ISLAMABAD: Directorate General of Audit Petroleum and Natural Resources has found shortcomings in supply of subsidized RLNG to Export Oriented Units (EoUs), which was massively misused as no monitoring mechanism was framed by the ministry of Commerce (MoC) and Federal Board of Revenue (FBR) for checking exports and foreign remittances by individual EOUs.
No analysis was undertaken of present level of exports and remittance by the five export oriented sectors in order to set overall/ EOU-wise targets for export/ remittances.
Concessionary regime for supply of gas/ RLNG was initiated by the Ministry of Energy (Petroleum Division) in September/ October, 2018. Pursuant to ECC’s decision, Finance Division issued instructions on January 18, 2019 that SNGPL being the organization having operational out-reach to the gas consumer, conducted random inspection to eliminate “misuse/ unauthorized use of subsidized gas” on non-export oriented operations.
Rs80bn gas subsidy to five export sectors ends
Petroleum Division also issued instructions to SNGPL through DG Gas letter on September 14, 2019 to prepare master data of EOUs including FBR authentication of EOUs data and banking information. He again issued instructions on November 30, 2021 in order to implement the decision of Federal Cabinet and directed SNGPL to take measures like proper verification of record at regional and head office level before processing of subsidy claims.
The Directorate General of Audit Petroleum and Natural Resources has found the following shortcomings: (i) objectives of the scheme in terms of overall and EOU-wise targets for increase in exports and foreign exchange at macro level were not set; (ii) no specific criteria in the light of previous year’s exports was set the for eligibility of industrial units; (iii) no working of regionally competitive rates for energy was submitted to ECC/ Cabinet while soliciting approvals for launching and continuation of the concessional regime time and again; (iv) ECC decided that the weighted average gas tariff of such consumers shall be $6.5 per MMBTU.
Secretary, Finance Division was asked to resolve the issue of notification of weighted average price of gas for zero rated sectors but the needful could not be done as yet;(iv) supply of RLNG on concessionary tariff and increased blend of indigenous gas was extended mainly to Captive Power Plants CPPs (more than 70%) for power generation instead of industry use despite assurance from Power Division/ WAPDA for consistent supply.
In addition to this, connectivity of EOUs with national grid and connection with respective Discos were not confirmed and no monitoring mechanism for checking misuse of electricity generated by subsidized gas for non-export operations was in place;(v) supply of RLNG and indigenous gas was started to CPPs in September / October, 2018 without setting any energy efficiency criteria and without imposing necessary conditions of conducting energy efficiency audits and having cogeneration facility for proper monitoring of efficient use of subsidized gas for power generation only.
SNCPL gave subsidy Rs 7.078billion to 61 CPPs without having co-generation facility during October, 2018 to January 2021.
However, energy efficiency criteria was set and the conditions for energy efficiency audits and cogeneration facility were also imposed in January 2021 which could not be implemented till June 2022; (vii) pursuant to ECC’S decision, Finance Division issued instructions on January 18, 2019 that as the subsidy is a charge on the financial resources of the Government, payment on this account needs due care with regard to the targeted benefits intended from this expenditure. Petroleum Division has been advised to ensure implementation of additional SOPs while submitting cases for release of subsidy in future.
SNGPL, being the organization having operational out-reach to the gas consumer, must conduct random inspection to eliminate “misuse/ unauthorized use of subsidized gas” on non-export oriented operations.
Further, Petroleum Division/ DG Gas issued further instructions on November 30, 2021 in order to implement the decision of Federal Government, that SNGPL should take measures like proper verification of record at regional and head office before processing of subsidy claims.
But SNGPL did not comply with the instructions of Finance/ Petroleum Divisions for authentication of exports and did not prepare any master data for EOUs regarding authentication of exports made by them and baking information; and (viii) SNGPL claimed the subsidy of Rs 105 billion from October, 2018 to June, 2022 from the Federal Government through Petroleum Division/ DG Gas but no validation of FNGPL’s claim was done and compliance instructions (SOP) of Finance/ Petroleum Division was not ensured by DG Gas.
Audit maintained that due to shortcomings/ flaws in planning, execution and monitoring of subsidy scheme, subsidized RLNG was mainly utilized for power generation without setting any energy efficiency criteria instead of industry use despite availability of subsidy on power tariff through WAPDA.
On the other hand, subsidized RNLG was misused by 277 EOUs for non-export operations due to absence of any monitoring mechanism for authentication of exports and remittances of foreign exchange.
Audit has recommended that Petroleum Division. Ministry of Commerce, Power Division should take remedial measures to ensure targeted subsidy to actual exporters by setting overall objectives of subsidy scheme in terms of export targets (a macro level and EOU-wise specific criteria to qualify for the scheme besides devising monitoring mechanism for authentication of exports/ remittances and ensuring use of subsidized gas for industry for industry only instead of power generation).
During course of special study on “Supply of RLNG to exports sectors on concessionary rates” for the years 2018- 19 to 2021-22 it was observed that SNGPL management executed GSAs for CPPs to 8 EOUs for power generation for self-consumption but issued bills to EOUs on lower notified sale price-general industry instead of applying sale prices-CPPs.
Audit has detected financial loss of over Rs 67 billion in supply of RLNG to EOUs and urged Ministry of Commerce to devise a comprehensive mechanism to identify actual beneficiaries in consultation with FBR and other relevant stakeholders.
Copyright Business Recorder, 2023
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