ECC reorders gas allocation priority, places CPPs last

ISLAMABAD: The Economic Coordination Committee (ECC) approved a revised priority order for gas allocation on Wednesday, as the International Monetary Fund (IMF) dictated. The new order places domestic, commercial, and industrial sectors -- including vital roti tandoors and processing units -- at the top of the list.

The power and fertilizer sectors have been put at second, cement at fourth. Whereas the captive power plants (CPPs) have been put along with CNG at fifth, which is the last in the priority list. The story doesn’t end here, as the gas tariff for captive power plants has already been increased from Rs250 per MMBTU to Rs3,000 from Rs2,750 per MMBTU. The Fund gave the government the deadline of January 1, 2025, to hike the gas tariff for CPPs at par with the ring-fenced cost of RLNG, which stands at Rs3,700 per MMBTU. From January 1, 2025, the government will increase the gas price for CPPs by Rs700 per MMBTU.

The IMF wants the government to connect industrial units meant for exports to the national grid instead of captive power plants which run on gas as fuel. The export industry has declared the move as detrimental. All Pakistan Textile Mills Association (APTMA) in a letter to Federal Minister for Petroleum Musadik Malik berated the government, saying the cessation or reduction of gas supply to captive units will have severe and far-reaching consequences for the national economy, particularly for export-driven industries like textile that are reliant on efficient, stable, and cost-effective gas-fired captive generation.

It argues that the national grid with prohibitively high tariffs, upwards of 15 cents/kWh compared to 6-9 cents/kWh in competing economies like India, Bangladesh and Vietnam, imposes unsustainable energy costs on industries, rendering them financially unviable and uncompetitive in the international market. Forcing industries to the grid would severely undermine Pakistan’s export performance which the economy cannot afford, especially considering the annual forex shortfall of over $25bn for the next five years. Moreover, it is a significant misconception that those who leave gas will turn to the grid; instead, firms will seek alternatives like biomass, coal or furnace oil-based generation, as the grid is far too expensive to install and operate.

Owing to the high prices and low quality of grid supply, 78 out of 133 APTMA industrial units in Punjab have reduced their energy consumption by 25-50pc YoY. Only a few large composite units have experienced an increase in power consumption (5-10pc). This shows that the industry is largely being wiped out except for only a few large surviving players, APTMA says. “Moreover, the grid’s current state is characterised by frequent outages, voltage fluctuations, brownouts, and blackouts. This is in stark contrast to the stable voltage and frequency provided by CPPs, which are indispensable for textiles and apparel manufacturing, where production is highly sensitive to power disruptions.”

Meanwhile, Federal Minister for Finance and Revenue Senator Muhammad Aurangzeb chaired the meeting of the Economic Coordination Committee. The ECC reviewed a summary from the Ministry of Communications concerning the “Kalkatak-Chitral 48 km (Section-III) Road Project (N-45) - Procurement of Civil Works” and authorised the Ministry of Communications and the National Highway Authority to proceed with the procurement of civil works as per Public Procurement Rule-5. The ECC considered a proposal for provision of funds amounting to Rs238.42 million, for clearing arrears of wheat subsidy schemes 2015-16, by the Ministry of National Food Security and Research (NFSR). The ECC directed the Ministry to arrange the funds through the available budgetary resources and settle the long pending claims.

On a proposal of the Ministry of National Food Security and Research for a loan of Rs656 million to the Pakistan Central Cotton Committee (PCCC) to enable the organisation to pay salaries and pensions to its employees, the ECC deliberated on the rationale and decided that this entity should be considered for winding up.