Amid the Ministry of Finance’s protest over ‘unsustainable fuel subsidy’, the Economic Coordination Committee (ECC) approved Rs55.48 billion for immediate reimbursement of price differential claims (PDCs) to the oil industry at cheaper rates of petroleum products than their costs for the first half of May. The ECC meeting, presided over by Federal Minister for Finance & Revenue Miftah Ismail, also allowed the Trading Corporation of Pakistan (TCP) to explore the possibility of importing 200,000 tonnes of urea on a G2G basis and on deferred payment, said an official statement. Besides Mr Ismail, the ECC was attended by only one member — industries minister Makhdoom Syed Murtaza Mahmood.
Informed sources said the Ministry of Industries and Production had suggested the need to build strategic reserves of urea in view of a thin margin between domestic demand and stock position. The summary suggested having a better stock position to ensure continuity of urea supply during the next financial year and requested allowing import of urea from international markets in order to stabilise the local market.
It was suggested that imports should be arranged through an international competitive tendering process. However, because of a tight position of foreign exchange reserves and a more than Rs3,000 per tonne price difference between the local and international markets, the TCP was asked to take up the matter with Chinese authorities for urea import on a government-to-government basis on deferred payments.
Mr Ismail on Sunday accused the PTI government of facilitating urea export to Afghanistan and beyond because of highly subsidised production at home and substantially higher international rates. He had said Pakistan provided gas to fertiliser plants at Rs84-260 per million British Thermal Unit (mmBtu) despite importing it at about Rs3,000 per mmBtu but this fertiliser was allowed to smuggle out instead of reaching the domestic farmers.
The ECC also approved supplementary grant of Rs55.48bn for immediate disbursement to oil marketing companies (OMCs) and refineries for the first fortnight of May, an official statement said, adding that due to the continuously rising trend of oil prices in the international market, the quantum of subsidy has been on the higher side.
This was despite the fact that the Finance Division put on record that “maintaining fuel prices at a subsidised rate is consistently increasing fiscal and current account deficits and putting pressure on foreign exchange reserves.”
Besides, it insisted that the situation was creating stress on the supply chain of petroleum products, which required “immediate reconsideration of the policy of price subsidy and also the resumption of recovery of petroleum development levy and sales tax.”
Informed sources said there was still a backlog of about Rs9bn on account of lower disbursements for the previous month (April) which would be taken up for approval on Wednesday. The sources said that the Oil & Gas Regulatory Authority had earlier estimated a PDC estimate of Rs102.3bn for the whole month of May but later revised it to Rs118.6bn because of the higher international market.
As such, the Petroleum Division had moved the summary for Rs118.6bn but the finance ministry opposed such a bulk approval in one go and consented to only Rs52bn for first half of the month which was later revised to Rs55.48bn including a previous leftover differential of about Rs3.5bn.
The finance ministry was of the view that the allocation for the next fortnight — now estimated by the oil industry to go beyond Rs76bn — should be considered separately depending on the duration and actual PDC. The meeting was updated that a total of about Rs100.47bn had already been allocated and transferred to the Pakistan State Oil’s Assan Assignment Account for payment to OMCs and refineries for March and April, including an outstanding amount for November 1 -4, 2021.