ISLAMABAD: With a promise to seek tax exemption on infant milk and bread from the International Monetary Fund (IMF), the government on Tuesday approved 99 paisa per unit cut in average power tariff under quarterly adjustment and decided to immediately move a law in the parliament for gradual increase in average gas tariff by about 30pc.

This was the crux of a joint briefing by the ministers for finance, energy and information along with the State Bank of Pakistan governor and the special assistant to the prime minister on health after a meeting of the federal cabinet.

Energy Minister Hammad Azhar said the government would introduce a bill in the parliament within next 10 days for Weighted Average Cost of (both local and imported) Gas (WACOG) under which average gas prices were estimated to go up by 30pc gradually over the next few years.

He, however, hastened to add that the government was not going to increase these gas prices immediately but in a phased manner over a few years as the government expected the international LNG prices to come down in the coming month. He said the government had “forged consensus” on WACOG even though it was a highly politicised issue.

Cabinet decides to seek tax exemption on infant milk, bread from IMF, enact law for gradual increase in gas tariff by about 30pc

Finance Minister Shaukat Tarin said the government would negotiate with IMF to exclude infant milk and bread sold in bakeries from the purview of 17 per cent sales tax under the Finance Supplementary Bill, 2021. Also, he said, the government would provide 100pc subsidy against 17pc sales tax on solar panels and laptop computers to support technological development.

“Infant milk and bread are not luxury items”, Mr Tarin said: “We will give subsidy on laptops and solar panels, but we will not stop documentation and do it at any cost”. He said the entire objective of the finance supplementary bill was documentation and not revenue collection, adding about Rs280 billion out of Rs343bn worth of removal of tax exemptions would go back as refund to pharmaceutical and machinery sectors while Rs71bn or so would be additional revenue mostly from luxury items used by upper class.

Hammad Azhar said the Sindh government, according to his understanding, was convinced about the need for WACOG but because of political reasons would not openly support it. At present, he said, local gas supply and LNG import had a 70:30 ratio which would change to 50:50 in two years but share of LNG would increase to 80-90pc in a few years for which WACOG was unavoidable.

He said gas shortage did not emerge suddenly but had been developing over the years. Therefore, former prime minister Yousuf Raza Gilani had imposed a ban on new connections in 2011 which slowed down the shortage. The ban was, however, lifted by the PML-N government in 2017 and now the country was left with local gas only for next 10 years. He said successive governments tried to reform the gas pricing but failed.

The minister explained that under the existing law the government could not fix the consumer price of LNG as natural gas because it was defined as a petroleum product. At present, the cost of imported LNG is about Rs8bn per cargo against which the gas companies can recover only Rs1bn from residential consumers because of differential in local and imported LNG.

He said the gas companies had already faced about Rs100bn loss in last three months on this account and the government could not divert more LNG to residential consumers, otherwise the gas companies would go bankrupt.

The minister said the total local gas allocation at present was about 4,000 million cubic feet per day (mmcfd) but this was down to 3,500mmcfd because of about 9pc annual depletion of local gas fields. On the other hand, gas demand in domestic sector goes up by five times to about 2,000mmcfd in winter, leaving just 1500mmcfd to other sectors including industry, fertiliser and power etc.

Mr Azhar said gas producing provinces were opposed to inclusion of LNG in average pricing as they wanted to supply local gas to the districts where it was produced but now both Sindh and Khyber Pakhtunkhwa were heading towards gas shortage.

Published in Dawn, January 12th, 2022