‘Incentivised’ zero-rated sectors: Govt in a ‘quandary’ over supply of cheap power

ISLAMABAD: The federal government is to either cut its expenditure or increase revenue to ‘appease’ the already incentivised five zero-rated sectors by supplying electricity at 9 cents per unit throughout the financial year 2022-23, which requires additional subsidy of over Rs80 billion, well-informed sources told Business Recorder.

This decision was taken by the Federal Cabinet in one of its recent meetings wherein decision of Economic Coordination Committee (ECC) of July 25, 2022 was overruled and Finance Minister Miftah Ismail forced to bow down to pressure of Prime Minister Shehbaz Sharif to supply cheap electricity during the ongoing calendar year, the sources added.

The Finance Division maintained that the cost of providing subsidised electricity and gas supply for FY23 is Rs20 billion and Rs40 billion, respectively.

There was an understanding with the IMF to stay within the allocated budget and the proposed rates of electricity at 9 cents per kWh and of RLNG at $9 has to be seen in the context of budgetary allocations.

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.

It was also emphasised 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 must 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.

According to the Power Division, as of June 30, 2022, pending claims of zero-rated consumers ie textile including jute, leather, carpets, surgical and sports, of Discos and KE for the FY 2021-22 are Rs26.207 billion, required to be cleared from current year’s allocation of Rs20 billion.

The Power Division requires an additional allocation of Rs6.207 billion as supplementary grant for clearing previous year’s liability.

For current financial year, Power Division requires an amount of Rs77.957 billion as additional budgetary allocation as supplementary grant for provision of concessional tariff to export oriented industries for consumption during the year. The Power Division stated that the package will be notified for billing once the subject supplementary of Rs84.164 billion is approved/ released to the Power Division.

Operational modalities sought to supply electricity to SEZs

The finance minister apprised the Cabinet that the ECC had approved regionally competitive energy rates to the export-oriented sector, ie, at 9 cents per unit and RLNG at $9 per mmbtu.

According to official documents, on a query by the Prime Minister as to whether the rates were for the entire financial year, Finance Minister apprised that RLNG rate was for the entire year, while electricity rate was for two months, as funds to the tune of Rs20 billion only were available for subsidy at the moment.

The documents reveal that the Prime Minister desired that the electricity rate to the export-oriented industry should also be guaranteed for the whole year to ensure continuity and predictability.

Finance Minister requested the decision of ECC may be ratified as suggested as per minutes 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 increase.

The issue of the date of applicability of electricity rate for the export-oriented industry was also debated as some of the Cabinet members felt that it should be from July 1, 2022 instead of August 1, 2022 to ensure continuity. However, on the recommendation of Finance Minister, the Cabinet agreed that the rate would be applicable from August 1, 2022 as approved by the ECC.

The official documents further reveal that the recommendation of the ECC to raise existing indigenous gas tariff for export-oriented as well as general industry was also noted and it was agreed that it should not be approved at this point in time and the matter would be discussed holistically with domestic gas prices.

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 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.

Rehan Jawed, representing Sind Paper Mills Forum, in a letter to Shahid Khaqan Abbasi stated that influential captive power producers are asking for discounted rates of gas, suggesting that gas rates for CPPs should be brought to international level and discourage use of gas generators and enable them to switch to grid and whatever indigenous gas is available it be supplied to efficient RLNG-fired power plants which will reduce reliance on expensive imported RLNG.

Copyright Business Recorder, 2022