The GIDC ‘opportunity’

The Gas Infrastructure Development Cess (GIDC) bill was tabled in the National Assembly by the Minister for Petroleum and Natural Resources, Shahid Khaqan Abbasi and passed by a majority with the Pakistan People’s Party voting in its favour. Since both PML (N) and PPP together form a majority in the upper house (Senate) its passage in the Senate is virtually assured. The GIDC was the brainchild of the PPP-led coalition government which succeeded in passing it as part of the Finance Bill in 2011. However, a subsequent litigation led to the verdict that as it was a fee it could not be part of the Finance Bill. Legal experts maintain that the government’s decision to pass the GIDC bill prior to the budget announcement was deliberately timed so that the court’s earlier objection was dealt with. This, of course, does not imply that the GIDC in its present form would not be challenged in a court of law even if it seeks to address the earlier concerns of the court.

The rationale for this levy is to mobilise funds to expand the natural gas infrastructure and equip the country to import natural gas to supplement local production. Previously, the PPP government had issued bonds against cash reserves of OGDCL and PPL. But this was insufficient to meet the country’s needs for imported energy. Thus, GIDC was imposed as a fee or surcharge on domestic gas usage – being the difference between imported natural gas and domestically produced gas and was meant to bridge the gap, in stages, with this levy just like the Petroleum Development Levy.

The bill was opposed by Pakistan Tehreek-e-Insaf (PTI), Muttahida Qaumi Movement (MQM) and Jamaat-i-Islami (JI) who argued that the bill ought to have been presented in the Council of Common Interest (CCI). It is difficult to argue against this proposal as the CCI is the right forum where the federal government is constitutionally bound to resolve all outstanding issues with the provincial governments. What is unfortunate is that the PML-N government has been extremely reticent during its third tenure in power to take all provinces on board which has resulted in the widening of the trust deficit with those provinces where the party is not in government. Though the PPP did vote in favour of the GIDC bill, yet, the Sindh government has repeatedly called for a CCI meeting on other matters that are causing it much concern particularly with respect to the LNG import and distribution decisions taken by the federal government in recent weeks/months. It is inexplicable as to why the federal government is so opposed to a CCI meeting because the ruling party has a majority in that forum with the prime minister and three members (out of a total of 8) that he is empowered to nominate. Given that the 4 remaining members of the CCI are the provincial chief ministers; the fact that the PML-N rules Punjab, gives it a clear a majority in the CCI and the constitution stipulates that “the decision of the Council shall be expressed in terms of the opinion of the majority.”

GIDC and fiscal measures are prior conditions for the eighth tranche release according to the International Monetary Fund mission chief, Harald Finger in an exclusive interview with Business Recorder. The fact that the IMF Board meeting to consider the eighth tranche is scheduled for 26 June the government may have thought it appropriate to summon the assembly now and have the bill passed before the budget session was summoned.

Be that as it may, the GIDC has 99 billion rupees already collected, an amount that the government has been unable to access due to ongoing litigation. That the federal government needs access to this cash to meet its expenditure priorities as well as its budget deficit targets is something that stands to reason given a shortfall in the budgeted revenue. But GIDC was earmarked for gas infrastructure development projects alone including the Iran-Pakistan (IP) gas pipeline (that remains stalled till the US lifts all sanctions); however, no one can stop us from building a domestic pipeline – leaving the last leg of connecting to the Iranian pipe until UN sanctions are removed. And, the Turkmenistan-Afghanistan-Pakistan-India (Tapi) gas pipeline that remains stalled due to high risk costs attributed to the ongoing insurgency in Afghanistan. Thus the question is whether the government intends to access the 99 billion rupees and use it for the ongoing fiscal year or keep the money for the purpose it was originally meant. Present government of PML (N) since it took over has accrued dedicated funds for budgetary support and hence there is concern that this amount too may be used for the purpose.

All major natural gas consumers are opposed to GIDC. Textile industry is at the forefront. Fertilizer producers have collected GIDC from farmers but have kept the amount in suspense account in their books. The government has agreed to receive Rs 45 billion by end-June from them. A similar intervention could be designed after due consultation with textile and cotton based ancillary industry. For instance, allow these units to adjust the GIDC from their refunds (audited) lying with the Federal Government ie FBR, Textile Ministry, State Bank of Pakistan. It could solve the liquidity issue for both the government and the industry. After all, laying of pipeline for IP or TAPI will definitely take more than a year. Let us then try to make it a win-win for both. To conclude, the government needs to declare what exactly it intends to do with this dedicated fund – a matter that may be raised in the CCI.