Reluctance to part with GIDC

With the rising demand for gas, the government has finally decided to approve financing for the third RLNG pipeline. Since RLNG has become the fuel of choice given its higher efficiency and lower price as compared to furnace oil, it has become necessary to create an entire supply chain starting from the re-gasification terminals to pipelines.

The pipeline which will run from Karachi to Lahore and will cost almost Rs175.5 billion has faced delays when it comes to financing arrangements. Recall that the approval for commercial loans was put on hold last year as the Finance Ministry under Dar was reluctant to release the amount from the Gas Infrastructure Development Cess (GIDC).

The whole purpose of GIDC as its name suggests, was to provide financing for gas infrastructure development including projects like Iran-Pakistan-India (IPI) gas pipeline, Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline project, as well as construction of R-LNG terminals and domestic gas pipelines.

As this column has highlighted before, for all practical purposes the GIDC has been used by Dar to fill fiscal financing needs. The matter has also been controversial because GIDC is a federal subject with provinces not getting a share of it while any tax on gas is a provincial subject.

In previous cases as well such as financing for the second R-LNG pipeline project, the government had approved bank borrowing of up to Rs100 billion by SNGPL and SSGC because the Finance Ministry was hesitant to part with GIDC funds.

Even though the petroleum division had placed a summary before the ECC to provide Rs175.5 billion out of the GIDC as its first preference, under the approved financing mechanism only Rs40 billion will be provided out of the GIDC fund which currently holds Rs270 billion.

If the government is so intent on making natural gas as the primary component in its energy mix, then there is also an urgent need to utilize the GIDC for the purposes of gas infrastructure development. With two R-LNG terminals already running, two under process, three R-LNG power plants already running and one on the way, pipelines need to be constructed at a rapid pace.

Eventually, it is the end consumer which bears the cost of these imprudent decisions on behalf of the government. For the all sectors, including fertiliser and CNG have passed on the impact to the general public. But borrowing for the construction of R-LNG pipelines means that consumers will also be paying more in the future as taxes in order to pay for the mark-up imposed on borrowing.