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Export-oriented sectors: ECC approves continuation of gas, power subsidy

  • Move aimed at reducing cost of manufacturing and supporting the momentum of growth in exports
Published August 17, 2021
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ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet Monday approved the continuation of electricity and gas subsidy for export-oriented sectors to reduce cost of manufacturing and support the momentum of growth in exports during the fiscal year 2021-22.

Federal Minister for Finance and Revenue, Shaukat Tarin presided over the meeting of the ECC of the Cabinet, here Monday.

The Ministry of Commerce presented a summary proposing the continuation of concessional rates of electricity and RLNG to export-oriented sectors.

According to the summary, the availability of energy at regionally competitive prices is required specially in the Covid-19 scenario to sustain the exports and proposed that (i) Electricity may be provided at US cents 9 per kWh all-inclusive to exports oriented sectors during financial year 2021-22; (ii) the RLNG may be provided at $6.5/MMBtu all-inclusive to export oriented sectors during financial year 2021-22 and; (iii) The Finance Division may give financial commitments that additional funds of required by Power Division and Petroleum Division shall be provided to continue concessional energy rates to export oriented sectors.

However, the Ministry of Energy may apprise relevant ministries regarding the budget situations in time, so that the Commerce Division may place a summary for supplementary grant allocation before the ECC of the Cabinet for consideration.

Power and gas: ECC may extend concessional tariffs to industry today

The summary also noted that in federal budget 2021-22, Rs36 billion (Rs26 billion for electricity and Rs10 billion for RLNG) were initially allocated to continue concessional energy rates. As the commodity prices are on the rise, therefore, matter was taken up with the Minister for Finance and Revenue during the post-budget meetings and it was informed that the allocation has been enhanced to Rs45 billion. Further, the Power Division sought clarification from the Commerce Division whether the concessional tariffs for export-oriented sectors is required to be extended for next fiscal year 2021-2.

The Commerce Ministry reiterated its position for continuation of concessional energy rates during fiscal year 2021-22 to reduce cost of manufacturing and enhance exports.

The secretary commerce briefed the Committee that extension of concessional rates of electricity and RLNG is important for sustained increase in exports by providing energy at regionally competitive rates.

After due deliberations, the Committee approved the continuation of electricity and gas subsidy for export-oriented sectors to support the momentum of growth in exports during the fiscal year 2021-22.

The finance minister emphasised the need to incentivise export-oriented sectors in order to take exports to the next level.

At the same time, the finance minister stressed the need to rationalise usage of energy inputs.

For this purpose, the ECC constituted a sub-committee comprising Minister for Energy, Minister for Industries and Production, Advisor on Commerce, Deputy Chairman Planning Commission, Additional Secretary (CF) Finance Division, and other relevant officials for presenting a plan to resolve the issue of continued use of gas by some units for power generation and non-cooperation in audit of such use.

The sub-committee was directed to present its recommendations before the ECC within 30 days for further deliberation.

The ECC, dated 28th April 2021, had formulated a committee of relevant stakeholders under the chair of Advisor to the Prime Minister on Commerce and Investment to deliberate on the issue of power subsidies to export-oriented sectors and submit its recommendations to the ECC.

In pursuance of above direction, a meeting was held on 7th June 2021 in the Ministry of Commerce and it was mutually agreed that; (i) supply of electricity and RLNG may be continued at US cents 9/kWh and $6.5/MMBtu to export-oriented sectors and the Ministry of Energy may start billing on standard rates from export-oriented sectors once budget is exhausted; (ii) the Minister for Energy was of the view that the ministry has no objection in continuation of concessional energy regime, if it is budgeted and further informed that approximately Rs35 billion to provide electricity at US cents 9/kWh and Rs29 billion to provide RLNG at $6.5/MMBtu would be required; (iii) a monthly meeting may be called by Ministry of Energy to apprise relevant ministries regarding budgetary situation so that the Commerce Division may take up the matter with the Finance Division in time through the ECC of the Cabinet for supplementary grant (if required).

Moreover, as the energy prices are continuously increasing, it is imperative that the Advisor to Prime Minister on Commerce and Investment may deliberate with textiles and apparel value chain for upward revision of the RLNG prices.

The ECC considered and approved a summary presented by the Power Division for extension of incremental consumption package for K-Electric industrial consumers of X-WAPDA DISCOs and K-Electric and application of incremental consumption package for BI(Non ToU) consumers of X-WAPDA DISCOs and K-Electric at the rate of Rs12.96/kwh from 1st July 2021 to 31st December 2021.

