ISLAMABAD, Aug 7: The Economic Coordination Committee (ECC) of the cabinet allowed on Tuesday import of furnace oil for power generation at delayed payments, removed inland freight equalisation margin on sale of high octane blending component (HOBC) and approved weekly price revision of all oil products.
The meeting presided over by Finance Minister Dr Abdul Hafeez Shaikh also allowed import of 300,000 tons of fertiliser on a request of the industries’ ministry for 600,000 tons, even though the fertiliser industry has strongly opposed such imports.
The ECC also did not take into account a warning issued by Adviser on Meteorology and Climate Change Dr Qamaruz Zaman Chaudhry to discourage export and smuggling of wheat and other essential food items in view of an anticipated food crisis and allowed export of unspecified quantities of wheat to Iran under a barter trade deal and 30,000 tons of sugar export to Tajikistan on a government-to-government basis.
Sources said the delayed payment for furnace oil from 90 to 120 days would increase the cost of fuel by Rs1,500 per ton owing to higher banking charges and the guarantee charges of the National Bank, but the committee did not even consider its impact on electricity consumers.
The sources said the per unit cost was anticipated to go up by more than 50 paisa for all consumers through the monthly fuel adjustment formula owing to the additional expense.
The decision will, however, enable Pakistan State Oil and power companies not to default on foreign letters of credit in 90 days owing to circular debt as they would get 30 more days at an additional cost.
The committee approved in principle the removal of HOBC from inland freight equalisation margin (IFEM) regime that would mean its lower price in Karachi and increase in Khyber Pakhtunkhwa, subject to endorsement from the ministry of law and justice. After removal of the IFEM, the ex-depot prize of HOBC will vary across the country, unlike other oil products.
The decision was taken even though Law Minister Farooq H. Naek informed the committee that the Khyber Pakhtunkhwa government had protested in a meeting of the Council of Common Interests (CCI) about a proposal to have different oil prices in different parts of the country.
An official said the meeting was also informed that the provincial government had demanded lower electricity rates in Khyber Pakhtunkhwa because it produced cheap hydroelectric power and had threatened to walk out of the coalition government over the issue.
The official said the committee was also warned that the issue perhaps fell under the jurisdiction of the CCI. It was against this background that the committee decided ‘in principle’ to deregulate the HOBC pricing subject to formal endorsement by the law ministry.
The committee approved a request of the Prime Minister’s Adviser on Petroleum Dr Asim Hussain to revise petroleum prices on a weekly basis and overruled opposition from the Oil and Gas Regulatory Authority (Ogra).
Ogra had reported that price revision from a monthly to fortnightly basis had resulted in problems to consumers as retail outlets stopped selling products in anticipation of higher price to earn inventory gains and slowed down purchases from marketing companies in case of falling prices to avoid losses. It believed the weekly pricing would create more problems that would be even more difficult for the regulator to keep an eye on.
The ECC stopped short of approving a short- and long-term framework for liquefied natural gas (LNG) import proposed by the ministry of petroleum and natural resources as the ministry of finance and the Planning Commission opposed providing guarantees for LNG supplies.
The law minister warned the committee against allowing a fresh project, saying it could be challenged by the previous contenders.
A participant also objected to the move saying it was not yet clear in how many stages and how much prices of natural gas and power would need to be increased if LNG started flowing. Nobody had any proposal on dealing with the snowballing energy crisis in the absence of LNG imports.
Therefore, the committee constituted a technical group comprising the secretaries of petroleum, finance and water and power and the deputy chairman of the Planning Commission and chairman of the Board of Investment to work further on the mechanism, bidding details, guarantee matters and legal issues raised by the law minister and present a report at the next meeting.
The meeting also discussed the issue of delays in payments to independent power producers by power purchasers under the Power Policy of 2002 and approved the payment schedule for Rs24 billion which was overdue and payable for more than 45 days. It asked a committee comprising the secretaries of finance and petroleum and the deputy chairman of the Planning Commission to fine-tune the mechanism.
The ECC approved a request of the ministry of water and power to provide government guarantee to enable Wapda to raise Rs10 billion from commercial banks for water sector projects.
The ministry’s request for repayment of the loan and interest through the Public Sector Development Programme was not immediately accepted and was transferred to a committee.
The ECC allowed export of 30,000 tons of sugar to Tajikistan on a government-to-government basis at a price discount of $20 per ton. That means Tajikistan will get sugar from Pakistan at Rs56,448 per ton against international price of Rs58,336. The market price of sugar in Pakistan is about Rs50,510 per ton.
The ECC also cleared in principle the sale of wheat to Iran under a barter trade system and asked the Governor of the State Bank and the foreign affairs ministry to submit their viewpoint in the context of international trade sanctions against Iran.