ISLAMABAD: All Pakistan Textile Mills Association (APTMA) has urged the government to reverse its ‘destructive’ decision of cross subsidies of Rs 0 billion and other financial incentives to the fertiliser sector through RLNG tariffs, which will have severe implications on the export sector.
APTMA’s Chairman, Asif Inam raised this issue with Minister for Power, Sardar Awais Ahmad Khan Leghari, saying that Petroleum Division and Oil and Gas Regulatory Authority’s illegal imposition of Rs 50 billion cross subsides to the fertiliser sector, including accrued differential of Rs27 billion from November 2023 through March 2024, and monthly differential of Rs. 3.8 billion from April 2024 through September 2024, in ring-fenced RLNG tariffs from June 2024 onwards will have a destructive impact on the country’s exports, employment and overall economy.
According to APTMA, it appears to have been deliberately implemented at a time when the public at large is preoccupied with the budget, ensuring it goes unnoticed.
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“The decision is in clear violation of Articles 6 and 7 of the OGRA Ordinance 2002, which are designed to protect consumer interests and minimise economic distortions. The Federal Government, under the authority granted by the Petroleum Product (Petroleum Levy) Ordinance of 1961 and the Petroleum Levy) Rules of 1967 has assigned OGRA the responsibility to determine the price of RLNG,” said Asif Inam.
The Federal Government on June 6, 2015 and June 14, 2016 identified pricing components and parameters of RLNG to OGRA through the Directorate General (Gas), effectively ring-fencing RLNG prices and making sure no additional or undue charges are made to consumers.
Additionally, the amendments to the Oil and Gas Regulatory Authority Ordinance 2002, explicitly includes RLNG within its regulatory domain; Section 43B provides OGRA with the Authority to set and revise RLNG prices according to market conditions. Thus, cross subsidies are patently nota cost that can be charged in a ring-fenced RLNG pricing regime.
“This directive imposes an unjust financial burden on RLNG consumers on the SNGPL network, who are already burdened with double the gas tariffs compared to regional competitors.
For instance, despite being on high-pressure lines, these consumers are charged full distribution losses, reductions in Brent prices to which long-term RLNG contracts are indexed are not passed through to them, with the government taking the benefit of favourable international conditions but passing on any increases to the consumers exacerbating economic inefficiencies and distortions,“ Chairman APTMA added.
According to APTMA, severe discrepancies in additional charges on RLNG and Unaccounted for Gas (UFG) between Pakistan and other countries further amplify this issue for export -oriented consumers of RLNG who must compete in international markets.
While UFG losses in the case of system gas are typically scrutinised and disallowed by the regulator to ensure efficiency and accountability, the current tariff structure for RLNG/ imported gas does not impose similar disallowances. This implies that any UFG losses (8.8% to 14.97%) associated with RLNG/ imported gas are not deducted from the allowable revenue of the gas utility companies.
Consequently, the financial impact of these losses, which is $0.85 per MMBTU in SNGPL and $1.9 per MMBTU in SSGCL, is passed on to consumers in the form of higher tariffs for RLNG. This lapse by OGRA clearly supports and condones the excessive line losses and inefficiencies of SNGPL and SSGC.
These practices result in Pakistani products being less competitive in the international market, leading to reduced industrial activity and exports, unemployment, lower government revenue, and overall economic slowdown.
The broader implications are deeply concerning. For instance, consumer prices of goods manufactured for domestic consumption inevitably rise as a result, increasing inflation and further straining the economic stability of the country.
The hike in RLNG prices, driven by fertilizer cross subsidies, will also increase the power sector’s energy mix basket price, impacting millions of electricity consumers who are already struggling with high inflation and energy costs.
“All these factors highlight the government advisors’ utter disregard for fostering a viable industrial sector capable of delivering economic growth.
On one hand, the government has decided to eliminate cross subsidies in industrial power tariffs, while on the other it is imposing similar cross subsidies in RLNG tariffs. As a consequence, the result is a complete lack of any cohesive and long-term plan or vision for economic growth and stability,“ he continued.
Is the government actively trying to shut down industry, eliminate gainful employment, and create social chaos and anarchy with the punitive measures imposed through the budget, the continued disregard for meaningful structural reform, and now the imposition of these blatantly illegal cross subsidies in RLNG pricing, he challenged.
Without a functioning industrial sector, there can be no increase in the government’s tax collection, no stability in the external sector, and no improvement in the overall economic situation.
APTMA remains steadfast in its commitment to advocate for policies that support a robust and competitive industrial sector and urges immediate intervention to recognize the severe implications of the current policy and reverse this decision immediately, APTMNA Chairman concluded.
Copyright Business Recorder, 2024
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