ISLAMABAD: Prime Minister Shahid Khaqan Abbasi has called a meeting of the Economic Coordination Committee (ECC) of the cabinet on Friday to approve Rs39 billion sovereign guarantees for a coal power project, increase commissions for petroleum dealers and companies and settle tax disputes between power distribution companies and tax authorities amounting to more than Rs80bn.

The meeting is also expected to consider extending the subsidy on agricultural tube wells for Balochistan, extension in reduced withholding tax rate for non-filers up to Dec 31 and additional allocation of surplus tobacco to tobacco companies and dealers.

Informed sources said the distribution companies that are 100 per cent owned by the government were being charged sales tax on all electricity sales and purchases, including a tariff differential subsidy, transmission and distribution losses and non-recoveries.

For example, tax authorities raise claims on the entire billing and do not account for all input tax adjustments, saying losses of the distribution system are not to be deducted while calculating sales. Resultantly, input tax adjustments are not being allowed in the case of distribution losses. However, distribution losses are recognised and allowed by the tax authorities in all processing industries and CNG stations.

Likely to increase margins for dealers, OMCs

Lingering disputes have led to litigation. Also, the tax authorities charge 17pc general sales tax on behalf of consumers that do not pay electricity bills, including non-recoveries from Azad Jammu and Kashmir (AJK) as part of the Mangla Dam agreement with the AJK government.

About Rs80bn is estimated to be under dispute at present but the non-resolution of the issue may result in an increase in the amount.

The ECC is also expected to increase margins on the sale of petrol and diesel for dealers and oil marketing companies (OMC) by about 33 paisa per litre.

The oil industry has been lobbying the government for an early decision on higher profit margins on the sale of petrol and high-speed diesel (HSD) in line with the rate of inflation since Mr Abbasi took oath of office on Aug 1.

The sources said the revised rates of the dealer commission and OMC margin had been due since July 1 under a previous decision of the ECC. Now the dealers and OMCs also demand a 0.4 paisa per litre increase on account of this delay, he said.

The ECC is also expected to consider if the pricing of HSD should be completely deregulated, allowing oil companies to set its rates depending on their expenses and freight costs.

In its summary, the Petroleum Division proposed a cumulative increase of 33 paisa per litre in the dealer commission and OMC margin on petrol at the rate of 19 paisa and 14 paisa per litre, respectively. It has proposed two options as far as the HSD pricing is concerned. Either the margin of dealers and OMCs should go up by 16 paisa and 14 paisa per litre, respectively, or the government should simply deregulate its market rate.

The Planning Commission and Oil and Gas Regulatory Authority (Ogra) have questioned the argument that the deregulation of diesel prices will lead to increased investment and creation of additional storage capacity.

The two organisations said that the same argument for the deregulation of the oil sector involving healthy incentives of “deemed duty” was misused in 2000 for minting billions of rupees in additional profits instead of increasing storage capacity.

The Ministry of Energy said dealer commissions and OMC margins on two major products — petrol and HSD — have been revised annually on the basis of general inflation since 2014 under a decision of the ECC.

On the same principle, the OMC margin on petrol should be increased from Rs2.41 to Rs2.55 per litre. For dealers, it should be jacked up from Rs3.16 to Rs3.35 per litre, the ministry said, adding that oil companies were demanding a higher increase of 18 paisa per litre instead of 14 paisa.

In the case of HSD, the ministry proposed that “instead of revising (margins for dealers and OMCs) on the consumer price index (CPI) basis, it should be deregulated under the government’s policy of liberalisation and deregulation in a phased manner to encourage and support investment, which may lead to an increase in the oil storage capacity in the country by enhancing the days’ cover”.

Published in Dawn, October 6th, 2017