New govt to take decision on gas infrastructure cess

Court had suspended the cess, citing procedural lapses.


Zafar Bhutta June 04, 2013
To build the IP pipeline, the govt has collected $400m as cess, will receive $500m each from Iran and China. PHOTO: FILE

ISLAMABAD:


The new government of Pakistan Muslim League-Nawaz (PML-N) is set to review and take a decision on imposing the gas infrastructure development cess (GIDC) on consumers for generating funds for gas import projects including the Iran-Pakistan (IP) pipeline.


According to sources, the Ministry of Petroleum and Natural Resources will put the matter before the incoming cabinet for deciding the fate of GIDC, which has been suspended by the court. If the government does not like to go ahead with the IP gas pipeline project, the plan for raising funds through GIDC will be shelved, they say.



The Islamabad High Court (IHC) had suspended the GIDC after finding procedural lapses in getting approval for the cess. In its detailed judgment, the court said the past government of Pakistan Peoples Party (PPP) had not followed a proper procedure and bypassed the cabinet before getting approval for the cess from the parliament.

With the help of GIDC, the PPP-led coalition government had expected to bag around $1 billion from gas consumers to finance the IP pipeline. The plan came after foreign lenders stayed away from the project in the face of fierce US opposition to entering into business contracts with Iran.

The petroleum ministry is not making any projections for GIDC collection in the next fiscal year beginning July because of the court’s restrictions. Now, officials say, the GIDC issue will be settled in the upcoming budget for fiscal year 2013-14.

For the current fiscal year, the government had expected to collect Rs30 billion in cess, which was imposed in 2011-12 with a recovery projection of Rs8 billion. “So far, Rs40 billion has been collected under this head,” an official told The Express Tribune.

However, the finance ministry has not been able to deposit the cess in a special account, called Assignment Account, opened in a domestic bank specifically for financing the IP pipeline because of shortage of funds. The ministry’s accounts are going dry following heavy spending by the previous government on development projects and release of hefty amounts as power subsidy.

Former prime minister Raja Pervez Ashraf spent more than his discretionary funds in a bid to please voters just few months ahead of elections. On the other hand, the government froze power tariff in the current fiscal year in an attempt to avoid annoying people and paid over Rs300 billion in subsidy against the full-year target of Rs185 billion.

According to sources, initially the finance ministry was asked to deposit $300 million of cess in the Assignment Account to cater to the needs until June this year. However, the ministry did not transfer the amount, instead it said it would release the money at the time of payment to project contractors.

Later, further cash calls will be made and estimates suggest that $1 billion will be required before the end of December 2014.

Officials say that besides the $400 million collected as cess, Iran will provide $500 million. China is also expected to lend $500 million for the pipeline.

“If the government secures funds from all these sources, it will have adequate amount to finance the $1.35-billion IP pipeline,” the official said, adding the fate of the pipeline would depend on the new government’s policy.

Published in The Express Tribune, June 5th, 2013.

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