Infrastructure development levy: Federal cabinet’s approval sought for new tax on gas

Centre claims there is no opposition from provinces in the imposition of the levy.

ISLAMABAD:

Amid fears that the energy crisis will become even worse due to a decline in domestic gas production by two billion cubic feet gas per day (Bcfd) in 2020, the Council of Common Interests (CCI), an apex decision-making body represented by provinces, has asked the centre to seek approval of the federal cabinet to impose  an infrastructure development levy (IDL) on natural gas in a bid to generate annual revenue of Rs25 billion to build infrastructure of gas import projects including the Iran-Pakistan gas pine.

At present, the country’s local production is four bcfd and gas utilities have estimated that it will decline to two bcfd by 2020 as exploration companies have not been able to make new discoveries due to the poor law and order situation especially in Balochistan.

Sources told The Express Tribune that the ministry of petroleum had tabled a summary at a meeting of the CCI to impose the infrastructure development levy to generate funds for gas import projects, including multi-billion-dollar Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline projects and liquefied natural gas (LNG) import.

“Yes, we had moved a summary to CCI on Saturday seeking approval for imposing infrastructure development levy on natural gas,” Minister for Petroleum Dr Asim Hussain told The Express Tribune. He said that CCI had asked the Centre to seek the approval of the federal cabinet to impose it. “The federal cabinet should approve it, the CCI said, because it does not fall in its purview,” Hussain added.

When asked whether provinces had opposed this new tax on natural gas, Hussain said that no province had opposed it. “Now approval will be sought from the cabinet,” Husain said.

The impact of the IDL will be passed on to the consumers resulting in a hike in gas prices. Sources said that a summary was tabled before CCI, a body represented by provinces, to seek consent of provinces also which were major stakeholders in gas production.

In a summary, CCI was informed that government had projected to generate Rs25 billion ($300 million) per annum by imposing Infrastructure Development Levy (IDL) on natural gas. The rate of IDL will be worked out at later stage of legislation after its approval from cabinet.

In the first phase, government wants to generate $ 1.2 billion to finance the IP gas pipeline project. At present, the government is working on three gas import projects - IP, TAPI and LNG. Under the $7.5 billion TAPI gas pipeline project, Pakistan’s share will be 1.35 billion cubic feet per day (cbfd) out of total 3.2 bcfd gas import. Under the Iran-Pakistan gas pipeline project, Pakistan will import 570 mmcfd gas to be extended to one bcfd. Sui Southern Gas Company (SSGC) has received expression of interests (EOIs) from 17 companies to import 500 mmcfd of LNG.

According to the petroleum minister, the Iran-Pakistan gas pipeline project will be completed two years ahead of schedule by December 2012 against the deadline of first flow of gas from Iran in December 2014.

Published in The Express Tribune, August 29^th,  2011.