Erstwhile 5 zero-rated sectors: Inter-ministerial meeting agrees to increase power tariff

ISLAMABAD: An inter-ministerial meeting on Tuesday agreed to increase electricity tariff by 20 per cent from existing 7.5 cents to 9 cents from September 1, 2020 for erstwhile five zero-rated sectors, including textile, aimed at reducing volume of subsidy.

With increase in tariff, the five zero-rated sectors will bear additional financial burden of Rs13-14 billion per annum.

The Power Division was not in favour of extension in special tariff for the five export-oriented sectors after June 30, 2020, arguing that cheap electricity could not be supplied to industry until Finance Division ensures subsidy. However, this issue has been settled by the inter-ministerial committee.

"In a meeting held on Tuesday between the Ministries of Commerce, Finance and Energy, it was agreed that erstwhile five zero-rated industries will be given a rate of 7.5 cents per unit for July and August 2020, and 9 cents per unit thereafter. For gas, the rate will be $ 6.5/ MMBTU throughout," said Razak Dawood, Prime Minister Advisor on Commerce and Investment.

He also claimed that in the wake of the situation created by Covid-19, he feels that Commerce Ministry has obtained a "very good rate and now the exporters should concentrate on growth of exports".

Dawood also appreciated both the Ministry of Finance and Ministry of Energy for their continued support to the industry.

On March 11, 2020, Economic Coordination Committee (ECC) of the Cabinet had extended special electricity tariff at 7.5 per unit cents, aimed at giving relief to the five erstwhile zero-rated sectors - textile, surgical goods, carpets, leather and sports goods - after hectic discussions and consultations between industry and public sector stakeholders some of whom were obviously against continuation of special tariffs of electricity and gas.

However, the government, which was under pressure politically partly due to Prime Minister's direct contacts with the textile sector, decided to extend the special relief package at all-inclusive rate of 7.5 cents for unit from July 1, 2019 to June 30, 2020.

The Finance Ministry, sources said, has not paid the agreed subsidy of Rs 23 billion for the fiscal year 2019-20.

The government also decided that electricity bills issued from January 2019 till date which include surcharges, quarterly adjustments, fuel price adjustments, Fuel Cost Component (FCC) and Neelum Jhelum Surcharge are to be adjusted to fixed tariff at Cents 7.5 kWh(per unit). All taxes of the period are to be paid by consumers in addition.

The ECC had decided that Finance Division will pay Rs 28 billion as subsidy for FY 2019-20 to the Power Division in the first week of July 2020 but nothing has been released so far. The ECC further decided that for continuation of relief package in FY 2020-21, additional subsidy would be capped at Rs 20 billion.

The special relief package which was approved by the ECC after many ifs and buts and immense consultation, expired on June 30, 2020.

The sources said Power Division, which deals with tariffs, also sought opinions of Ministry of Finance, which is to pay subsidy, Ministry of Commerce and other concerned stakeholders on extension of special relief package in the light of ECC decision in which Finance Division was directed to earmark Rs 20 billion for this purpose. However, only Commerce Ministry responded to the summary with the request to continue the special relief package for the five export-oriented sectors.

The sources said Power Division has also supported the Prime Minister's initiative of special tariff for five export-oriented sectors, but it was unable to continue it until the federal government assures provision of subsidy amounting to Rs 28 billion.

The Power Division argues that it was not feasible for it to cross subsidize industry as the power sector is already under severe financial constraints.

APTMA has also sought Prime Minister's attention to the following issues: (i) continuation of regionally competitive energy tariffs; Cents 7.5/ kWh for power, $ 6.5/ MMBTU RLNG and Rs 786/ MMBTU domestic natural gas for export oriented sectors;(ii) financing scheme on pattern of new industry financing as per circular for reviving $ 2 billion closed capacity; and (iii) extend LTFF and ERF to cover the entire value chain including SMEs and indirect exporters.

Copyright Business Recorder, 2020