As expected, the government approved a massive financial guarantee of over Rs 200 billion for procuring 7.7 million tons of wheat from influential growers, in an election year, even though the commodity purchase issue stand transferred to the provinces after the devolution.
The decision was made at the agriculture lobby dominated, Economic Coordination Committee of the Cabinet (ECC) which met under the chairmanship of Finance Minister Dr. Abdul Hafeez Shaikh.
The committee also approved unprecedented incentives for kick starting natural gas import projects by exempting from sales tax and federal excise duty on imported natural gas through pipelines and LNG. Collection of applicable taxes, duties and any other levies were deferred till the commencement of commercial operations of the natural gas and LNG import projects, on the analogy of such facility provided to power projects by ECC in July 2009. EPC contractors involved in the gas import projects were exempted from sales tax, while custom duties were exempted on HR coils, line pipe, pylons piles. While temporary importation of plant, equipment, machinery, LNG terminals and peripheral infrastructures were allowed for the projects duty free on import cum export basis.
ECC also approved the summary for the extension of date of completion of BYCO oil Pakistan Limited to avail 7.6 years tax holiday. It also approved low BTU gas pricing policy under which the price has been increased from $ 2.5 mmBTU to $ 8.75 mmBTU. This will promote investment in low BTU reserves and estimated 800 mmcfd supplies are expected to be utilised mainly by the power sector. It also approved fortnightly price adjustment of petroleum products, even though Oil and Gas Regulatory Authority had reservations over the move and it was stressing maintaining prices on quarterly basis to protect the people from high inflationary impact.
The meeting also decided to lift ban on the public sector institutional investment in the national saving schemes. The move is expected to attracted Rs 150 billion investment from the public sector institution in the short term. According to the official press release, ECC discussed at length the summary of the Ministry of Food Security and Research on the public sector procurement of wheat crop. After devolution the provinces were allowed to lift the wheat to maintain strategic reserves. The meeting debated on the extension of credit cash guarantees to the provinces for purchasing wheat after the increase in the support price of wheat from Rs 950 to Rs 1050 per 40 kg. After much deliberation ECC agreed to approve the summary.
An official source said that the federal government was under pressure to give the credit guarantee, as procurement of 7.7 million tons of wheat from influential farmers in Sindh and Punjab will guarantee favourable support from the growers in the upcoming general elections. Pakistan is expected to harvest a bumper wheat harvest of 25 million tons. The public sector procurement is usually carried out to maintain stability in wheat prices during the harvesting season. In the past the wheat procurement has remained limited to 5 million tons but for garnering political support in rural areas the procurement had been enhanced to 7 million tons during the last few years. The government already has faced billions of rupee loss in subsidize selling of procured stocks of last year to make room for new procurement. Due to the low international prices there were no chances of exports and the government would have to provide additional subsidy to dispose off its stocks next year.
ECC also approved the summary for the extension of date of completion of oil refinery BYCO limited to avail 7.6 years tax holiday. The refinery was given tax holiday for 7.6 years and had as to complete by the end of 2011, however the refinery could not be commissioned by the stipulated time. The Ministry of Petroleum recommended that the company may be granted extension of the facility up to the end of 2012, which was approved after much deliberation. The meeting among others was attended by Minister for Petroleum Dr. Asim Hussain, Minister for Water and Power Syed Naveed Qamar, Minister for Production Anwar Cheema, Minister for Privatization Ghaus Baksh and Minister for Railways Ghulam Ahmad Bilour, Deputy Chairman Planning Commission, Secretaries for Railways, Finance, Economic Affairs Division, Petroleum and other concerned officials.
