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After furor, govt moves on gas price subsidy for exporters

Updated November 07, 2018

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The govt notified the mechanism for payment of up to Rs44 billion subsidy on gas prices for five export-oriented sectors. — AFP/File
The govt notified the mechanism for payment of up to Rs44 billion subsidy on gas prices for five export-oriented sectors. — AFP/File

ISLAMABAD: After issuance of bills on old tariff by the Sui Northern Gas Pipelines Ltd (SNGPL) a day earlier, the government on Tuesday finally notified the mechanism for payment of up to Rs44 billion subsidy on gas prices for five export-oriented sectors.

Speaking to journalists, Minister for Petroleum Ghulam Sarwar Khan conceded that the export-oriented sectors would have to face a one-time difficulty in the first month for which bills had already been issued by the SNGPL at normal gas tariff.

He said the extra payments would be refunded to the consumers through adjustment of subsidy in the following month by the gas company. He said the Economic Coordination Committee (ECC) of the Cabinet had approved the subsidy package for zero-rated export industry on Sept 16 that was endorsed by the federal cabinet the next day.

Cent per cent regasified liquefied natural gas (RLNG) would be provided to zero-rated industry for three months (December-February) at a flat rate of $6.5 per million British Thermal Unit (mmBtu). The current RLNG rate stood at about $12.5 per mmBtu.

After February, a blend of domestic natural gas and RLNG of 50:50 would be provided to zero-rated industry for the remaining nine months (March-November).

Extra payments to be refunded through adjustments

An official said the government had allocated about Rs44bn subsidy in the budget after a meeting presided over by Secretary Finance with Petroleum Division, Oil and Gas Regulatory Authority (Ogra) and the SNGPL on Oct 23. The said meeting also set broad principles and devised the mechanism for disbursement of financial support for the supply of gas to zero-rated industry.

It was decided that SNGPL will invoice the zero-rated industry at notified prices (RLNG) and upon receipt of subsidy from Finance Division on monthly basis, the subsequent invoices to industry will be adjusted at ECC approved weighted average price of $ 6.5 per mmBtu.

On receipt of subsidy from the Finance Division, SNGPL will onward credit the amount to consumers through immediate adjustment in the subsequent gas bills. It was agreed that the subsidy would be restricted to a maximum of 185 million cubic feet per day (mmcfd) – according to last year consumption – with 10pc variation.

The committee led by secretary finance also decided that the subsidy would be allowed for production process purposes only. Based on decisions of the committee, the Ministry of Finance has now notified the subsidy mechanism and conveyed to the SNGPL and export industries for implementation.

Under the notified mechanism, SNGPL will invoice the zero-rated industry at notified prices and upon receipt of subsidy from the ministry of finance on monthly basis. The rates are effective October 16 – the date of ECC decisions.

The subsequent invoices to industry will be adjusted at ECC approved weighted average price of $6.5 per mmBtu. Accordingly, based on actual consumption of RLNG/gas, the SNGPL will submit subsidy claims, duly signed by chief financial officer of SNGPL and verified by Secretary Petroleum to Finance Division. The Finance Division will disburse the subsidy to SNGPL. The gas company will onward credit the actual amount of subsidy received to zero-rated industry through immediate adjustment in the subsequent gas bills.

The notification stated that in view of electricity shortage in the past, significant volume of gas was required to be consumed by the industrial sector for power generation but given the current assured availability of electricity in the system, the subsidised gas would not be provided for power generation.

Accordingly, subsidised 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 the government during current fiscal year will therefore be restricted up to 185 mmcfd (as per last year) with 10pc variation in consumption. Based on 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, the notification said.

With respect to notification of weighted average price of $6.5 per mmBtu, the notification explained that as subsidy on account of RLNG/system gas supply mix has to be reimbursed on monthly basis against notified gas prices as per actual consumption, therefore, the need for such notification of weighted average price does not arise.

Further, as system gas and RLNG pricing is done under two sets of laws – The Ogra Ordinance, 2002 and Petroleum Levy Ordinance 1961 respectively – therefore, unless the 2002 ordinance is amended to include RLNG, the regulator under the present arrangement is unable to notify the weighted average price of $6.5 per mmBtu for zero-rate industry.

Published in Dawn, November 7th, 2018

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