Govt gives exporters subsidy on gas, electricity
The federal government on Monday approved provision of subsidised gas to exporters for almost a full year and electricity for three months amid the exporters’ inability to show any meaningful increase in export volumes despite taking Rs106 billion subsidies in the just ended fiscal year.
The Economic Coordination Committee (ECC) of the Cabinet approved supply of electricity at nine cents per unit and RLNG at $9 per MMBTU to five export-oriented sectors across the country. It has increased the rates from $6.5 to $9 but would still bear a minimum Rs40 billion subsidy on imported gas.
The Ministry of Commerce presented a summary for provision of cheaper electricity and gas for the full fiscal year 2022-23 that would cost the kitty Rs129 billion against the budgeted subsidy of Rs60 billion.
Due to lack of fiscal space, the ECC for the time being approved provision of subsidised imported gas for the full year but electricity only until the Rs20 billion budgeted allocation is consumed, starting from next month.
The ECC after detailed discussion approved the RLNG rate at $9 per MMBTU, all inclusive, to five export-oriented sectors across Pakistan for existing gas connections, according to the Ministry of Finance. A subsidy cover of Rs40 billion for RLNG has been allocated under federal budget 2022-23 which will be reviewed on a quarterly basis.
The ECC also recommended the federal cabinet to raise the tariff of indigenous gas for export-oriented sectors at Rs1,350 per MMBTU and for general industry at Rs1,550 per MMBTU.
The ECC approved the electricity rate at US cents nine per kWh to five export-oriented sectors from August 1, 2022 subject to a subsidy of Rs20 billion provided by the Finance Division, according to the decision. According to the Power Division calculations, the Rs20 billion cover would end in three months (October 2022).
The ECC decided that it will review the electricity subsidy quarterly and the Petroleum Division will provide a list of industrial units getting subsidised gas and electricity, within one month to the ECC for review.
The ECC also decided that if any supplementary grant is approved by the forum in the future, the sponsoring ministry will also present a taxation proposal to neutralise the additional budgetary impact to achieve the targets set by the IMF.
The ECC also approved a supplementary grant of Rs750 million for the Ministry of Information and Broadcasting for 75 years’ Independence Day celebrations. But it directed the Federal Board of Revenue to prepare a proposal to increase taxes on tobacco to raise revenue equal to Rs750 million.
In August last year, the then government started providing energy to textiles, including jute, leather, carpet, surgical and sports goods, electricity at nine cents per unit all-inclusive and RLNG at $6.5 per MMBTU during FY 2021-22 to reduce the cost of manufacturing and enhance exports.
There have been concerns that the exporters are not bringing any meaningful increase in export volumes and the recent surge in the exports was largely because of increase in commodity prices. The Ministry of Commerce summary was silent on the point of any meaningful increase in the export volumes during the last fiscal year despite doling out Rs106 billion subsidy.
The government allocated Rs20 billion for electricity in the budget but the Power Division estimated the total requirements at Rs104 billion and sought Rs84 billion supplementary grant. The finance ministry refused to provide the subsidy due to the commitments with the IMF.
As of June 30, the pending claims of zero-rated industrial consumers is Rs26.2 billion and the Power Division needed another Rs6.2 billion just to clear the outstanding claims of the previous fiscal year, according to the Power Division’s note to the ECC.
For the current fiscal year, the Power Division requires an additional Rs78 billion as supplementary grant for provision of concessional tariff to export-oriented industries for consumption during the current fiscal year.
“In case the government approves less allocation, the Power Division will reduce the application of the package proportionately for such months as can be met from such allocation,” according to the Power Division.
The Ministry of Finance has maintained that there is space in the budget for additional supplementary grant due to commitments with the IMF.
Similarly, the government has also allocated Rs40 billion for RLNG in the budget to supply imported RLNG at concessionary tariff to five export-oriented sectors. But the Petroleum Division has demanded Rs11 billion for supplying imported RLNG to SSGCL consumers –a new subsidy programme.