As the burden of the price differential needed to be absorbed by the government following the announcement of a petroleum relief package by Prime Minister Imran Khan increases by the day, the Economic Coordination Committee (ECC) of the cabinet on Tuesday approved another Rs12 billion for oil companies, taking the total expenditure on such products to Rs32bn this month alone.
The meeting of the ECC presided over by Finance Minister Shaukat Tarin also approved the Ramazan Relief Package worth Rs8.3bn, under which 19 kitchen items would be supplied at subsidised rates through the Utility Stores instead of the Ehsaas Ration Scheme.
The ECC also allowed signing of 15 agreements with 11 bilateral creditors for debt relief under G-20 Debt Service Suspension Initiative.
The meeting was informed that ECC had on March 7 approved a sum of Rs20bn along with a procedure for swift payments to oil companies and refineries on account of price differential claims (PDCs), to prevent a shortage of petroleum products in the country.
However, the Pakistan State Oil (PSO) pointed out that the procedure prepared by the regulator in consultation with the ministries of finance and energy and approved by the ECC was faulty and would result in shortages.
It pointed out that the claims were arising on account of sale of petroleum products while the reimbursement mechanism was based on procurement of petroleum products. The oil marketing companies will be making a loss if PDC reimbursement is based on procurement rather than sales, and private companies may stop selling products in the market, the ECC was informed.
The consumers would only benefit from the PDC, or discount on petroleum product, when the product is sold by OMCs and “mere procurement will not be sufficient” as companies would tend to hold back sales to earn inventory gains at times and not to procure at others, thus leading to shortages during peak harvesting season.
The ECC was informed that on Feb 28 PDC stood at Rs2.28 on sale of diesel after prime minister’s announcement for price cut as the crude price was around $101 per barrel. The PDC now was hovering between Rs25 and Rs32 per litre as the Arabian crude price had since increased to $118 per barrel.
The amount of PDC had thus increased to Rs31.73bn, including Rs2.6bn of outstanding PDC for November 1 to 4. On the other hand, the ECC had approved on March 7 an amount of Rs20bn, leaving a shortfall of Rs11.73bn.
Therefore, the ECC approved an additional allocation of Rs11.73bn for the current month on top of the earlier allocation of Rs20bn.
It also approved the mechanism proposed by the PSO for calculation and payment of PDC on the basis of sales of product instead of procurement.
The meeting also took up a summary of the Ministry of National Food Security and Research for an increase in intervention price for the cotton crop of 2022-23. “In order to revive cotton production in the country, bring stability in domestic market and assure fair return to the farmers, the ECC allowed Rs5,700 per 40kg threshold intervention price of seed-cotton,” said an official statement.
The ECC had initially allowed procurement of two million bales of cotton at intervention price, with the directive that the quantity would be reviewed on a monthly basis.
The meeting also approved in principle the Ramazan Relief Package for 2022, involving a subsidy of Rs8.2bn, for the entire population of the country rather than only 20 million households registered with the Ehsaas Ration Riayat Programme as earlier planned.
It was noted that the Ehsaas Ration Scheme for subsidy to targeted 20m households was still in testing stage as it involved a sophisticated mechanism of identification and verification of beneficiaries through mobile phones and CNICs.
The summary suggested that it was a time-consuming process that would ensure error-free subsidy to the targeted households but this would be politically risky given the advent of Ramazan in about two weeks and the fact that non-availability of cheaper kitchen items at Utility Stores would create a resentment in the public.
The meeting was informed that Rs6bn had been allocated in the budget for the Ramazan package. The meeting approved a total of Rs8.2bn with early disbursements to USC to ensure the package was operational by April 1 as the holy month was expected to begin on April 3.
The ECC also allowed Ministry of Economic Affairs to sign 15 debt rescheduling agreements with 11 credit countries, finalised under the Debt Service Suspension Initiative (DSSI) for an amount of $232 million.
The ECC also approved issuance of sovereign guarantee amounting to Rs21bn in favour of Faysal Bank Limited “at considerably lower mark-up rate for the remaining 54 months’ tenure of the loan along with issuance of letter of comfort for new finance agreement with respect to pipeline infrastructure development project LNG-II by gas companies”.
