PM orders immediate decision as ECC dithers on tariff for exporters

Updated March 05, 2020

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Irked by procedural and institutional delays, Prime Minister Imran Khan on Wednesday ordered immediate implementation of subsidised electricity tariff for export industry to ensure predictability and business confidence. — AFP/File
Irked by procedural and institutional delays, Prime Minister Imran Khan on Wednesday ordered immediate implementation of subsidised electricity tariff for export industry to ensure predictability and business confidence. — AFP/File

ISLAMABAD: Irked by procedural and institutional delays, Prime Minister Imran Khan on Wednesday ordered immediate implementation of subsidised electricity tariff for export industry to ensure predictability and business confidence.

The orders came after a meeting of the Economic Coordination Committee (ECC) of the cabinet deferred formal approval to an agreement reached last week between export industries and a ministerial committee over energy tariffs.

Informed sources said Federal Minister for Power and Petroleum Omar Ayub Khan and Federal Minister for Economic Affairs Hammad Azhar had different estimates over the amount of subsidy and the definition of industries to benefit from the subsidy scheme. The sources said the Power Division had estimated about Rs28 billion worth of additional subsidy while some other members of the ECC believed the true cost of subsidy would be somewhere between Rs50-60bn.

Adviser to PM on Finance and Revenue Dr Abdul Hafeez Shaikh desired that a detailed discussion should take place on the subject at a meeting of the ECC.

The sources said the PM’s Adviser on Commerce and Industries Abdul Razak Dawood later took up the matter with PM and informed him that Pakistan’s exports had increased by about 3.62 per cent in July-February due to subsidised energy rates provided by the current government.

On top of that, the exports of value added items like knitwear, home textile, readymade garments and other textile material had also increased significantly while exports of raw cotton had declined which suggested raw cotton was being turned into value added items.

Therefore, it was time for the government to support export sector instead of creating uncertainty. As a result, PM expressed his displeasure over unnecessary delays and ordered that agreement reached with the export sectors last week should be implemented in full spirit irrespective of the financial cost.

Under an agreement last week, the zero-rated industries including textiles would be provided electricity at an all-inclusive rate of 7.5 cents per unit (Kwh) and gas at $6.5 per unit (million British thermal unit) until June 30. The agreement required immediate withdrawal of electricity bills issued to export sector with backdated effect from January 2019 which had included a series of surcharges, quarterly adjustments and fuel price adjustments.

The government had also accepted industry’s demand to allow import of Liquefied Natural Gas (LNG) directly by the private sector. It was estimated that LNG could be available to industry at about $5.5 per mmBtu through private sector imports compared to $8-10 per mmBtu through the public sector.

“The meeting resolved all outstanding issues relating to energy tariff”, a statement issued by the Power Division had said on Feb 26 after holding talks with a delegation of the All Pakistan Textile Mills Association and zero-rated industries. The government team included Federal Minister for Power and Petroleum Omar Ayub Khan, Federal Minister for Economic Affairs Hamad Azhar, Special Assistant to PM on Petroleum Nadeem Babar, Adviser on Industries and Commerce Abdul Razaq Dawood and Punjab Governor Muhammad Sarwar.

The Power Division had stated that it had been decided that the government will provide a maximum of Rs20bn additional subsidy for power and petroleum in the next year budget and to provide all-out support to these industries for better economic growth of the country.

The export industry had been threatening over past two months to close down their factories and businesses after the power companies issued bills at higher rates and that too with retrospective effect from January 2019.

The National Assembly’s Standing Committee on Finance and Revenue had earlier ordered suspension of increased power rates for export industries and its retrospective recovery from Jan 1, 2019 and took up the matter with PM.

The Power Division had issued a notification on Jan 13 this year which the industry and the parliamentary panels described as “unauthorised” as it increased electricity rates for export sector from 7.5 cents per unit to about 13 cents per unit.

The export industry had been promised by the government in February 2019 that they would be provided electricity at 7.5 cents per unit including all surcharges. This was estimated to entail about Rs30bn subsidy.

The package was fully implemented under duly issued notification after the ECC approval until the Power Division issued a fresh notification on Jan 13 under which the subsidy was limited to 7.5 cents as base tariff and all add-ons were put on the consumers.

Published in Dawn, March 5th, 2020