Economic Coordination Committee defers gas tariff increase, waives Karkey’s port charges

Updated January 30, 2020

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Pakistan was fined $1.2bn in 2017 by the ICSID to compensate Turkish company Karkey for the losses incurred by its vessels for not being allowed to leave Karachi port for almost 16 months. Karkey was one of 12 rental power companies contracted by the government in 2008-09 to help resolve the power crisis.
Pakistan was fined $1.2bn in 2017 by the ICSID to compensate Turkish company Karkey for the losses incurred by its vessels for not being allowed to leave Karachi port for almost 16 months. Karkey was one of 12 rental power companies contracted by the government in 2008-09 to help resolve the power crisis.

ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet on Wednesday deferred decision on gas price increase for further consultations and waived about Rs195 million port charges to the Turkish firm Karkey as part of a $1.2 billion dispute settlement.

The meeting, presided by PM’s Finance Adviser Dr Abdul Hafeez Shaikh discussed the proposal for up to 15 per cent gas price increase and noted that some changes were required to minimise the burden on domestic consumers in line with Prime Minister’s guidelines.

An official said the increased gas rates for domestic consumers during the high-consumption winter season would not go well from a political perspective.

It was also noted that the government had this week reduced the Gas Infrastructure Development Cess (GIDC) by Rs5 per mmBtu on the price of natural gas or Rs400 per fertiliser bag to contain rising wheat prices in the country.

Hence, it would be counterproductive in case gas rates for fertiliser sector were increased as it would lead to higher urea prices. Also, there was a need to examine the impact of gas rates proposed by the Petroleum Division for the industrial sector.

Approves sale of SBP stakes in House Building Finance Company

The division told the committee that it had already prepared a revised summary on these lines and further consultations were required with ministries of commerce and industries for export-oriented and fertiliser sectors. Also, feedback from the Ministry of Finance was needed over the revised summary.

Under the previous summary, the Petroleum Division had proposed increase in meter rent for domestic consumers from Rs20 per month to Rs80, 5pc increase in gas tariff for domestic consumers, 12pc for power plants and 15pc for industrial captive power plants and compressed natural gas (CNG) stations.

The division had also proposed that fertiliser plants should be provided fuel at regasified liquefied natural gas (RLNG) price that currently stood at about Rs1,672 per mmBtu.

The proposed adjustments in gas rates were aimed at collection Rs35bn in additional revenue for the two gas companies — Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Ltd whose revenue requirements have been determined by the regulator at Rs274.2bn and Rs282.9bn respectively.

Karkey settlement

The ECC also approved waiving off all port dues and charges amounting to outstanding Rs194.951m against Karkey as of Jan 31 or till the vessels leave the port. The waiver was required as a consequence of the $1.2bn settlement agreement reached between the Government of Pakistan and Karkey recently.

On the summary moved by the Ministry of Industries and Production for the payment of outstanding liabilities of the Pakistan Steel Mills (PSM) against the SSGC for the non-payment of gas bills, the ECC approved the release of Rs350m for the partial settlement of the utility company’s liability against minimal gas supply of about 2-3mmcfd.

The Power Division argued that this payment was necessary to ensure continuation of gas connection to the PSM at cheaper local gas otherwise the complete disconnection would result in penalties and revival of gas would not be possible on domestic gas rates under the laws.

That could become a major challenge for the revival or privatisation of the PSM because the new connection would have to be based on imported LNG rates.

The meeting also approved establishment of a Trust Fund to implement risk sharing facility under the third tranche of $10m from the World Bank loan obtained for the Pakistan Mortgage Refinance Company Limited (PMRCL). The objective of the trust is to leverage its funds by issuing guarantees in favor of mortgagors to cover possible losses from eligible mortgage loans.

The meeting also approved a request of the Finance Division for Rs80m technical supplementary grant in the current year fiscal year’s budget for providing assistance to families of government employees who expired during service and provision of ad hoc relief allowance 2019.

The meeting also approved another proposal of the Ministry of Finance for the sale of shares owned by the State Bank of Pakistan in the House Building Finance Company Limited (HBFCL) under the sub-section 6(A) of the section 17 of the SBP Act 1956.

The central bank currently holds around 91pc shares in the HBFCL and the government is currently working on privatising the HBFCL at the earliest.

The ECC approved another Rs100m technical supplementary grant to National Information Technology Board (NITB) under the Ministry of IT & Telecommunication for centralised procurement of information, communication and technology (ICT) infrastructure to ensure e-readiness of federal government to implement e-governance programme.

Published in Dawn, January 30th, 2020