Gas consumers to bear interest cost
PHOTO: FILE
The federal government on Tuesday approved the issuance of Rs50 billion worth of sovereign guarantee to facilitate a gas distribution company in taking commercial loans and allowed the recovery of interest cost from gas consumers, again passing on its inefficiency cost to the customers.
The Economic Coordination Committee (ECC) of the cabinet, which took that decision, also bent terms of sugar export, for the second time in past three months, by accommodating the influential industrialists.
It approved a Rs10 billion supplementary budget for the National Disaster Management Authority (NDMA) for transporting goods to Turkiye to help earthquake victims.
The ECC allowed the sovereign guarantee in favour of Sui Northern Gas Pipelines Limited (SNGPL) for commercial borrowing of Rs50 billion immediately, said the Ministry of Finance.
The permission was granted to facilitate SNGPL in making payments to Pakistan State Oil (PSO) on account of imported LNG supply, which was on the verge of default.
However, the ECC issued instructions to the Oil and Gas Regulatory Authority (Ogra) that the interest cost of Rs50 billion borrowing and any additional borrowing should be recovered from gas consumers.
Earlier, the federal government passed on the interest cost of power-sector circular debt to electricity consumers in the shape of debt servicing surcharge of Rs3.23 per unit.
Circular debt in both gas and power sectors is accumulating due to the poor performance of Petroleum and Power Divisions and delayed decisions by the federal government. But consumers are penalised for the government’s inefficiency.
It was discussed in the meeting that both Sui Southern Gas Company (SSGC) and SNGPL would consider commercial borrowing of another Rs50 billion based on their balance sheets.
PSO, which is importing eight to nine liquefied natural gas (LNG) cargoes every month, last week sent an “SOS call” for releasing funds as the company’s liquidity position was under severe stress. Its receivables have peaked to an all-time high of Rs773 billion with major contribution from SNGPL that owes Rs498 billion.
PSO’s receivables from SNGPL have swelled by Rs211 billion in the past one year alone. It has already borrowed Rs411 billion, leading to increased financing cost of Rs43 billion in the current fiscal year and the projected Rs73 billion in FY24, which will completely erode the company’s profitability, the ECC was informed.
Funds out of the budgeted subsidies are being delayed by the Finance Division owing to the constrained fiscal space and limits on expenditure, leading to the accumulation of subsidies of Rs14.45 billion for the export sector and diversion of re-gasified LNG.
PSO was of the view that even with the recent arrangement of Rs50 billion borrowing, there was not much improvement in its liquidity requirement, which may result in default in international payment obligations, the ECC was cautioned.
A statement of the Ministry of Finance said that the Ministry of Commerce submitted a summary on the export of sugar with proposals from the State Bank of Pakistan (SBP) and Pakistan Sugar Mills Association (PSMA) on certain conditions regarding the mode of payment and the time period for realisation of export proceeds.
The ECC considered the proposed extension in shipment period of sugar export and after detailed discussion allowed an extension from 45 days to 60 days from the date of quota allocation.
It has already allowed export of a total of 250,000 tonnes of sugar on January 3, 2023 and December 15 last year. So far, only 50,000 tonnes could be exported as millers were taking advantage of the prevailing uncertain market conditions. Their dispute over the allocation of quota also delayed exports.
NDMA submitted a summary on financial requirement for Pakistan’s assistance for Turkiye and Syria to help the earthquake victims. It was informed that the devastating earthquake caused massive casualties in Turkiye and Syria.
The ECC approved immediate allocation of Rs10 billion to the NDMA for the procurement and transportation of goods to the affected areas in Turkiye and Syria.
The Ministry of National Food Security and Research submitted a summary on the cotton intervention price for 2023-24 crop and argued that the announcement of intervention price, ahead of the main sowing season, would help growers decide about the planting area and investment and was expected to enhance yield and area by 10-15%.
To boost cotton production in the country, bring stability in the domestic market and ensure a fair return to farmers, the ECC approved the proposal of fixing the cotton (phutti) intervention price at Rs8,500 per 40 kg for the current sowing season.
Cotton sowing cost has been estimated at Rs7,000 per 40 kg. The meeting was informed that this year, cotton production would be only 4.8 million bales, nearly 4.9 million bales, or 50%, less than last year.
The ECC directed the food ministry to constitute a cotton price review committee with the mandate to review market prices. It also directed the ministry to proactively involve the cotton industry.
Published in The Express Tribune, March 15th, 2023.
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