The two-to-one majority Supreme Court judgment in August in the Gas Infrastructure Development Cess (GIDC) case, which directed the government to recover the full amount of the unpaid cess of Rs457 billion owed by industrial consumers of natural gas in 24 instalments, was expected to resolve the issue that had dragged on in courts for almost a decade.

Instead, it has opened floodgates of fresh litigation, which can delay the recovery of the outstanding amount for several years.

Almost all the companies covered by the GIDC law have individually filed review petitions with the apex court. Many have secured stay orders from high courts against the recovery of dues, pleading that they hadn’t collected the cess and, thus, shouldn’t be asked to pay the accrued amount.

Some firms that collected the fee and provided for it in their accounts have also obtained stay orders using the same pretext. Some have struck a deal with gas companies for deferring the payment till the final settlement of the issue. In exchange, they’ve agreed to pay the late payment surcharge to the gas companies in case the apex court rejects the review petition.

Like the industrial consumers of gas, the government is also in a fix: it has already spent the portion of GIDC that it collected over the past many years

The two fertiliser plants — Engro and Fatima — operating on concessionary gas under the new fertiliser policy have moved the court on the plea that the cess didn’t apply to them as per the terms of their contracts under the 2001 policy.

GIDC was imposed in 2011 to raise funds for developing gas infrastructure like underground gas storage facilities, two transnational pipelines from Iran and Turkmenistan and a North-South pipeline. The total amount accrued by different industrial sectors is estimated to be Rs700bn. Out of this amount, the government has so far received Rs295bn. A majority of the firms covered by the law had moved the courts against the fee and withheld payments pending the final court decision.

In an attempt to settle the issue once and for all, the government amended the GIDC law last year through an ordinance requiring industrial consumers to pay half of their outstanding dues while forgiving the other half. But the ordinance was withdrawn amid a media outcry and a petition was filed with the apex court for the full recovery of the accrued amount from the industry.

The Supreme Court judgment links the future collection of the cess to the complete utilisation of the collected and accrued amounts on projects for which the levy was imposed. Thus, the court order bars the government from using GIDC for any purpose other than gas infrastructure construction while also blocking its future income stream under it.

The fertiliser companies owe Rs164.1bn out of the total unrecovered GIDC dues. The new fertiliser plants running on concessionary feed gas — Fatima and Engro — owe Rs67.1bn and the old ones are under the obligation to pay Rs80.4bn. The outstanding amount on fertiliser fuel gas stands at Rs16.6bn. The fertiliser industry is followed by captive power plants with an outstanding amount of Rs101.7bn, CNG owners Rs76.5bn, K-Electric and Gencos Rs59.1bn, general industry Rs46.3bn and independent power producers (IPPs) Rs9.1bn.

“The verdict has created more complications for both the industry and the government instead of settling the issue,” a senior marketing executive of a fertiliser company told this correspondent. He requested anonymity because his employer doesn’t want to issue any public statement on the matter. According to him, the preferred way out was the government’s move last year that forgave half of the unpaid GIDC collected by the firms. “That would have been a win-win situation for all stakeholders,” he added.

The majority of the firms will see their earnings drop and liquidity adversely affected owing to large cash outflows if they are forced to pay up the outstanding dues. “Our balance sheets will take a severe hit owing to the liquidity-driven impact of the decision,” the CEO of another fertiliser firm asserted. He also refused to speak on the record because of “sensitivity of the matter”.

“Most companies will have to resort to borrowings to pay up the accrued GIDC, which will badly hit their incomes. It will also kill the appetite to make new investments in the country as the payment of such a magnitude will have a significant impact on incomes,” he added.

The CEO was not hopeful about a positive outcome of the review petition filed with the Supreme Court though. “We are ready to pay the outstanding cess even if it drains capital out of our companies provided the government gives us a definitive timeline for developing the projects for which the levy was imposed. Even the dissenting judge had noted that the GIDC law doesn’t provide for a mechanism of ‘obligations and consequences that might arise if the service was delayed or was not delivered at all’.”

According to him, the government too is in a fix as it has already spent GIDC collected thus far. “Where will it bring the money from to start gas infrastructure development as ordered by the court?”

The industry sources concede that the government cannot do much to help them and pull them out of this situation. But, they claim, the government had assured them it wouldn’t oppose their plea to extend the payment period from two years to four to five years if they succeeded in convincing the court on this score.

According to a media report a few weeks back, Special Assistant to Prime Minister Nadeem Babar had challenged the fertiliser companies’ claim that they had not collected the cess from farmers and of liquidity problems, saying their profits had been in the range of 48-60pc during the last three years. Yet he had told the fertiliser industry that “the only option left to them was to file an appeal in the court for extension in the deadline for payment and only then the government could oblige”.

Published in Dawn, The Business and Finance Weekly, October 5th, 2020