ECC to discuss compensation for oil marketing firms

Updated April 08, 2020

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The ECC will discuss 10 other items in upcoming meeting. — Dawn/File
The ECC will discuss 10 other items in upcoming meeting. — Dawn/File

ISLAMABAD: The government has called a meeting of the cabinet’s Economic Coordination Committee (ECC) on Wednesday (today) to discuss a proposal to compensate oil marketing companies (OMCs) for foreign exchange loss in oil prices and approve about Rs180 billion relief in power tariff to various sectors.

To be presided over by Adviser to the Prime Minister on Finance & Revenue Dr Abdul Hafeez Shaikh, the ECC meeting will have 11 items on its agenda. These include a dispute with a leading Chinese firm over compensation for exchange rate loss in execution of the $2.5bn Kohala hydroelectric project and a request by the petroleum division for changes in the price negotiation committee on the Turkmenistan Afghan­istan Pakistan India gas pipeline line.

Informed sources said the power division had worked out a Rs180bn financial plan for implementing the relief package announced by the prime minister last week to minimise the impact of coronavirus pandemic. Its overall impact on the budget would range between Rs75bn and Rs 77bn given the fact that certain items were just deferment of upfront recovery.

Under the plan, the power division has worked out that the cost of a three-month freeze on monthly fuel price adjustment until June would be Rs77bn. This is to be followed by a financial impact of Rs 60bn caused by a decision to put off till June the application of quarterly tariff adjustment.

In addition, the cost over payment of electricity bills by domestic consumers of less than 300 units monthly consumption in three months has been worked at about Rs18bn. Another Rs13bn cost has been worked out for Rs2 and Rs4 per unit discount in power rates for industrial consumers for incremental consumption during peak and off peak tariff.

The cost of extending a similar facility - domestic and industrial — to K-Electric subscribers has been worked out at Rs10bn to maintain uniformity. All these proposals have been agreed upon by various ministries and entities concerned.

According to sources, the ministry of energy has recommended waiver of Rs4 per unit taxes on electricity. The power regulator had made a similar proposal earlier to minimise power rates. This was, however, opposed by the Federal Board of Revenue and the ministry of finance because of an expected revenue loss of Rs200bn.

POL pricing

The sources said the ECC would take up a summary prepared by the petroleum division seeking compensation against foreign exchange losses faced by oil companies in oil pricing.

The petroleum division has worked out an increase of about 60 paisa per litre in petrol and high speed diesel price for continuous devaluation impact on oil imports and has suggested its permanent build-up in the pricing. It has also proposed recovery of past losses on same account in a phased manner again through monthly product pricing.

It has proposed that 60 paisa per litre differential cost based on imports by PSO be adjusted against exchange loss as per actual exchange rate and the cost of actual letters of credit or 60 days of bills of landing whichever is earlier.

The arrangement will be treated as adjustment for other companies for local products in line with import parity price of PSO’s actual weighted average exchange rate for imported products, particularly petrol and HSD.

It proposed the PSO be empowered to make these adjustments on a monthly basis for product pricing both for ongoing impact and recovery of previous losses.

Oil marketing companies have been demanding compensation against inventory losses and foreign exchange losses, saying they had suffered a double shock of falling oil prices and abrupt devaluations.

The Special Assistant to the Prime Minister on petroleum, Nadeem Babar, said a few days ago that the OMCs had been enjoying windfall inventory gains when petroleum prices were rising, but the government never asked for a share.

Chinese firm

The ECC will also take up a case concerning a consortium of Chinese firms which is seeking compensation against exchange rate losses beyong seven percent incurred by it during its work on the 1124MW Kohala hydroelectricity project. Their plea has already been rejected twice by ECC on the ground that it would set a precedent for other investors.

The 1124mw Kohala project, a part of the China-Pakistan Economic Corridor, is being built by Kohala Hydropower Company, a consortium of China Three Gorges Cooperation, IFC and Silk Road Fund.

The power division and Private Power Infrastructure Board (PPIB) have warned the ECC that since the China Three Gorges South Asia Investment (CSAIL) was the lead sponsor in three hydropower projects (HPPs) — Kohala project, a 720MW project in Karot and a 640MW project in Mahl — the dispute could affect these investments. The ECC had brushed aside such threats in the past.

Published in Dawn, April 8th, 2020