LAHORE: The federal government is still trying to work out a mechanism to subsidise the price of imported liquefied natural gas (LNG) to support exporters of textiles, leather, carpets, surgical instruments and sports goods from Punjab.

“The ministry is working on it… but you know these things get delayed, sometimes,” Ahmed Noor, the special secretary and spokesperson for the federal finance ministry, told Dawn briefly from Islamabad by telephone. “The government has taken this decision and it will be implemented soon.”

The decision to provide annual price support amounting to roughly Rs44 billion from Sept 27 this year was announced by federal Finance Minister Asad Umar in his mini-budget speech last month. The government has also increased the share of these zero-rated industries in Punjab in the “system gas” from 28pc to 50pc. This decreases the share of LNG used by these export sectors from 72pc to 50pc.

The subsidy amount could however go up or down depending on international LNG prices as the new weighted average cost of gas – a mix of system and imported gas – for the zero-rated industries in Punjab has been fixed at $6.5 per million British Thermal Units (mmbtu).

Officials told Dawn that the government may not be able to “directly subsidise the gas bills of exporters” because of certain legal issues. “There are two ways of providing direct subsidy to Punjab’s export industry: the government should either release the monthly subsidy amount in advance to the Sui Northern Gas Pipelines Ltd (SNGPL) or get the Oil and Gas Regulatory Authority (Ogra) to issue a notification cutting the price of the blend of system and imported gas to $6.5mmbtu.

“None appears implementable at present because of legal impediments. Neither the government can release advance subsidy nor can Ogra legally issue a separate price for the blend of local and imported gas.”

The indirect way of subsidising the exporters is to continue to bill them for their total monthly LNG and system gas usage separately at the current rates, and later refund or adjust the differential between the actual billed amount and weighted average cost of gas through the SNGPL after the release of the subsidy by the government to the gas provider, the officials said.

SNGPL Managing Director Amjad Latif said the company was sending the exporters ad hoc weekly bills based on the existing LNG tariffs.

“Once the finance ministry finalises a mechanism, the excess billed amount will be adjusted later on.”

He said the ministry was working on multiple options and was hopeful that a final decision would be taken in the next few days. The company had already increased the ratio of system gas being supplied to the export sectors to 50pc in line with the federal decision, he added.

However, the exporters want the government to directly subsidise their monthly bills because indirect gas price support will lead to liquidity crunch. “We urge the government to immediately issue the notification asking the SNGPL to start billing as per new tariff of $6.5 per mmbtu to help restore competitiveness of Punjab’s export industries to remove uncertainty that is stalling exporters from accepting long-term orders from abroad,” All Pakistan Textile Mills Association Chairman Syed Ali Ahsan said. “We want the government to directly slash gas tariffs as promised instead of going in a roundabout way. That is not acceptable.”

Published in Dawn, October 30th , 2018