ISLAMABAD: The government on Monday approved Rs218 billion for procurement of 7.05 million tonnes of wheat this season and allowed oil refineries to continue enjoying generous financial benefits for another 18 months to upgrade their products instead of paying penalties for failures.
These decisions were taken at a meeting of the Economic Coordination Committee (ECC) of the Cabinet presided over by Finance Minister Ishaq Dar that also approved extending sovereign guarantees to the extent of 45 per cent of project cost for two power projects in Punjab based on regasified liquefied natural gas (RLNG).
A senior petroleum ministry official said that under the existing incentive package approved in March 2013, the PPP government had allowed major refineries — Attock Refinery, Pakistan Refinery, National Refinery and Byco Refinery — to charge 9pc deemed duty instead of 7.5pc on diesel to produce Euro-II fuels. This meant the sulphur content had to be reduced to 0.05pc from 0.5pc and 0.1pc of varying degrees prevailing at the time.
For this, the refineries were required to set up Diesel Hydro Desulpurisation (DHDS) by December 2015 and Isomerisation Plants for petroleum products of international standards and reduce import reliance. The PPP government at the time had also deferred the penalties until December 2015 on production of low grade diesel which was earlier put in place in February 2013.
Under the said decision, the refineries were also required to set up an Escrow account to park available cash balance amount of their special reserve fund to be jointly operated by the finance ministry and the refineries for modernisation and upgradation of refineries. Total expenditure for upgradation was estimated at Rs200 billion.
Rewards oil refineries for failures instead of penalising them.
The petroleum ministry official said none of the refineries were able to meet committed deadlines even though they had already missed three deadlines. They also failed to open an Escrow account until February 2015 and even then could not deposit surplus funds in it saying they already had spent about Rs35bn against their original investment commitment of Rs150bn.
The ECC presided over by Mr Dar, took a lenient view of the violation of commitments and extended the deadline for completion of isomerisation and DHDS plants until June 30, 2017 instead of December 31, 2015 deadline set with agreement of refineries in early 2013. The requirement of opening of an Escrow account was also withdrawn ab initio, despite the fact that the Planning Commission, finance ministry and the Ogra had proposed continuation of some sort of Escrow account.
WHEAT PROCUREMENT: The ECC also approved procurement of 7.05 million tonnes of wheat for the current year at a cost of Rs218bn by the public sector against last year target of 6.6m tonnes which was missed by 1.4m tonnes.
The ECC decided that Punjab would purchase 4.5m tonnes with Rs130bn, followed by Sindh’s 1.1m tonnes with Rs36bn, 1m tonnes by Passco at Rs37bn, KP 0.35m with Rs11.4bn and Balochistan 0.10m tonnes with Rs3.25bn. These targets were agreed upon with consensus by the provincial governments at a recent meeting, the ECC was informed.
All the stakeholders were directed to complete the procurement process by Aug 31, 2016 at all costs. The procurement cost, commonly known as minimum guaranteed price (MGP), would remain unchanged at Rs1,300 per 40kg.
The ECC also approved a request of the Ministry of Water and Power regarding provision of GoP guarantee worth 45pc of project cost to open second letter of credit for setting up of two 1,000-1200MW power projects at Haveli Bahadur Shah in Jhang and Balloki in Kasur. The two projects are based on RLNG.
The ECC also approved a proposal of the Federal Board of Revenue to extend the period for reduced withholding tax rate of 0.4pc on banking transactions by non-filers till April 30, 2016.
The meeting also approved allocation of 100 mmcfd (million cubic feet per day) of gas to KP for use in power generation, either at its own or through partnership with the private sector. The proposal was based on the MoU recently signed between the federal government and the KP government.
On a proposal submitted by the Ministry of Water and Power regarding executing the Power Purchase Agreement (PPA) by Central Power Purchasing Agency-Guarantee (CPPA-G) pertaining to imported RLNG-based power projects, the ECC accorded approval to authorise CPPA to develop and execute the PPA for the three RLNG-based power projects in the public sector.
The ECC also approved a proposal submitted by the Ministry of Water and Power regarding extension in grace period by Bank Alfalah under term finance facility from two years to four years in respect of Power Holding (Pvt) Ltd. Consequently tenure of the facility shall stand extended up to seven years.