Energy firms and essential commodities will get cushion. PHOTO: FILE
The government has set aside a lower amount for subsidy payments on energy supplies and essential commodities like sugar and wheat in the budget for 2014-15.
In the next fiscal year beginning July, the state will provide Rs203.24 billion in subsidies, 15.45% lower than Rs240.4 billion earmarked in the current fiscal year, which will end on June 30, according to budget documents.
However, it is unclear whether the government will be able to keep itself within the ceiling or grossly overshoot the target as is the case in the outgoing fiscal year.
In 2013-14, the subsidy is estimated to jump up to Rs323.02 billion from the initial target of Rs240.4 billion, thanks to the support provided to inefficient power companies.
In terms of percentage share in the size of national economy, the subsidy for the next fiscal year has dropped to 0.7% of gross domestic product against 0.92% this year. With this amount, the government hopes to provide some ‘cushion’ to consumers of power, wheat, sugar and salt.
In 2014-15, subsidies to the Water and Power Development Authority (Wapda) and Pakistan Electric Power Company (Pepco) constitute a major component, standing at 76.8% of total allocation. They will be followed by K-Electric that will get 14.3% of the total.
There will be no subsidy on power supply to agricultural tube wells in three provinces – Sindh, Punjab and Khyber-Pakhtunkhwa. In Balochistan, tube wells will continue to receive power subsidy but it has been reduced to Rs1 billion against Rs3 billion in the outgoing fiscal year.
According to the budget documents, a total of Rs156.1 billion has been set aside for subsidising the power sector. Of this, Rs150 billion will cover tariff differential claims of power distribution companies and Rs5 billion will be used to pick up receivables of Federally Administered Tribal Areas (Fata) against Rs12 billion in the outgoing year.
Apart from these, Rs100 million will be paid for the exchange rate differential in the US Agency for International Development’s (USAID) grant to power generation companies and Rs1 billion will be given to cover tariff differential for agricultural tube wells in Balochistan.
Separately, the government has made a drastic cut in subsidy for K-Electric consumers and has set aside Rs29 billion against Rs55 billion in the outgoing year. Actual subsidy this year surged to Rs64 billion, according to revised estimates.
In the outgoing year, Rs165.1 billion worth of subsidies were allocated for the power sector, but the government could not confine itself within the limit and the amount swelled to Rs245.1 billion.
To bridge the gap between the cost of power generation and the rate charged from consumers, Rs150 billion was earmarked, but it went as high as Rs230 billion because of inefficiency and bad governance in power companies as well as unchecked electricity theft. This came despite a rise in electricity tariff.
Essential goods
The subsidy on sale of sugar and Ramazan package has been increased as the Utility Stores Corporation will receive Rs7 billion in the next fiscal year against Rs6 billion this year.
Of this, Rs3 billion will go for Ramazan package and Rs4 billion will be utilised to subsidise sugar sale to consumers.
The allocation for the Pakistan Agriculture Storage and Services Corporation (Passco) has been reduced to Rs8 billion compared to Rs9 billion this year, which it will spend on wheat purchase and keeping reserves to stabilise prices. This year, Passco consumed Rs6.5 billion worth of subsidy.
Oil refineries and marketing companies will receive a cushion of Rs2 billion but subsidy for Fauji Fertilizer Bin Qasim has been stopped, though the company was provided Rs231 million in the outgoing fiscal year.
An amount of Rs293 million has been set aside for sale of wheat in Fata, Rs850 million for wheat sale in Gilgit-Baltistan and Rs5 million for salt sale in Gilgit-Baltistan.
Published in The Express Tribune, June 4th, 2014.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.
COMMENTS
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