The Economic Coordination Committee (ECC) on Tuesday took decisions which did not go down well with the finance ministry.
The government approved the export of wheat to Iran and decided in principle to retender import of liquefied natural gas (LNG). The decisions were taken at an ECC meeting of the Cabinet headed by Finance Minister Dr Abdul Hafeez Shaikh.
ECC has asked the State Bank governor to get the ministry of foreign affairs’ viewpoint on international trade restrictions faced by Iran. The US has threatened it will impose sanctions on countries trading with Iran in an effort to inhibit the latter’s nuclear programme.
In another move which could have far-reaching financial implications on the country, the government approved a framework for short- and long-term import of LNG despite strong opposition by the ministry. According to the ECC summary, the government will restart the entire process of importing the relatively cheap fuel.
The coordination committee has constituted a technical group to further deliberate over the mechanism, bidding details, guarantee matters and legal issues.
The team – comprising secretaries of petroleum, water and power, and finance ministries, Planning Commission and Board of Investment chairmen, and the State Bank of Pakistan’s governor – will present a report at the next ECC meeting.
The finance ministry, however, remains unimpressed. Terming the petroleum ministry’s summary “vague and sketchy”, officials from the ministry said the government will end up being involved in the import process which is bound to raise transparency concerns.
Sources said the finance secretary expressed concern over the government’s move to establish a subsidiary for the import saying that would make the deal a “government affair, but with a private sector tag.”
The government has agreed to provide equity and sovereign bank guarantees for the subsidiary in an effort to back the LNG import.
The decision comes at a time when the Netherlands-based firm 4Gas, developer of the stalled Mashal LNG project, has already threatened to sue the government if it decides to reinitiate the import project from scratch.
4Gas is the successful bidder for developing Mashal LNG project and the contract still remains intact as it has not been revoked by either the Supreme Court or the ECC.
Weekly review of oil prices
In another move bound to irk the finance ministry further, the ECC approved the weekly review of oil prices. The ministry opposed the move saying the current practice of reviewing prices fortnightly was creating an artificial shortage with consumers facing the brunt of the burden.
The decision, however, has been taken on a “trial” basis to assess its impact on oil marketing companies and the general public, stated an official handout.
Other decisions taken at the ECC meeting include approving the import of furnace oil by Pakistan State Oil (PSO) under term contract on 120 days deferred payments. The move is made in wake of circular debt causing the government to default on international payments.
Some analysts say the decision could result in increased cost of power generation and subsequently push up electricity prices.
The ECC also approved capacity payments to four Independent Power Producers (IPPs) worth over Rs700 million, which is likely to put an additional burden on the national kitty.
Published in The Express Tribune, August 8th, 2012.