Other grants of Rs100b requested

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ISLAMABAD:

Powerful exporters are pressuring the government to pay an additional 100 billion rupees in subsidies through continued gas supplies and incentives to export certain products amid their failure to meet past commitments .

The government, which struggles to secure gas supplies to domestic and industrial consumers in the winter, now faces another challenge of dealing with the powerful exporters. On the one hand, they are looking for uninterrupted supplies and on the other hand, they want cheap gas and additional incentives, which will cost an additional 100 billion rupees.

Sources told The Express Tribune that due to the increase in LNG prices, the cost of gas subsidies to exporters to the government would increase by an additional 35 billion rupees, if it continues to supply gas at the rate. of $ 6.5 per mmbtu.

He has the choice of either increasing the price or reducing the supplies, because under the International Monetary Fund agreement, the grants must be fully covered from the budget. In addition to this, exporters demand the maintenance of the Drawback on Local Taxes and Levies (DLTL) facility which will place an additional burden of around Rs65 billion on the public treasury.

The demand comes amid shrinking fiscal space that forced the government on Thursday to further reduce electricity subsidies for domestic consumers, resulting in a tariff increase of 95 paisa per unit. Members of the All Pakistan Textile Mills Association (Aptma) benefit from several grants. These include the Export Duties and Taxes Remission Program (DTRE), DLTL and the State Bank of Pakistan’s Temporary Economic Refinancing Facility (TERF), subsidized electricity and gas. as well as tax exemptions.

Yet its performance has remained dismal, and the country’s total exports have remained stagnant at around $ 25.6 billion in the last fiscal year, a level that was only 3% higher than last year’s government exports. of the Pakistani Muslim League-Nawaz (PML-N). .

There must be a cost-benefit analysis to reveal the hundreds of billions that have been paid to the industry in subsidies over many years compared to the net increase in exports, according to a senior government official. Subsidies in their present form have led to rent-seeking and abuse in the textile sector. They are not targeted at exporters and financially unsustainable, he added.

In the budget, the government had earmarked a Rs 26 billion gas subsidy, which is now expected to increase to Rs 62 billion per year. Electricity subsidies cost an additional 20 billion rupees per year. It is also unfunded, which means it is on top of the circular debt. The government had proposed to revise the current gas tariff from $ 6.5 per mmbtu for captive power plants in export sectors to $ 9 per mmbtu from November 15, 2021 to March 31, 2022. However, an Aptma member issued a court stay order against the ruling despite the lobby group agreeing to price increases due to higher LNG prices.

Exporters had also failed to honor their other commitments in the past. They had obtained stay orders against the heat rate tests and payments from Gas Infrastructure Development Cess. Energy Minister Hammad Azhar tweeted on Thursday that uninterrupted process gas was being supplied to the textile industry. Only the gas used for captive power plants has been reduced. Aptma had also suspended its tariff increase due to the increase in LNG prices to 9 cents per mmbtu against 6.5 cents.

Aptma members use expensive imported gas at cheaper rates and use 80% of it to generate their own electricity from captive power plants. Industrial units in Pakistan are allowed to set up their captive power plants to generate electricity for their own use. And if they have a surplus, they can supply it to the national grid for residential or commercial consumers.

There are 1,211 captive power units on both Sui Northern Gas Pipelines and the Sui Southern Gas Company network, consuming approximately 415 mmcfd of gas. Of those, 610 are export-oriented units and 601 are non-export-oriented units, S&P Global reported in January this year. Captive units have an efficiency of 30-38%, much lower than efficient power plants with an efficiency of 50-62%, according to the publication.

Instead of providing untargeted subsidies, there is a need to tie the subsidies to actual export earnings, according to the former special assistant to the prime minister for energy, Tabish Gohar.

A significant share of textile products is now supplied to local markets. The subsidy is also used to operate inefficient captive power plants in the textile sector. On the one hand, the government is sitting on a surplus of electricity while on the other hand, it ends up providing valuable and subsidized imported gas to run captive power plants.

Aptma had agreed with the government in February last year to end the subsidy by June 2020 for gas in exchange for waiving any additional charges on its bills. The government has held its end of the bargain, but the industry has secured a one-year grant extension under the guise of Covid-19, according to a cabinet minister. The government offers electricity at 9 cents to exporters, which is even lower than domestic consumer tariffs and also a relatively competitive tariff regionally, with Bangladesh having a rate of 8.5 cents.

Denial of gas to captive power plants will automatically shift units to electricity, thus increasing much needed energy absorption in a surplus system. But the mighty Aptma resists to give up the undue advantage.

Posted in The Express Tribune, December 18e, 2021.

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