The government has conditionally agreed to restore gas supplies to the captive power plants owned by exporters after they gave their consent to paying roughly 38% higher price for three months and conducting an energy efficiency audit.
The understanding was reached between representatives of the federal government and the exporters, led by Pakistan Textile Exporters Association (PTEA) Patron-in-Chief Khurram Mukhtar.
The government would provide 75 million cubic feet per day (mmcfd) of gas to the captive power plants without changing the current merit order for supplying the limited available gas, a federal minister told The Express Tribune.
Industrial units in Pakistan are allowed to install captive power plants to produce electricity for their own use. If they have surplus, they can supply it to the national grid for residential or commercial consumers.
Owing to the paucity of gas and high prices of imported gas, the government and the exporters agreed to revise the existing gas tariff of $6.5 per million British thermal units (mmbtu) for the captive power plants of export sectors to $9 per mmbtu from November 15, 2021 to March 31, 2022. However, an industry official this month took a stay order from court against the decision despite the fact that the lobby group had agreed to pay the higher price due to high LNG rates. In retaliation, the government suspended gas supplies.
The consensus was reached for supply of 75 mmcfd of gas at $9 per mmbtu to the captive power plants, PTEA Patron-in-Chief Khurram Mukhtar confirmed to The Express Tribune.
He said that the agreed gas volume would meet 42% of the requirement. The $9 rate would only be till March 15, 2022, said Mukhtar.
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The government functionary said that gas supply would be restored with effect from Wednesday on three conditions. Firstly, no exporter will seek a stay order from any court against the pricing. Secondly, the beneficiaries will ensure an energy audit by a third party before June 30 and no stay will be taken against the energy audit.
Lastly, if an industrial unit fails to ensure the energy efficiency audit, its connection will be disconnected permanently with no remedy available. The government functionary said that the priority order for gas supplies would not be changed and the captive power plants would get gas after giving it to the general processing industry.
The 75 mmcfd of gas supplies would not affect supplies to others but it would only be done on a “best effort basis”, he added. Earlier, the powerful exporters were pressurising the government to cough up Rs100 billion more in subsidies through continued gas supplies and incentives for export of certain products.
Due to increasing prices of LNG, the cost of gas subsidies for exporters would have increased by another Rs35 billion, had the government kept supplying gas at $6.5 per mmbtu.
Despite getting cheaper gas, subsidised loans and a major relief in income tax, the exporters have not been able to achieve a major shift in exports, which remain narrow, flourishing only on quotas and subsidies, and less in value.
However, there has been a disparity in gas pricing for the industries set up in Sindh and Punjab, as Punjab-based industries get gas supplies at almost double the price collected from Sindh-based industries.
Under the constitution, a province that produces gas will have priority right over gas, which is causing shortages in Punjab.
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But the exporters were utilising the expensive imported gas at cheaper rates and using 80% of it to generate their own electricity through the captive power plants.
The textile industry had agreed in February last year to end the gas subsidy by June 2020 in return for waiver of all additional charges on its bills.
The government held its part of the bargain but the industry got the subsidy extended for another year on the pretext of Covid-19.
The government is of the view that there should be a cost-benefit analysis to reveal the hundreds of billions paid out to this sector in the form of subsidies for many years versus the net increase in exports.
In the budget, the government had booked Rs26 billion in gas subsidy, which is now estimated to increase to Rs62 billion annually. Power subsidy costs another Rs20 billion per annum. It is also unfunded, meaning that it adds to the circular debt.
Published in The Express Tribune, December 28th, 2021.
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