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ISLAMABAD: Ministry of Finance (MoF) has proposed that average tariff of all Discos be notified as uniform tariff with the approval of ECC/ Cabinet to address crises of liquidity and flow of circular debt, official sources told Business Recorder.

This proposal has been floated by the Finance Division on a summary of Petroleum Division, in which the latter sought an amount of Rs 36 billion supplementary grant or technical supplementary grant for June 2022 to ensure supply of LNG for the power sector.

Finance Ministry argues that the unprecedented hike in LNG import cost necessitates a revisit of the currently followed electricity Tariff Differential Subsidy (TDS) policy, i.e., absorption/ payment of entire TDS by the Federal government worked out on the basis of lowest tariff determination by NEPRA of an efficient Disco and notified as a uniform tariff to provide maximum relief to end consumers across the country. The policy has led to an unsustainable yawning gap in the fiscal space and finally translated into the circular debt, currently hovering around Rs. 2.4 trillion.

Finance Ministry maintains that the immediate way forward to address the flow of circular debt, as well as, to address the liquidity crisis like situation is to notify the average tariff of all Discos as uniform tariff with the approval of the competent authority, i.e., ECC/ Cabinet.

For sustained supply of subsidized gas to industrial including zero-rated sector, Finance Ministry has proposed that subsidized LNG rate may be determined keeping in view the fiscal space provided through budgetary allocation for the next fiscal year to help prevent the flow of circular debt in the gas sector.

Rs7.91 hike in base tariffs of Discos approved

Finance Division says that it will place the requisite amount in the demand of Petroleum Division which will ensure that the entire amount is transferred to PSO and PLL, as deemed appropriate, without any deduction by the SNGPL. It will also place the requisite amount in the demand of Petroleum Division and Petroleum Division will open a separate head for subsidy on LNG supply to domestic sector and the SG/ TSG will be adjusted against the SNGPL’s subsidy claims.

Finance Division has requested Petroleum Division to provide approval of the ECC/ Cabinet regarding diversion of LNG to domestic sector, during the ECC meeting and processing the release by Finance Division. Petroleum Division will release the amount to SNGPL against the principal amount of verified subsidy claims.

Petroleum Division, in its summary, has claimed that Pakistan State Oil Company Limited (PSO) and Pakistan LNG Limited (PLL) are importing LNG to minimize shortfall in the gas demand and supply. The re-gasified LNG is supplied by SSGC and SNGPL to consumers including power sector as major consumer in summer months.

During June to Sep 2022, maximum LNG is planned to be imported for supply to power sector to minimize load shedding.

According to the plan, PSO will import 6 cargoes each month starting from June to September 2022. PLL will also import same quantity of cargoes during these months, of this in June, July and September 2022 three cargoes each to be imported on term basis whereas the same quantity will be imported on spot. However, in August 2022, one cargo will be on term basis and five cargoes on spot.

The planned import will be subject to securing spot cargoes through tenders and timely opening of LCs and payments to LNG suppliers. SNGPL has planned to supply 720 to 780 MMCFD to power sector whereas PLL will be ramping up its direct supplies to KE from 62 MMCFD in July to 130 MMCFD in Oct 2022.

Due to Russia-Ukraine situation and international demand supply dynamics, the price of one spot LNG cargo is hovering around Rs. 15 to 16 billion, enhancing the liquidity requirement of LNG importers. Besides LNC import PSO is also importing Furnace Oil (FO) to meet demand of power sector, which is adding to its financial constraints. PSO and PLL have furnished their projected liquidity requirement during summer months.

The overall gross liquidity requirement of both PSO and PLL will be Rs 1.977 trillion till September 2022 of which Rs 525 billion will be for June, Rs 489 billion for July, Rs 493 billion for August and Rs 470 billion for September.

PSO’s financial requirement will be Rs 1.699 trillion for both LNG and furnace oil, of which Rs 427 billion is required for June, Rs 445 billion for July, Rs 413 billion for August, Rs 414 billion for September. PLL’s gross liquidity requirements will be Rs 278 billion of which Rs 98 billion will be for June, Rs 44 billion for July, Rs 80 billion August, Rs 56 billion for September.

The requirements have been discussed with relevant stakeholders while considering the projected receipts of PSO and PLL from SNGPL, SSCC, power sector and credit lines available with the companies.

It was concluded that there will be still an average shortfall of Rs. 52 billion per month (PSO Rs 39 billion PLL Rs 14 billion) as per following details: (i) June - Rs 36 billion (PSO Rs 26, PLL Rs 10 billion); (ii) July - Rs 42 billion (PSO Rs31 billion, PLL, Rs 11 billion);(iii) August - rs69 billion (PSO Rs 52 billion, PLL Rs 17 billion); and (iv) September - Rs 63 billion (PSO 46 billion, PLL Rs 17 billion).

The liquidity shortfall is likely to happen due to two reasons, i.e., delayed payments by CPPA to SNGPL on account of RLNG supply to power plants (only 28% of payments have been received from CPPA in May 2022 against the invoices raised) and secondly due to delay in income tax refund to SNGPL, etc., resulting in further delay in payment to PSO and PLL. The shortfall will aggravate the prevailing liquidity crunch of SNGPL, PSO and PLL making fuel supply chain vulnerable.

Petroleum Division has claimed that the ECC, in its decision of May 11, 2018 and June 6, 2020 allowed SNGPL to divert LNG during winter months to domestic consumers having much lower tariff while OGRA was directed to allow recovery of RLNG diversion cost/ tariff differential through monthly RLNG pricing. OGRA has maintained its stance that Government may consider to fund the tariff differential in respect of diversion of RLNG and it does not appear fair and equitable to cross-subsidize RLNG consumers. Therefore, recovery of diversion cost of RLNG is still outstanding and as of April, 2202 an amount of Rs. 162 billion has accumulated impacting SNGPL’s ability to pay to PSO and PLL against RLNG supply.

Petroleum Division, in its proposal has requested that in order to maintain the sustainability of the LNG supply chain, as well as, import petroleum products in the country, supplementary allocation/ TSG of Rs 36 billion for June 2022 may be approved under the head of Petroleum Division. The allocated amount shall be released to SNGPL against pending claims in respect of cost of the RLNG diversion to domestic sector for setting off the payable of PSO and PPL against RLNG supply.

Petroleum Division further requested that liquidity requirement of Rs 171 billion for the months of July-September 2022 may also be approved.

Finance Ministry has supported the summary to the extent of a TSG/ SG of Rs.36 billion. However, having no fiscal space for the proposed allocation of Rs. 174 billion in the next financial year’s budget, Finance Division has not support the proposal.

Copyright Business Recorder, 2022

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