Govt set to approve increase in gas price as ECC meets today

Updated 04 Feb 2020

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Two-week negotiations with IMF mission begin. — AFP/File
Two-week negotiations with IMF mission begin. — AFP/File

ISLAMABAD: On the opening day of its two-week discussions with a staff mission of the International Monetary Fund (IMF), the government appeared set to increase gas rates from Feb 1 to placate the international lender into reducing revenue target for the current fiscal year.

On Monday, the cabinet division called members of the Economic Coordination Committee (ECC) of the cabinet to meet on Tuesday to take up “natural gas sales pricing FY2019-20 with effect from Feb 1, 2020” summary moved by the petroleum division.

Separately, the staff mission of the IMF had initial discussions with the Federal Board of Revenue (FBR) which reportedly sought a further downward reduction in revenue collection target for the current fiscal year in view of a massive Rs385 billion shortfall in the first seven months ending Jan 31, 2020.

Adviser to the Prime Minister on Finance & Revenue Dr Abdul Hafeez Shaikh told media persons that the talks between the IMF mission and the government team had begun. He said the IMF loan programme to Pakistan was continuing under which IMF was providing $6bn loan and extending support for economic reforms.

Two-week negotiations with IMF mission begin

He said progress on the implementation of IMF programme had started showing results and investment was pouring in from across the country. He said the government was taking steps to control inflation and exchange rate had also stabilised while the funding for Ehsaas Programme had been almost doubled with the support of the IMF. He said the nation would see a gradual reduction in the price hike.

Informed sources told Dawn that in view of difficulties on the revenue side, the government wanted to deliver on a “low hanging fruit” of increasing gas and electricity rates. These sources said that while increase in electricity rates through regulatory approvals and imposition of surcharges may take weeks to materialise, the increase in gas rate was ready and should in fact have taken place with effect from Jan 1, 2020.

An official said the government intentionally delayed the gas price increase in view of high consumption period of extreme winter conditions.

Another official said the FBR authorities briefed the IMF delegation in detail about Rs2.410 trillion tax collections in first seven months of the fiscal year and the reasons behind the Rs385bn shortfall. It was reported that the FBR would now have to reach a collection target of Rs3.520 trillion by end-March. It was argued that economic conditions were not conducive to collect more than Rs5 trillion revenues by end of the year and hence the target should be revised downward.

The official said the authorities were yet to start policy level discussions with the IMF but they would have to ensure some deliverables to ensure smooth progress on remaining targets. The government had given an undertaking to the IMF to make adjustments to gas tariff by end-December 2019 based on Ogra’s midyear decision on tariffs.

It has also committed to reducing gas losses under an ECC approved plan for two gas companies. The three-year plan envisages an annual loss reduction of 1-2 per cent through improvements in infrastructure, rehabilitation of networks and theft control.

The ECC would now take up a revised summary for up to 15 gas price increase in line with the prime minister’s guidelines to minimise the burden on domestic consumers. Ogra had determined up to 214pc increase in gas rates for certain consumer categories but the petroleum division changed the proposals.

The petroleum division summary suggested increase in meter rent for domestic consumers from Rs20 per month to Rs80, 5pc increase in gas tariff for domestic consumers, 12pc increase for power plants and 15pc increase for industrial captive power plants and compressed natural gas (CNG) stations. The petroleum division had also proposed that fertiliser plants should be provided fuel at RLNG Price that currently stood at about Rs1,672 per MMBTU.

The proposed adjustments in gas rates are aimed at securing Rs35bn in additional revenue to two gas companies whose revenue requirements have been determined by the regulator at Rs274.2bn for SNGPL and Rs282.9bn for SSGCL.

Besides, the ECC would also consider seven other items, including two technical supplementary grants of the ministries of defence and interior. The ECC will also consider exemption of 8pc minimum income tax for national communication corporation and creation of a “digital media wing” in the ministry of information.

In addition, the ECC will also consider conversion of a loan to earthquake reconstruction and rehabilitation authority in the name of AJK into grant, exemption from regulatory duty to Export Oriented Units and a presentation on increase in cotton production in the country.

Published in Dawn, February 4th, 2020