Ministry of Energy (Petroleum Division) has sought Rs 25.75 billion supplementary grant from Finance Division to provide subsidy to zero rated export-oriented industry for use of RLNG, official sources told Business Recorder.
Giving the background, sources said the ECC on September 17, 2018 while considering a summary on natural gas sale pricing, directed that gas supply to the industrial sector [exporters of the zero-rated sectors namely textile (including jute) carpets, leather, sports and surgical goods] in Punjab will be revised from 28:72 to 50:50 for domestic gas and RLNG respectively. The weighted average gas tariff of such consumers shall be $ 6.5 per MMBTU. Gas price of similar consumers of SSGC and those of SNGPL in Khyber Pakhtunkhwa will remain unchanged.
The ECC also decided that priority allocation of system gas will be revised to bring the five zero-rated sectors at second priority along with the power sector. Oil & Gas Regulatory Authority (OGRA) on October 4, 2018 notified the revision in gas price and the tariff for zero-rated industry operating on indigenous gas across the country has been notified as Rs.600 per MMBTU while the zero-rated industry operating on RLNG or mix in Punjab are to be charged $ 6.5 per MMBTU. The OGRA determined tariff for sale of RLNG for November 2018 was $ 12.7292 per MMBTU.
According to sources, since there is a differential in the sale price of RLNG and the indigenous gas whereas supply of RLNG or mix of both at $ 6.5 per MMBTU would require a subsidy for the zero-rated industry, the ECC of the Cabinet while considering a summary submitted by Petroleum Division took the following decisions: (i) 100% RLNG shall be provided to zero-rated industry for three months i.e. December to February;(ii) a blend of system gas and RLNG of 50:50 shall be provided to zero-rated industry for a period of nine months i.e. March - November;(iii) Finance Division to hold a meeting with Petroleum Division and OGRA for devising a mechanism for disbursement of financial support for the supply of gas/ RLNG to zero-rated industry and ;(iv) Secretary Finance Division to resolve the issue of notification of weighted average price of gas for zero-rated industry.
Pursuant to ECC decision, Finance Division on October 24, 2018 held a meeting with Petroleum Division, SNGPL and OGRA wherein the issue of disbursement of financial support and notification of weighted average sale price was discussed and subsequently the procedure for disbursement of subsidy was communicated to Petroleum Division on November 2, 2018 .
The decision says that SNGPL will invoice the zero-rated industry at notified prices and upon receipt of subsidy effective from the date of the ECC's decision of October 16, 2018 from Finance Division/ GoP on monthly basis, the subsequent invoices to industry will be adjusted at the ECC's approved weighted average price of $ 6.5 per MMBTU. Accordingly, based on actual consumption of RLNG/ gas, SNGPL will submit subsidy claims, duly signed by CFO SNGPL and verified by Secretary Petroleum to Finance Division. The Finance Division will disburse the subsidy directly to SNGPL. The SNGPL will credit the actual amount of subsidy received to zero rated industry through immediate adjustment in the subsequent gas bills.
Previously, in view of electricity shortage, significant volume of gas was required to be consumed by the industrial sector for power generation; however, currently given the assured availability of electricity in the system, the subsidized gas is not required for power generation. Accordingly, subsidized gas will be provided to zero-rated industry for production process purposes only while electricity will be available to the industry, as per government notified rates. The subsidy given by GoP during CFY will therefore be restricted up to 185 MMCFD (as per last year) with 10 percent variation in consumption. Based on the progress review of the zero-rated industry during the period by the government onward continuity of the subsidy and source thereof will be explored in consultation with relevant stakeholders.
Later, the ECC on November 12, 2018 while reviewing its earlier decision of Octobr 16, 2018 clarified that system gas/ RLNG will be supplied to zero-rated industry including its process units as well as captive power plants. Subsequently, Petroleum Division submitted a subsidy claim based on the gas bills involved to zero-rated industry for the period October 16, 2018 and October 31, 2018 to the Finance Division who advised that the Petroleum Division should move a summary for the Cabinet to seek the appropriate amount of subsidy allocation as a supplementary grant for the current financial year under the demand of the Petroleum Division whereas Finance Division will facilitate in the procedural aspect of implementing the ECC's decision.
The sources further stated that M/s SNGPL has provided a subsidy calculation at $ 6.5 per MMBTU taking into account actual gas/ RLNG consumption by the 536 zero-rated industry consumers (process+ captive) old/ new i.e. 205.29 MMCFD (69.96 MMCFD for process and 145.32 MMCFD for captive) for the period October 16, 2018 to October 31, 2018 as Rs.995.30 million. The subsidy calculation has been projected upto October 15, 2019 (12 months) at Rs.32.32 billion.
All Pakistan Textile Mills Association (APTMA) has filed a review petition against the Supreme Court judgment passed in case HRC No.14392 of 2013 of December 10, 2013 praying that the "Court may graciously review the directions contained in paragraph 36 of the impugned judgment that no distinction can be made between rural, urban, domestic, commercial and industrial consumers when administering electricity load shedding and that captive power plants should be relegated to a lower priority for receipt of gas supply".
Paragraph 36(v) of the Supreme Court judgment stipulates " as far as supply of gas at subsidized rates to the fertilizer companies are concerned, it may continue but at the same time there must be a policy to ensure that the production of the fertilizers like urea etc, is sold in the market to the farmers at a subsidized rate. However, as far as captive power plants are concerned the policy must be revised and without any justification they cannot be allowed supply of gas to produce electricity because they supply electricity at much higher than the Nepra rate instead of subsidized rate to NTDC. Therefore, the supply of gas to captive power plants should be revised to a lower priority and not at a subsidized rate."
The sources further stated that the present federal government, as a policy, has decided to boost exports of the country as well as foreign exchange earnings by providing required fuel/ electricity along with financial assistance to the zero-rated industry; accordingly, the Petroleum Division submitted the following proposals for consideration by the Cabinet: (i) budgetary allocation of Rs.25.75 billion as a supplementary grant may be approved under the demand of Petroleum Division for the CFY; (ii) Finance Division to allow creation of subsidy head under the budget of Petroleum Division; (iii) subsidy will be provided to both zero-rated industry and its captive power units as per the clarification of the ECC; (iv) subsidy will be disbursed on a monthly basis based on the actual verified billing provided by SNGPL to Petroleum Division;(v) the captive power units shall use the electricity for self-consumption only and shall not sell electricity to national grid. Power Division shall ensure this through administrative measures and ;(vi) a committee comprising of representatives from Power, Finance, Industries & Petroleum Divisions be constituted to review the extent of continuation of subsidy and supply of gas to captive power units after the notification of a separate power tariff for zero-rated industry i.e. 7.75 cents per kwh taking into account the minimum operating efficiency approved by the ECC on November 1, 2013.
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