Change of heart: Ministry dithers over release of funds for IP pipeline

Has collected $400m in infrastructure cess for the project.

ISLAMABAD:

The Ministry of Finance is finding it difficult to set aside millions of dollars collected from gas consumers for the Iran-Pakistan gas pipeline project, as heavy spending by the past government on power subsidies and development projects for political gains has eaten into the resources of the ministry, making its financial standing weak.

The Pakistan Peoples Party (PPP)-led coalition government, which completed its tenure last month, had imposed gas infrastructure development cess on gas consumers to finance the IP pipeline and collected $400 million, sources say.

An assignment account was opened in a bank in the wake of a decision of the cabinet to deposit the cess, but the finance ministry failed to credit the amount into the account because of shortage of funds.

Sources pointed out that initially a cash call of $300 million was made to the ministry to transfer the amount to the assignment account, which would meet the needs up to June this year. However, the ministry did not deposit the cess, instead it insisted that it would release the funds at the time of payments to contractors.

According to estimates, $1 billion will be required before the end of December 2014.



Sources attributed the vulnerable financial position of the finance ministry to hefty power subsidies and excessive spending by the previous government for political gains.

In the current fiscal year, the PPP-led government froze power tariff to avoid the wrath of voters in upcoming elections and doled out Rs268 billion in power subsidies against the target of Rs185 billion.

Former prime minister Raja Pervez Ashraf also spent more than his discretionary fund earmarked in the budget, leaving the finance ministry with little to spend.

According to officials, like the gas infrastructure cess, petroleum development levy, which was imposed to develop the oil sector, was used to bridge the budget deficit.

“The government should have opened an assignment account soon after imposing the gas infrastructure cess to avoid its misuse,” an official suggested, but said Pakistan and Iran had not yet signed the award of pipeline construction contract to Iranian firm Tadbir Energy.

Officials said Pakistan had collected $400 million as cess and $500 million would be provided by Iran for the IP project. China is also expected to lend $500 million.

“If the government secures financing from these sources, it will have enough money to fund the $1.35 billion gas pipeline,” the official said.

As the cabinet has approved the provision of funds, the officials hoped that the cess would be released to meet the needs of the IP project.

“Considering the fact that achieving financial close of the project is necessary and moving ahead on a piecemeal basis is not an option, funds required to kick-start construction activities and the remaining funds should be released by the finance ministry immediately,” said the petroleum ministry.

When approached, the finance ministry spokesman confirmed that funds had so far not been credited to the assignment account. However, he said, “there is no shortage of funds and we are in the process of transferring the money.”

Published in The Express Tribune, April 23^rd, 2013.

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