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ECC moves to revamp gas price incentives for export sector

Updated August 09, 2019

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THIS file photo shows RLNG-based 1,233MW Balloki Power Plant near Chunian in Punjab.
THIS file photo shows RLNG-based 1,233MW Balloki Power Plant near Chunian in Punjab.

ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet on Thursday approved mechanism for payment of subsidy on account of lower gas price of $6.5 per unit to export industry and also ordered to have a proper definition of export oriented sector to avoid misuse of public funds.

The ECC meeting presided over by Adviser to the Prime Minister on Finance and Revenue Dr Abdul Hafeez Shaikh also hinted at setting indicative price of Rs3,600-4,000 per bale for cotton crop 2019-20.

The meeting noted that gas subsidy to export sector was apparently also being enjoyed on every unit of gas even by non-export oriented industry which may result in additional burden on budget. The government has allocated Rs10 billion in the budget for gas subsidy to industrial sector against over Rs25bn utilisation last year.

The ECC directed the ministries of energy, finance and commerce and the Federal Board of Revenue to convene a meeting on the subject and resolve the issue regarding clarification of nomenclature of export-oriented sector. This clarification should ensure that benefits of concessional tariff remain limited to exporters under previous notified zero-rated regime. The explanation should also ensure that any exporter that was previously not beneficiary of concessional tariff would need certification of falling under the clarified regime from FBR.

Subsidy meant for exporters being misused by other industry

Discussing the gas/regasified liquefied natural gas (RLNG) supply to industries (including exporters of five zero-rated sectors) in the light of ECC decision Oct 16, 2018, the ECC approved the subsidy claims for the months of March, April-June 2019 (based on 100pc RLNG supply) amounting to Rs5.174bn based on actual verified bills of Sui Northern Gas Pipelines Limited (SNGPL) for release out of the budgeted allocation of current financial year.

In order to further simplify the subsidy disbursement process, the ECC also approved a proposal for allowing SNGPL to raise verified subsidy bills of preceding month by eight day of every month and Finance Division to release the subsidy within seven days of receipt of claim from Petroleum Division. Upon receipt of subsidy amount, SNGPL shall promptly issue adjusted invoices to export-oriented sector in the next bill cycle and take up for any shortfall in the budgeted allocation at subsequent stage through supplementary grant.

The ECC also approved the proposal for the export-oriented sector to pay the invoices at ECC approved tariff of $6.5 per mmBtu along with applicable taxes. The committee also waived late payment surcharge (LPS) charged by SNGPL on the amounts over and above the tariff of $6.5 per mmBtu during the FY2018-19 which was due to delayed subsidy release by the government. For FY2019-20, LPS shall only be charged on the delayed payment of $ 6.5 per mmBtu and it will not be applicable on the subsidy amounts to be released by the government to SNGPL.

The ECC, on a summary presented by the Ministry of National Food Security and Research (MNFSR) seeking minimum support price for cotton to protect the local farmers and encourage cotton cultivation in the country, decided to constitute a Price Review Committee led by Adviser to the Prime Minister on Commerce and Textile Abdul Razzak Dawood to review and suggest the indicative price and other measures to be taken in case of abnormal fluctuations in the prices of cotton.

The MNFSR also briefed the ECC on the wheat situation in the country. It said the Passco and provincial food departments had reported wheat stocks at the level of 7.519 million tonnes as on August 2, 2019 as compared to 11.183m tonnes of the corresponding period last year.

Similarly, the Pakistan Bureau of Statistics on July 25, 2019 had reported the local price of wheat and wheat flour at the level of Rs362.6 and Rs422.2 per 10 kg respectively, showing a decrease of 0.03 per cent for wheat and 0.69pc for wheat flour, as compared to the price level of second week of July.

The ECC directed the MNFSR to regularly monitor the wheat prices, availability of wheat stocks in the country and ensure release of wheat stocks to the local market throughout the year and to check tendency of increase in wheat price particularly in the winter season.

On another summary seeking requesting supplementary grant of Rs530m for locust control, the ECC directed the Ministry of Finance to look into the matter in consultation with the MNFSR.

The ECC considered a summary of the Ministry of Energy for extension of gas network and rehabilitation of existing network in oil and gas producing districts of Khyber Pakhtunkhwa at a cost of Rs9.039bn. It was reported that SNGPL would bear the cost of Rs4.668bn while the Khyber Pakhtunkhwa government would chip in with Rs4.371bn including Rs694.5m already disbursed amount as the first tranche by the provincial government. The ECC discussed the proposal and in the light of input from the members and directed the Ministry of Energy to resubmit the proposal after taking input from the Planning and Finance Divisions.

In compliance with a previous ECC decision, the Special Assistant to PM for Petroleum Division Nadeem Babar reported that movement of 16,148 tonnes of diesel had been shifted to Pakistan Railways in the month of July that would increase to 35,000 tonnes in the current month after assessment of decanting facilities available with Shell, Parco and Hyderabad Electric Supply Company.

Published in Dawn, August 9th, 2019