New levy on natural gas: Govt hopes to generate $1.2b through tax

Expected revenues through IDL estimated at Rs25b annually.

ISLAMABAD:

The government is looking to impose a new kind of tax, Infrastructure Development Levy (IDL), a domestic source of financing, on natural gas to generate $1.2 billion to lay infrastructure of Iran-Pakistan (IP) gas pipeline project. Formal approval of this levy will be sought from the Council of Common Interests (CCI) scheduled on August 25.

The impact of imposing IDL is likely to be passed on to the consumers resulting in another hike in gas prices.

“The Ministry of Petroleum (MoP) also wants to seek consent of provinces which are major stake holders in gas production and therefore the proposal will be tabled before the CCI,” sources said.

Sources also said that the government had projected potential generation of Rs25 billion (300 million dollars) per annum by imposing this levy. The ministry has so far not proposed the level of IDL, which is likely to be developed after the CCI’s approval, sources also said.

“The IDL is being proposed to finance all gas import projects including IP, Turkmenistan-Afghanistan-Pakistan-India (TAPI) and Liquefied Natural Gas (LNG) imports,” sources said.

In first phase, the government plans to generate $1.2 billion to finance IP gas pipeline project. “The government plans to generate 300 million dollars from local banks and some financing from foreign countries like China and Russia. The revenues generated through imposition of IDL will also be utilised to retire loans of local banks and international investors,” sources maintained.

At present, government is working on three gas import projects, the IP, TAPI and LNG projects. Under the around $7.5 billion TAPI gas pipeline project, Pakistan’s share will be 1.35 billion cubic feet per day (bcfd). Under the IP gas pipeline project, Pakistan will import 570 mmcfd gas to be extended to one bcfd. Public sector gas company Sui Southern Gas Company (SSGC) has received Expression of Interests (EOIs) from 17 companies to import LNG equal to 500 mmcfd.

Minister for Water and Power Syed Naveed Qamar, in the rcent meeting of the Pak-China joint Energy Group, held in Beijing had also sought strategic investment from China to finance the IP gas pipeline project. Pakistan has also already made a formal offer to Russian Energy Giant Gazprom, the largest extractor of natural gas in the world, to participate in the IP gas pipeline project.

Published in The Express Tribune, August 19^th, 2011.