO) previously also but the Ministry has failed to respond," the sources quoted as the proceedings of the meeting. The sources said during discussion on electricity issues, it was pointed out that there are no pre-defined slabs for calculation of bills. Power Division has been directed to explain rationale for this practice and suggest the best possible formula for providing relief to the poorer segment of society.

According to insiders, the top decision makers are unhappy with tariff increase every month under the garb of monthly fuel component which earns bad name for the incumbent government.

"Initial discussion on the tariff reduction proposal has been witnessed at different levels of government. Some minds have suggested that 80 per cent expected FPA be made part of tariff to avoid monthly increase. However, the other argument is that FPA is part of Nepra Act, which needs to be altered to achieve this purpose," said an official who was part of consultative discussion. The current price of natural gas being supplied to the power sector is Rs 750 per MMBTU but Nepra is taking it at Rs 550 per MMBTU.

Another sketchy proposal is that reference tariff should be increased from current level of Rs 12.35 per unit to Rs 15.35 per unit. In such a scenario, the government has to approach the federal cabinet, which most probably will not approve it fearing public wrath at a time when key coalition partners are flexing their muscles.