Gas subsidy scrapped for exporters

Industrial units will pay OGRA-notified gas tariff from May 1

ISLAMABAD:

The federal government has abolished gas subsidy for five major export-focused sectors as Sui Northern Gas Pipelines Limited (SNGPL) will stop supply of subsidised gas to its consumers from May 1, 2023. In a letter dated April 29, 2023, SNGPL informed its customers that the subsidy allocated by the government on supply of gas/ re-gasified liquefied natural gas (RLNG) to five key export-oriented sectors for financial year 2022-23 had been fully exhausted.

“Therefore, SNGPL is constrained to withdraw the concessionary tariff to five export-oriented sectors with effect from May 1, 2023,” said the letter titled “Exhaustion of Allocated Budgeted Subsidy on RLNG Price to Export-Oriented Sectors.” “Gas/ RLNG supply to your industrial units shall remain available at Oil and Gas Regulatory Authority (Ogra)-notified tariff with effect from May 1, 2023.”

Earlier, the federal government was paying Rs80 billion in subsidy on supply of gas at a concessionary tariff to the export-oriented sectors. According to sources, the supply of RLNG to textile, sports, surgical, leather and jute sectors at the discounted tariff of $9 per million British thermal units (mmBtu) will come to an end and they will have to pay an additional $4.

The federal government has done away with a series of concessions on the demand of the International Monetary Fund (IMF) and other sectors, said sources. In March 2023, the National Electric Power Regulatory Authority (Nepra) endorsed the government’s decision to withdraw the concessionary tariff for the export-oriented sectors and agricultural tube wells from March 1. According to Nepra’s decision, the Power Division, on March 7, 2023, indicated the following decision of the federal Cabinet of February 28, 2023.

Firstly, the discontinuation of concessionary tariff being provided at Rs19.99 per kilowatt-hour (kWh), all inclusive, to the five export-oriented sectors from March 1, 2023. Secondly, the discontinuation of special relief of Rs3.60/kWh provided to the private agricultural consumers in the current base rate of Rs16.60/kWh from March 1, 2023. The export-oriented sectors, particularly textile, have been facing criticism from different quarters over getting subsidised gas and electricity simultaneously.

The textile sector has also captive power plants meant for producing electricity, in case they are not provided power from the national grid. Previous government had linked the provision of gas to textile units with a performance audit of the captive power plants. There had been misuse of gas subsidy provided to the captive plants, as the textile units were also receiving subsidised gas. The Petroleum Division has also conducted a study, indicating that while sales of textile mills have increased locally, there has not been a substantial rise in exports.