After Sindh’s objection, government withdraws decision to cut gas tariff

Province protested against distributing its non-tax revenue to industrial sector

ISLAMABAD: The federal government on Thursday withdrew its decision of cutting gas tariff by one-third for the industrial sector after the Sindh government protested against distributing its rightful financial resources among industrialists.

The Economic Coordination Committee (ECC) of the Cabinet approved the revision of its earlier decision of reduction in gas sale price for the industrial sector, according to a handout issued by the Finance Ministry after the meeting.



Although the ECC withdrew its decision for the industries, it approved to cut gas prices for Independent Power Producers from Rs613/mmbtu to Rs400/mmbtu. This decision will eliminate price disparity to a large extent and reduce electricity generation cost in the country, which will provide relief to electricity consumers across the board, said the Finance Ministry.

On November 26, the ECC reduced the gas prices for the influential industrial sector from Rs702 per mmbtu including GST to Rs500 - a reduction of 28.8%.

The benefit for the five-export oriented industries had been higher than this, as exports are exempted from paying 17% sales tax. The reduction for the export-oriented industries was 33.3%, as their gas prices came down from Rs600 per mmbtu to Rs400 per mmbtu.

The space for reducing up to 33.3% prices was created after the government decided to pass on the benefits of lower input prices to the industries instead of giving them to provinces as Gas Development Surcharge (GDS).

However, immediately after the ECC’s decision, Sindh government objected to it, forcing the federal government to withhold the notification of the ECC decision, according to sources in the Ministry of Finance. They said that Sindh Chief Minister Syed Murad Ali Shah wrote a letter to Prime Minister Nawaz Sharif and protested against the decision.



The GDS is an important source of non-tax revenue for the provinces. In fiscal year 2015-16, ended on June 30, the federal government gave Rs33 billion to the federating units in GDS. During first three months of this fiscal, the Centre transferred Rs9.9 billion on account of the GDS.

Disagreements

The industrialists in Punjab also protested against the decision of reduction in gas prices, as their gas prices are determined after including the cost of Liquefied Natural Gas, which is an imported and expensive fuel. After the 33% cut in in the industrial gas tariff, the price for Sindh industries had come down to Rs400 per million British thermal units (mmbtu) excluding GST whereas Punjab industries were paying over Rs1,000 per mmbtu for RLNG.

The finance ministry had also objected to the summary of reducing the gas prices for the industries on the grounds that the provinces would not take it lightly. However, at that time, ECC Chairman, Finance Minister Ishaq Dar, overruled the objections.

The ECC also approved disbursement of one and a half month salary to Pakistan Steel Mills employees. The Privatization Division had sought approval of Rs570 million for payment of 50% remaining salary for the month of August 2016 amounting to Rs190 million and Rs380 million for the month of September 2016.

The employees have yet to be paid for the October-December period, as the country’s largest industrial unit remains closed for 18 months.

The ECC also approved in principal the funding on expenditure of Inter State Gas Systems (Private) Limited (ISGSL) subject to completion of corporate formalities. The Ministry of Petroleum and Natural Resources proposed that the Government Holding (Private) Limited (GHPL) being the parent company will give a three year term loan to ISGSL to fund all its expenditure on all government mandated projects being undertaken by (ISGSL). This loan and related interest will be repayable after three years through a single bullet payment on terms separately agreed between GHPL and ISGSL through a Loan Agreement.

Published in The Express Tribune, December 16^th, 2016.

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