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EDITORIAL: Providing regionally competitive energy by providing subsidy to the exporting sectors was always a challenge; it has now become an even more daunting task. Energy prices are high which would mean a higher requirement of subsidy. As per an agreement with the International Monetary Fund (IMF), however, there is no room for supplementary grants.

The textile industry is demanding a commitment of electricity at 9 cent per unit and gas at $9 per mmbtu for the whole fiscal year. ECC (Economic Coordination Committee) of the Cabinet wanted to stick to what was offered in the budget. The Prime Minister is pushing for providing a firm commitment to the industry so that export growth is not disturbed. But the Finance Ministry’s hands are tied. They have to make adjustments in expenditure or to identify additional revenue measures (mainly in taxes) to fund the subsidy to be rolled out.

It’s a tough call. But the approach to a solution to the problem is right. In the past, the incidence of supplementary grants was high enough so as to disturb the fiscal balance. The IMF wants discipline and such issues are surfacing. First, on the popular demand of Pakistan Muslim League-Nawaz (PML-N) leader Maryam Nawaz, Finance Minister Miftah Ismail had to withdraw ‘fixed tax’ to mollify angry traders. The estimated gap of Rs30-40 billion is planned to be met by increasing FED (federal excise duty) on cigarettes.

Now, the gap of providing electricity at 9 cents per unit to exporters is likely to cost the government Rs80 billion. Where will this come from? The IMF’s board meeting for 7th to 8th reviews is likely to take place on August 24. This requires the government to fine-tune or reshape the annual budget strictly in accordance with the IMF stipulations/conditionalities by or ahead of August 24. These potential changes in taxation and their respective replacements will surely be subject to IMF’s assent or acquiescence.

Time is critical. The government has to make up its mind on the exporting sector’s demand as the government is already on the back foot after succumbing to traders’ pressure, but, be that as it may, exporting sector’s demands carry considerable weight. They desire regionally competitive energy rates to remain competitive in the international markets. The question is what rates should the region have? Pakistan’s main competitor is Bangladesh, which, too, is facing the pressure of exporters who demand the government provide electricity on prevailing rates.

Bangladesh has just massively revised electricity rates of domestic consumers upward. The country is seeking the IMF support in difficult days. It is therefore not wise to commit subsidy for the whole year in Pakistan in view of the fluid situation in Bangladesh. In Pakistan, the industry is demanding subsidies on both gas and electricity. The government’s argument that subsidy on either can be considered and not on both where captive power projects are involved appears to be quite plausible. This issue between the government and the industry has remained unresolved for years and it is about time the stakeholders settled it once and for all.

Traditionally, the government was of the view that industry should get subsidy on electricity while gas may be diverted to power and other sectors. However, the industry claims that in co-generation facilities only gas can be used to produce steam and it is highly efficient. Another issue is the reliability of grid electricity provisioning. The latter is being dealt with, albeit partially, while the rest can be addressed in due course.

Gas should only be available for cogeneration facilities and not to the remaining captive power plants. As these are inefficient there is massive waste of precious energy source and government subsidy. The situation, therefore, always underscores the need for an audit. And the industry successfully sees to it that such audit never takes place. With limited fiscal space and IMF-imposed discipline, the government would have to put its foot down, providing either gas or electricity subsidy in a fair and judicious manner.

Copyright Business Recorder, 2022

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Hussain Naqvi Aug 13, 2022 02:30pm
AslamoAlikum: BR has an excellent team of professionals & experts. Ref to this editorial "As per an agreement with the International Monetary Fund (IMF), however, there is no room for supplementary grants." Matters of IMF can only be handled by top most authorities of GoP. Professionals & Financial experts knows the insight. With due respect, some information brings frustration for the common businesses man and individuals. Pls write an Editorial how to get ride from IMF programs. Thanks for reading. Regards
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Maga Aug 13, 2022 02:41pm
If IMF has to run n rule Pakistan then we all should pray that Allah put some mercy Reham in the heart of IMF so that it may run our country smoothly nice rather than these bastards who are eating all funds n national Treadure since 1992 except that era from 1998 to 2008 Musharaff era was best to live now life has become v unbearable. Du tok baat karo what finally INF want . Let Awam Live peacefully we r also human being not made up of Iron to bear all govt miseries
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Faisal Muhammad Baloch Aug 13, 2022 03:22pm
Pakistan needs solid plan to alternate energy and to increase tax base. This approach of subsidies is not economically viable in longer run
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Mubashir Munir Aug 13, 2022 05:10pm
@Hussain Naqvi, why give subsidies we do all the wrong things in our policies,no institute is working power sector is built on wrong policies why we did not work on thar coal for power generation why wrong policies were followed why we did not engage professionals for work.please improve your governance
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Mubashir Munir Aug 13, 2022 05:14pm
@Maga, imf does not invite you, you go to imf shame on pakistan government our government should improve its governance and the people should stop sleeping and begging should work work and work
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Hussain Naqvi Aug 13, 2022 07:40pm
@Mubashir Munir, AslamoAlikum, thank you for yr comments. Financialy we are facing difficulties and there are so many reasons. But as a Pakistani i Love my country & don't want to criticis. Hope good days will come. Long live Pakistan. پاکستان زندہ باد
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Imtiaz Ahmed Aug 14, 2022 12:10am
@Mubashir Munir, This corrupt system will never deliver How long poor masses will suffer. No.education no awareness.
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Muhammad Rizwan Aug 14, 2022 09:21am
Industrialists always get subsidies and never pay taxes from their profit. The so called sales tax is also added in prices. So we, the common people are paying their taxes too. And then they spend their money in europe or buying luxury cars in Pakistan. They are getting richer day by day without spending their own money in this country. They don't deserve any subsidy. And this industrialist's government will put this loan burden on common people, we know. And they will develop their industries. They never allow foreign companies to work here and provide cheap and quality products. They banned imports just to sell their own products on higher prices. We don't trust them anymore
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Hussain Naqvi Aug 14, 2022 05:22pm
@Muhammad Rizwan, Appreciate yr comments. To understand our national economics & politics. Lot of study is required. There is no signle genius who can explain fully. To address these issues we have various forums at national level. Highly professional & experienced honourable personalities are the members. Question is why they are unable to bring comfort to the common people.
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