Gas subsidy for exporters to cost Rs41b

Petroleum Division seeking approval of supplementary grant to clear subsidy bill

ISLAMABAD:

The subsidised gas supply to the five major exporting sectors is going to cost another Rs41 billion to the national exchequer.

They have already received Rs31 billion worth of subsidy on gas consumption. The higher gas subsidy has put the entire liquefied natural gas (LNG) supply chain at risk.

Now, the Petroleum Division is seeking approval of a supplementary grant of Rs72 billion to clear the subsidy bill of the export-focused sectors. These industries include textile including jute, carpets, leather, sports goods and surgical instruments.

In addition, the Petroleum Division is asking for Rs11 billion in supplementary grant to cover the subsidy given to two fertiliser plants.

In addition to the subsidy given to the exporting sectors, billions of rupees worth of subsidised gas is provided to two fertiliser plants in spite of alleged hoarding by the fertiliser industry.

The government has revealed that the gas subsidy to exporting industries was being misused as those units, which were not exporting their products, were also receiving the subsidised gas.

According to the submitted claims, the overdue subsidy stood at Rs31.335 billion up to November 2021, which included Rs7.63 billion carried over from FY21.

The government has projected the estimated subsidy for December 2021 to June 2022 at Rs41 billion.

Read Exporters to receive gas supply

The Economic Coordination Committee (ECC) of the cabinet, in its meeting on August 16, 2021, considered a summary submitted by the Commerce Division for the continuation of concessionary rates of electricity and regasified LNG for the major export sectors.

It approved the proposal that called for provision of RLNG at $6.5 per million British thermal units (mmbtu) to the exporting industries in financial year 2021-22.

It said that the Finance Division may give a financial commitment that additional funds, if required, by the Power Division and Petroleum Division would be provided to continue the discounted energy rates for the exporters.

However, the Ministry of Energy may apprise the relevant ministries of the budgetary situation in time so that the Commerce Division may place a summary for the allocation of a supplementary grant for the ECC’s consideration.

Later, the federal cabinet, in its meeting held on November 9, 2021, reviewed a summary submitted by the Petroleum Division and approved a revision in the tariff of $6.5 per mmbtu for the captive power plants (self-power generation) of export sectors to $9 per unit for the period November 15, 2021 to March 31, 2022.

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However, the existing tariff of $6.5 per mmbtu would continue to be applied to the export sectors for gas/RLNG consumption in processing (general industrial use) only.

The government had set a budget of Rs10 billion for the current financial year to meet the demand of Petroleum Division for the provision of subsidy to the export-oriented (zero-rated) industries.

Two fertiliser manufacturing plants were receiving 70 million cubic feet per day (mmcfd) of RLNG at the subsidised rate of Rs805 per mmbtu whereas the notified RLNG tariff for December 2021 was $12.6238 (or Rs2,200) per unit. As per the ECC’s decision, these plants would operate till January 2022.

The outstanding subsidy claim against RLNG supply for the period June-November 2021 was Rs10.963 billion.

If these plants continue to operate through December 2021 and January 2022, an estimated subsidy of Rs6.445 billion will be required in addition to the arrears.

The Ministry of Industries and Production has a budget of only Rs6 billion against the total subsidy requirement of Rs17.408 billion.

It is important to highlight that Sui Northern Gas Pipelines Limited (SNGPL) purchases LNG from Pakistan State Oil and Pakistan LNG Limited, which procure the gas from international suppliers.

Published in The Express Tribune, December 31^st, 2021.

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