Oil prices to be reviewed twice a month: ECC
ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet decided on Friday to review oil prices twice a month and to lift 7.725 million tons of fresh wheat from farmers at a cost of Rs210 billion through banking credit to provinces.
Finance Minister Dr Hafeez Shaikh presided over the meeting, which also extended seven and a half year of tax holiday to a private group to set up another second-hand oil refinery in Karachi and allowed special funds like pension, gratuity, superannuation, contributory provident fund and trusts to make investments in the National Savings Scheme.
Some members of the ECC questioned the rationale behind seeking the federal government’s sovereign guarantee to help the provinces raise Rs210 billion for wheat procurement because it was a provincial subject.
They were reminded by the provincial representatives that the federal government should not in principle be discussing the wheat procurement, but since the prime minister had unilaterally increased the support price for wheat from Rs950 to Rs1050 per 40kg, it was the centre’s responsibility to foot its bill.
And given the fact that over Rs179 billion worth of wheat-related loans were outstanding, it was difficult for the provinces to raise fresh credits for the current crop and hence the federal government would need to give guarantee for loan repayment.
The ECC agreed to provide guarantee for raising Rs210 billion to help the provincial governments and Pakistan Agricultural Storage and Services Corporation (Passco) to procure 7.725 million tons. The interest rate for Rs210 billion fresh lending would be decided later after negotiations with the banking industry.
The meeting approved a procurement target of four million tons for Punjab at Rs105 billion. Sindh will procure 1.3 million tons at a cot of Rs34 billion, Khyber Pakhtunkhwa 325,000 tons at a cost of Rs8.5 billion and Balochistan 100,000 tons at a cost of Rs2.6 billion. Passco will procure two million tons of wheat for strategic reserves at a cost of Rs59 billion.
The meeting was informed that about 4.5 million tons of wheat had been stored in government godowns, mostly in Punjab.
It noted that the next season would start with a carryover stock of about 3.5 million tons while a fresh wheat output of about 25 million tons was expected during the current season against a domestic consumption requirement of about 23 million tons.
Mr Shaikh said that Ogra and the finance ministry had opposed fixation of oil prices on fortnightly basis instead of monthly basis on grounds that this would lead to hoarding and artificial shortage of petroleum products and public outcry twice a month.
He, however, defended the decision saying there was another view that suggested the impact of price changes should be divided into 24 installments in a year, instead of 12.
He said there were countries where adjustments in petroleum prices took place on a daily basis. An official said the change in pricing mechanism was made on the request of oil refineries to reduce uncertainty in inventory losses and price differential backlog.
Tax exemption for refinery
In reply to a question, the minister also did not see a big deal in grant of extension in tax holiday to Byco Refinery to set up another second-hand refinery of 135,000 barrels per day of refining capacity which had failed to meet its commissioning deadline by the end of 2012.
The petroleum ministry convinced the ECC that the techno-economic study be conducted by Byco itself within three months.
The meeting was informed that the ECC had stopped institutional investment in the national savings except special funds but a subsequent notification erroneously barred special funds like pension, gratuity, superannuation, provident fund and trust funds from investments in national saving schemes, resulting in withdrawal of Rs150 billion of these funds from NSS.
This was making the government excessively dependant on bank borrowing, which was not only expensive but also inflationary. Therefore, the ECC allowed these special funds to make investments in national savings.
The ECC allowed the United Bank to establish a subsidiary in Tanzania (UBL-Tanzania) with a total investment of $14 million.
The committee approved exemption of taxes and duties on import of gas pipeline, LNG and its machinery and equipment for production of low BTU gas.
The ECC deferred the collection of applicable taxes, duties and any other levies till the commencement of commercial operations of the natural gas and LNG import projects.