ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet on Wednesday approved in principle first phase of the subsidy rationalisation plan with estimates of about Rs488 billion annual savings.

The meeting presided over by Finance Minister Hafeez Shaikh deferred two other critical matters — import of additional 380,000 tonnes of wheat and Rs739bn Karachi Transformation plan.

The ECC approved in general the proposed first phase of subsidies rationalisation plan presented by the Subsidy Cell led by SAPM on Revenue Dr Waqar Masood Khan, which suggested that implementation of proposed measures, could provide an annual saving of about Rs488bn. Dr Khan in his presentation covered electricity, food and national savings during the first phase.

The ECC appreciated the detailed plan and its various components and directed that relevant divisions — power, national food security and finance — come up with comprehensive summaries respectively with specific and ­concrete proposals as required under the rules of business suggesting a way forward.

String of small supplementary grants also approved

The presentation showed the cost of all existing, coming due and hidden subsidies and contingent liabilities and transfers at about Rs5.2 trillion and estimated total subsidies of about Rs2tr per annum. It was explained that large amounts of past investments, loans, guarantees and uncovered borrowings also posed actual and potential loss to the government in the absence of adequate returns.

As such, total stock of such liabilities and subsidies by end of FY20 was put at Rs5.2tr, almost one-fourth of domestic debt.

A part of the first phase of rationalisation plan had already been set to motion in the shape of reduced return on equity in case of public sector power plants, including hydropower and nuclear and Gencos. The plan proposed that subsidy on electricity to low income consumers should be provided through Ehsaas Programme, beginning from Islamabad Electric Supply Company.

The subsidy to industries should be targeted through elimination of industrial support package of Rs3 per unit with effect from July 1, 2021. Calculation of arrears and settlement of claims with industries will be finalised up to June 30, 2020. This is expected to reduce the subsidy by about Rs75bn.

The provincial governments would be asked to share 50pc cost of subsidies to be provided to their domestic consumers or other consumers as the case may be to reduce federal burden by another Rs50bn. The Nepra approved tariff would be applied to Azad Kashmir and ex-Fata consumers involving Rs27bn. A uniform power tariff on behalf of all Discos is suggested to be filed by the Power Division to reduce tariff differential subsidy.

Priority Berthing

Priority berthing for wheat and sugar imports was also discussed during the meeting. Minister for Maritime Affairs updated the forum about latest position of wheat vessels and operations of Karachi Port Trust and Port Qasim Authority accordingly.

The chair directed that the Logistic Committee of the ECC would be chaired by the Minister for Maritime Affairs to workout SOPs ensuring all stakeholders including private sector are onboard with reference to priority berthing.

Ministry of National Food Security and Research presented a summary for provision of additional quantities of wheat to the Government of AJ&K (80,000 tonnes) and Utility Stores Corpora­tion (300,000 tonnes) and import of 380,000 tonnes of wheat.

Dr Shaikh directed to provide first load of the additional quantities to both AJ&K and USC on priority as an interim arrangement to ensure smooth supply of wheat across the country.

The sources said the Commerce Division oppo­sed additional imports saying the booked ships could keep pouring in until March followed by fresh crops in few weeks. It was therefore, decided to have discussed the detailed proposal in the next ECC meeting.

The ECC approved the new Re-lending Policy 2020 presented by Economic Affairs Division, which will reflect the changes in the borrowing cost of the government, take into account variation in the exchange rate and pass on actual rates to the borrower for transparency. Other terms and stipulations, including with respect to recovery of commitment fee as in the policy in vogue, will continue to apply.

The ECC also accorded approval for issuance of offshore rupee linked bonds to the International Finance Corporation (IFC). This will help in availability of financing to priority sectors, promote private sector investments and bring foreign exchange liquidity in domestic foreign exchange market in the post-Covid scenario.

Supplementary grants

The ECC also approved about six technical supplementary grants of Rs1.669bn including Rs219.300 million for the operationalisation of the newly established Isola­tion Hospital and Infections Treatment Centre, Islam­abad, Rs305.462m to payoff Pakistan’s annual contribution to World Health Organisation, Rs106.775m to the ICT Administration for various projects, Rs706m for Fata, temporary displaced persons, Emergency Recovery Project of Nadra, Rs278.091m for Annual Contribution to UNFA, PPD & IPPF-FPAP for 2018-19, 2019-20 & 2020-21 and Rs53.1m for procurement of medical equipment, machinery and medicines to combat Covid-19.

Published in Dawn, December 17th, 2020