ISLAMABAD: The government on Tuesday approved another supplementary grant of Rs11.7 billion to offset the losses of oil marketing companies (OMCs) due to the prime minister’s decision to reduce petroleum product prices.
Headed by Finance Minister Shaukat Tarin, the Economic Coordination Committee (ECC) of the cabinet withdrew an earlier decision to limit the Ramazan relief package to only the targeted 20 million people, providing the Rs8.2 billion relief across the board.
The ECC also authorised the Ministry of Economic Affairs to sign 15 debt suspension agreements to secure a relief of $394 million from G20 countries.
The ECC approved a proposal with the allocation of an additional Rs11.73 billion in supplementary grant to meet expenditures on the payment of price differential claims (PDC) until March 31, 2022, according to the finance ministry.
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To address PSO and other OMCs’ concerns over the PDC payment mechanism, the Petroleum Division submitted a summary with a revised mechanism that the PDC would be applicable to sales of petroleum products rather than to the procurement of products, it added.
It was the second supplementary grant that the ECC approved within a week after it sanctioned Rs20 billion for the same purpose, bringing the total cost of reducing prices to Rs31.7 billion.
The Petroleum Division worked out that international oil prices had increased further during the current fortnight (Arab Light Crude Oil price reached $118 per barrel), and the PDC was estimated by Ogra at Rs31.73 billion (Rs2.60 billion for November 1-4, 2021) and Rs29.13 billion for March 2022) as against the allocated Rs20 billion.
Therefore, there was a need for the allocation of an additional Rs11.73 billion through the supplementary grant.
PSO said that the PDC was generated through the sale of petroleum products, therefore, the OMCs would suffer a loss if the PDC reimbursement was based on procurement rather than sales.
Private OMCs may also shy away and stop selling products in the market.
PSO was of the opinion that the consumers would only realise the benefit of PDC when the products were sold by the OMCs and mere procurement would not be sufficient.
Debt relief
The ECC allowed the Ministry of Economic Affairs to sign 15 debt rescheduling agreements with creditor countries under the Debt Service Suspension Initiative (DSSI).
The total value of the 15 agreements is $395 million. Pakistan owed a total of $9.4 billion to those countries as of June last year.
A maximum relief of $198 million is expected from Japan, followed by $108 million from France and $38.5 million from Saudi Arabia.
Temporary debt suspension agreements with the UAE, Russia, USA, Belgium, Italy, Japan, Spain and the UK are pending under various phases.
To date, under DSSI-1, 31 debt rescheduling agreements with 19 creditor countries have been signed. Negotiations for the finalisation of debt rescheduling agreements with the UAE are currently underway. DSSI-I yielded a debt relief of $1.6 billion.
Another 29 debt rescheduling agreements with 13 creditor countries have been signed under phase-II. Negotiations for the finalisation of debt rescheduling agreements with Russia, UAE and USA are ongoing. DSSI-II yielded a debt relief of $1.13 billion.
About 19 debt rescheduling agreements with five creditor countries have been signed. Negotiations for the finalisation of debt rescheduling agreements with Belgium, Italy, Japan, Russia, Spain, the UK and USA are ongoing.
Debt relief under the DSSI-III is around $950 million, according to the ministry.
LNG financing
ECC approved the proposal of the Petroleum Division regarding issuance of sovereign guarantee amounting to Rs21 billion in favour of Faysal Bank Limited at considerably lower markup rate of KIBOR plus 0.1% for the remaining tenor of the loan.
The SSGCL had secured loan of Rs39.8 billion at six months KIBOR+ 110 bps. The outstanding amount at present is Rs21 billion. In view of the high pricing of the current loan, SSGCL decided to swap the debt with lower mark-up rate.
In 2015, the ECC had approved bank borrowing to the extent of Rs101 billion in favour of SNGPL and SSGCL to carry out phase-Il of LNG Pipeline Project.
In order to revive cotton production in the country, bring stability to the domestic market and assure fair return to the farmers, the ECC allowed Rs5,700/40 kg threshold intervention price of seed-cotton, according to the Finance Ministry. The ECC further allowed to initially procuring two million bales of cotton at intervention price with the direction that quantity would be reviewed on monthly basis.
The ECC also approved the supplementary grant of Rs3.5 billion in favour of the Higher Education Commission for the PM’s university project, which is an alternative to Imran Khan’s promise to convert the PM House into a university.
The ECC allowed reallocation of 15 MMCFD Jhal Magsi gas to SSGCL. SSGCL would carry out the project of gasification of Jhal Magsi town and would embark the required gas out of the proposed allocation. The injection of this gas will help mitigate SSGC’s gas demand-supply deficit.
