Govt okays Rs96 billion subsidy

Amount will be doled out to exporters and urea manufacturers

ISLAMABAD:

The day the government lost majority in the National Assembly, the Economic Coordination Committee (ECC) of the cabinet approved Rs96 billion in subsidies for exporters, mainly the textile industry, and urea manufacturers, taking the total financial impact of its decisions in the past three weeks to over Rs880 billion.

Finance Minister Shaukat Tarin on Wednesday presided over a meeting of the ECC and approved a summary on the Drawback of Local Taxes (DLT) scheme for the period 2021-26, according to a statement issued by the Ministry of Finance.

The ECC approved revised rates for the DLT scheme for a period of five years from July 1, 2021 to June 30, 2026. The scheme will be subject to quarterly reviews to gauge its impact on export performance of the sectors as well as exporting firms.

The estimated financial impact would be Rs79.3 billion for the current fiscal year, however, actual claims by the end of June 2022 would be around Rs50 billion, said the Ministry of Finance.

The ECC took the decision on the summary forwarded by the Ministry of Commerce, which was not part of the regular agenda, indicating the haste the government showed the day it lost majority in the National Assembly.

After two government-allied parties, the Balochistan Awami Party and the Muttahida Qaumi Movement-Pakistan, withdrew their support, the government’s strength in the National Assembly fell below the required number of 172.

Since the opposition parties have submitted a no-confidence motion against the prime minister in the National Assembly, the frequency of ECC meetings has increased.

In the past around three weeks, the ECC took decisions having total financial impact of Rs882 billion. More than half of the money will be provided from the budget.

The ECC was informed that in the last fiscal year, Pakistan posted record exports of $25.3 billion due to the previous DLT scheme that expired in June last year.

However, the country’s exports largely increased because of a hike in commodity prices in the international market, which has nothing to do with the subsidies being given to the wealthy Pakistanis.

The Ministry of Commerce had proposed a new DLT scheme for a period of five years from July 1, 2021 to June 30, 2026, which was prepared in consultation with the Finance Division. But it approved a subsidy of Rs79.3 billion only for the current fiscal year.

Since the federal cabinet has not held regular weekly meetings for the last one month, the ECC’s decisions are approved through the circulation of summaries.

The ECC approved duty drawback rates of 3%, 4% and 5% for the development of new sectors. For sector diversification, the DLT rate will be 4% and an additional rate of 2% will be given for market diversification.

Exports made through e-commerce were allowed to avail the drawback rate under the facility.

The Ministry of Industries and Production submitted a summary on the operation of Fatima Fertiliser (Sheikhupura plant) and Agritech.

After discussion, the ECC approved the proposal of providing indigenous gas to the two SNGPL-based urea plants latest by March 31, 2022, resulting in savings of funds, which were to be utilised on the provision of RLNG to the two plants, and continued operation throughout the year, according to the Ministry of Finance.

The ECC directed the meeting participants to expedite the process of shifting the plants to the system gas within one month.

The ECC also approved a supplementary budget of Rs16 billion for the payment of SNGPL dues for the month of February on account of subsidised imported gas provided to the urea plants.

National Fertiliser Development Centre (NFDC) had estimated that if both Fatima Fertiliser (Sheikhupura plant) and Agritech did not operate after March 31, 2022, then the inventory would be below the buffer stock of 200,000 tons from June onwards and it would be negative from August onwards.

If both plants are allowed to operate on RLNG at the rate of Rs839 per mmbtu for the April-December period, then according to NFDC, an amount of Rs23.5 billion would be required against a total of Rs58 billion required for the import of same quantity from abroad.

The ECC directed the Petroleum Division to ensure the provision of indigenous gas to the two SNGPL-based urea plants latest by March 31, 2022.

The gas rate for operating the two plants for the April-December 2022 period will be Rs839 per mmbtu (with variable contribution margin at Rs186 per bag). The government’s share at this gas rate has been estimated at Rs23.53 billion by NFDC.

The finance ministry said that the ECC also approved another summary on the provision of funds to Heavy Electrical Complex (HEC) to pay liabilities on account of markup to the Bank of Khyber (BoK).

The ECC approved Rs23.3 million as markup for the period October 2021 to March 2022. The government sold HEC to a private party last month.

Published in The Express Tribune, March 31^st, 2022.

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