Power subsidy rationalisation plan unveiled

The Power Division summary proposed that (a) rate of Rs12.96/Kwh shall be charged to industrial consumer categories (B1, B2, B3, B4 &B5) of K-Electric from 1st July, 2021 to 31st October, 2023, for off-peak incremental consumption basis over their consumption in corresponding months of period March 2019 to February 2020.

New consumers having no reference consumption available in period of March 2019 to February 2020 shall be offered the same package through slab-wise consumption structure.

The package will be applicable to all hours of the day, during the period in which time of use tariff for industrial users remains discontinued; (B) budget the additional cumulative subsidy of approximately Rs11.2 billion on account of difference of Rs12.96/kWh and claimed marginal cost of Rs14.61/kwh, for extension of incremental consumption package for industrial consumers K-Electric (1st July 2021 till 31st October 2023).

The marginal (variable) cost of Rs14.61/kWh, to be utilised for computation of subsidy, shall be verified by the Nepra.

Further, the Nepra shall provide appropriate mechanism for adjustment, keeping in view existing Nepra determinations for K-Electric; (C) for industrial consumers of K-Electric and X-WAPDA DISCOs, only positive fuel price adjustments shall be passed on incremental consumption to the consumers availing the incremental consumption package; (D) rate of Rs12.96/kWh shall be charged to existing B1 (Non-ToU) industrial consumers of XW-DISCOS and K-Electric from 1st July, 2021 to 31st December, 2021 for incremental consumption basis over their consumption in corresponding months of period July 2019 to December 2019.

B1 (Non-ToU) consumers having no reference consumption available in period of July 2019 to December 2019 shall be offered the same package through slab-wise consumption structure; (e) existing B1 (Non-ToU) consumers converting to ToU metering arrangement, shall be offered the same package at the concessionary rate of Rs12.96/Kwh for off peak incremental consumption through slab-wise consumption structure till the applicability of incremental consumption package for XW-DISCOs and K-Electric respectively.

The package will be applicable to all hours of the day, during the period in which time of use tariff for industrial users remains discontinued; (f) budget the cumulative subside of approximately Rs4.1 million as a result of application of incremental consumption package for BI (Non-ToU) industrial consumers of K-Electric 1st July 2021 till 31st December 2021).

The ECC also approved another summary by the Petroleum Division regarding NOC for issuance of the Parent Company Guarantees/Corporate Guarantees by each of the consortium companies, on a joint and several basis, in favour of ADNOC and SCFEA to pursue international exploration and production opportunity in Abu-Dhabi, United Arab Emirates.

The Power Division had also moved another summary “non-payment of GST and fixed charges by agriculture tube well consumers in Punjab, Sindh and Khyber Pakhtunkhwa”.

The Division had stated that for sustainability of power sector, following proposals are made for consideration of the ECC of the Cabinet: (a) Since the provincial governments do not agree to pay the GST, the full amount would be passed to the consumers in the respective DISCOs from the August billing cycle; (b) Fixed charges will be part of the subsidy and would be paid by the Federal Government. An amount of Rs9.248 billion may be provided as supplementary grant during current fiscal year 2021-22. In case this is not possible, the amount of fixed charges may be passed on to the consumers in the August billing cycle; (c) Arrears of Rs16.658 billion in terms of fixed charges may be released as supplementary grant in 2021-22: and (d) The past arrears of GST may be recovered from the consumers since the provincial governments have declined to make the payment.

However, the official statement issued by the Finance Division does not include anything on the agenda item.

Federal Minister for Privatisation, Muhammadmian Soomro, Federal Minister for National Food Security and Research, Syed Fakhar Imam, Federal Minister for Industries and Production, Makhdoom Khusro Bakhtyar, Federal Minister for Energy Muhammad Hammad Azhar, Federal Minister for Economic Affairs Division, Omar Ayub Khan, Adviser to the PM on Commerce Abdul Razak Dawood, Adviser to the PM on Institutional Reforms and Austerity Dr Ishrat Hussain, SAPM on Finance and Revenue Dr Waqar Masood, SAPM on Power and Petroleum Tabish Gauhar, Federal Secretary Finance, Secretary Ministry of Industries and Production, Secretary Ministry of NFS&R, Secretary Power, Secretary Petroleum, Chairman FBR, and other senior officers participated in the meeting, Governor SBP Dr Reza Baqir also participated through video link.

Copyright Business Recorder, 2021

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