Rise in GIDC to weigh down economy: industrialists

Munawar Hasan

Wednesday, July 16, 2014


LAHORE(The news): The increase in gas infrastructure development cess is bound to further burden the economy and different sectors, especially with strategic importance, such as agriculture and exports, industry representatives said.

The present government increased the rate of GIDC on industrial sector from Rs100 per million metric British thermal unit to Rs150 per mmBtu and on fertiliser sector from Rs197 per mmBtu to Rs300 per mmBtu, up Rs103. The GIDC rate for captive power has been set at Rs200 per mmBtu.

The government set a tax collection target of Rs145 billion through GIDC for this fiscal year as compared to Rs88 billion in the last fiscal year.

In this federal budget, the government added a provision in the GIDC rules, stating that it might levy any rate of GIDC on any category of gas consumers subject to maximum rate of Rs300 per mmBtu.

Such a jump in GIDC rate in the short span of time has irked the already-burdened industry.

All Pakistan Textile Mills Association has been vocal on this issue lately. It is a stance of the textile representative body that energy supplies must be ensured for running the wheel of the industry with a view to making it affordable for all.

Textile industry sources said that the government should withdraw an increase in GIDC for the textile sector to avoid a total disaster of the sector, which earns over $13 billion for the country per annum through exports.

They said that GIDC on textile would badly hurt this sector, which is already facing unprecedented gas and electricity load shedding.

The sources termed GIDC increase as an anti-textile industry initiative of the current government that earlier assured maximum support to export-oriented textile sector.

They demanded the government to act prudently as the benefit of the GSP (generalised scheme of preferences) plus status would also be mitigated with this increase in the GIDC.

The textile industry said the energy cost is likely to go up by at least 10 percent with a rise in GIDC that would be detrimental for the textile industry. The textile industry in energy-deficit zone is already paying Rs92 billion additional annually to meet the energy requirement through costlier sources. This high cost of manufacturing forces industrialists to close down textile units.

On the other hand, according to the spokesman of the Fertilizer Manufacturers of Pakistan Advisory Council (FMPAC), as many as Rs200 increase per mmBtu on fuel stock making it Rs300 per mmBtu would result in an extra burden of Rs60 to 70 per urea bag. This would not bid well for the fertiliser industry.

Fertiliser industry sources said that the government could not impose extra taxes on two plants set up under 2001 policy as under the contract of investing two billion dollars they were exempted from any tax or duty for a specific period.

The sources said that it was unclear whether the government would go for slapping cess on new plants in violation of the agreements signed to promote local and foreign investment in the country.

Any increase in urea prices will directly hit the growth of agricultural sector, which presented a dismal performance during the last fiscal year. The agriculture sector grew at the rate of 2.1 percent in the last fiscal against 2.9 percent earlier.

In addition, due to dull performance, its share in gross domestic product went down considerably. During the last eight years, the sectoral share of the agriculture sector in the GDP decreased from 23 percent to 21 percent.

All Pakistan CNG Association questioned the legal status of GIDC’s imposition. Ghiyas Abdullah Paracha, central leader of APCNGA, said the government has been collecting billions of rupees as GIDC from CNG and other sectors for years on the pretext of financing the construction of Pak-Iran gas pipeline. On the other hand, top government functionaries frequently said that the project was difficult to implement due to international pressure.

How can the government collect billions of rupees from commercial sectors to support a stalled project without considering that GIDC has increased the cost of doing business and triggered inflation? However, the CNG sector has been discriminated again, as “We are being forced to pay Rs300 on the consumption of one mmBtu”.

Industry’s representatives said inconsistent economic and other policies, lack of honouring commitments by successive governments and the high cost of energy are major bottlenecks in making investment in the country.

Business-enabling environment and friendly policies are fundamental prerequisite to attract investment. The government should keep the policies consistent, they added.

It is pertinent to mention that GIDC was first introduced in 2011 through Gas Infrastructure Development Cess Act 2011, primarily to finance the infrastructure development, including Pakistan-Iran gas pipeline and Turkmenistan-Afghanistan-Pakistan-India pipeline projects. At that time, it was estimated to generate around Rs34 billion every year.

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