ISLAMABAD: Prime Minister Shahid Khaqan Abbasi blocked the bureaucracy’s move to increase electricity prices for industrial consumers by about 13% through the withdrawal of Rs3-per-unit subsidy just six weeks before the end of the government’s term.
The decision to withdraw the subsidy would have made exports uncompetitive in addition to denting the PML-N’s vote bank.
The Power Division in consultation with the Finance Division placed a summary before the Economic Coordination Committee (ECC) of the Cabinet for its approval. It hoped that the government would withdraw the electricity subsidy with effect from January 2018. Its second submission before the ECC was that in order to clear the subsidy arrears, the ECC should allow to recover over Rs10 billion from domestic and commercial consumers.
Prime Minister Abbasi chaired the ECC meeting.
Had the PM accepted the proposal, industrialists in Punjab would have been worse off as Sindh’s industries enjoy a lower gas tariff. Punjab is the hub of PML-N’s support and the next general elections are expected to be held in July this year. The Power Division did not circulate the summary to the Textile and Commerce Ministry for comments before taking it to the ECC for approval. The Textile Division is the main stakeholder.
Former prime minister Nawaz Sharif had approved the electricity subsidy for industrial consumers aimed at reducing their cost of doing business and make them competitive in the international markets. The package remained under implementation and the finance ministry honoured it only till June 2017.
The net benefit to the industries was roughly Rs1.57 per unit, as the government was giving subsidy by adjusting the negative fuel price. In case of withdrawing the subsidy, the per unit cost would jump to Rs13 per unit or about 12.4%.
However, instead of accepting the Power Division’s proposal, the premier constituted a committee, headed by Adviser to Prime Minister on Finance Dr Miftah Ismail. The other members of the committee are Senator Haroon Akhtar, Commerce Minister Pervaiz Malik and secretaries of Power Division, Commerce Division, Textile Division and Finance Division. The committee’s recommendations will be placed before the ECC for a decision.
The PML-N government is in favour of industrialisation and it is necessary to keep the cost of doing business low for making them competitive, said Commerce Minister Pervaiz Malik while talking to The Express Tribune.
He said that the decision to withdraw the subsidy would have hit exports, which have just started to increase. It would not be fair to disturb the export sector at this point in time, said Malik.
In March, the exports registered 24.2% growth and reached $2.23 billion after four years.
The minister said that the finance ministry probably moved the summary to ease its cash flow problems. But had it consulted with the commerce ministry before sending the summary, we would have showed them another path, said Malik.
The Finance Division was requested by the Power Division for release of subsidy claims till June 2017. The Finance Division, however, in response released only Rs12.64 billion against the claims of Rs23.2 billion after netting off of negative Fuel Price Adjustment (FPA).
In June last year, the ECC decided that the subsidy should be recovered from other sectors by building it in a base tariff. However, the new Generation, Transmission and Distribution of Electric Power Bill 2017 that parliament approved has not been signed by the President. Because of this, the government could not ask the National Electric Power Regulatory Authority to recover the subsidy from domestic and commercial consumers.
The prime minister also got one of the pending proposals of his Petroleum Minister period approved from the ECC. The cabinet body on Thursday approved to reallocate Rs14.8 billion from RLNG-II pipeline project to LPG Air Mix Projects for their expeditious completion and to ensure uninterrupted supply of gas to households and industries.
The earlier decision was to divert Rs14.8 billion from RLNG-II project to the RLNG-III pipeline project. The ECC directed SSGCL to expand the establishment of air mix plants in every district of the country.
Published in The Express Tribune, April 13th, 2018.