ISLAMABAD: A Rs44 billion subsidy on gas price for export sector announced by Finance Minister Asad Umar in his supplementary budget speech that attracted widespread jubilation particularly from Punjab’s industrial sector, has still no legal ground or back up.
On paper, the Economic Coordination Committee (ECC) of the Cabinet decided as part of gas price increase to create a new category for such industrial consumers who are registered manufacturers or exports of five zero-rated sectors. It was also decided that their gas rates be kept unchanged at Rs600 per million British thermal unit (mmBtu). These five export sectors included textile (including jute), carpets, leather, sports and surgical goods.
At the same time, the gas rates for general industries and its captive power be increased from Rs600 to Rs780 per mmBtu, reflecting an increase of 40 per cent. But the unchanged Rs600 per unit rate had a limited impact on Punjab-based five zero-rated export industries because they get only 28pc system gas ie indigenous natural gas supplied by the Sui Northern Gas Pipelines Ltd (SNGPL).
Mostly based in Faisalabad where Pakistan Tehreek-i-Insaf secured seven out of nine national assembly seats in recent elections, these industries have to mainly bank on 78pc imported re-gasified liquefied natural gas (RLNG) at a rate of about Rs1,300 per mmBtu.
The average cost (the combination of local and imported) of gas, thus works out close to Rs1,200 per mmBtu, much higher than their counterparts in Karachi or to some extent in Kyber Pakhtunkhaw’s revised price of Rs780.
These industries have been seeking throughout five years of PML-N for a bailout in gas rates as a lot of industry was shifting either to Sindh and KP or abroad – Bangladesh and Malaysia – but mostly in vain.
As part of discussions with Faisalabad-based parliamentarians and representatives of textile and other export sectors, the government has given a commitment that zero-rated export sector in Punjab would be ensured weighted average cost of gas (WAOCG) – the mix of 28:72 local and imported gas at $6.5 per mmBtu. The differential of about Rs550 per mmBtu would be picked by the government, according to verbal understanding.
Punjab’s entire industry required a total of 175 mmcfd (million cubic feet per day) including 95 mmcfd of the zero rated sectors. No doubt, the decision would substantially address a major challenge of the industrial sector in Punjab that is anticipated to revive 500,000 jobs, an SNGPL official said.
A senior petroleum ministry official said the government had decided in principle to provide 100pc gas to exporters at fixed rate equivalent of $6.5 and whatever cost goes beyond this would be picked by the government as subsidy.
He confirmed that this scheme was not part of the gas price rationalisation approved by the ECC and will not be part of the gas price notification and will not be a burden on SNGPL.
Instead, he said the notification for fixed gas rate for export sectors would be issued separately after the parliament approves the supplementary budget. He said a part of the subsidy would arise out of the additional general sales tax, estimated at about Rs20bn, on account of recent gas price increase.
An official of the SNGPL said the company was still unaware if the burden of WOACG to exports would fall on its balance sheet or the government would pick it as subsidy but made it clear the company would not be able to absorb such huge shock. He said the company would know about the actual situation once a formal notification is issued.
In his budget speech, Finance Minister Asad Umar said the industry in Sindh was already getting cheaper gas while because of expensive 72pc imported LNG, the cost of production had gone up in Punjab, rendering 500,000 laborers jobless in Faisalabad.
Without elaborating, he said the Rs44 billion worth of reduction in gas price would enable the exporters to be compatible with rest of the world. He said it was basic philosophy of the PTI’s economic policy to help exporters on stand on their feet because they were the country’s bread earners and could reduce reliance on foreign debt.
A senior official of the Ministry of Finance, on the other hand, said the government has not include the additional impact of gas subsidy in the supplementary budget. He said most of the budgetary numbers had changed under the mini-budget, but the Rs175bn subsidy allocated in the original budget was unchanged.
“We don’t have any idea so far as to from where Rs44bn subsidy would be arranged. But since the finance minister has made an announcement, he would have to evolve a mechanism. One thing is absolutely clear, the amount is not part of our supplementary budget as of now”, asserted the official who has been part of the budgetary readjustments.
Published in Dawn, September 20th, 2018