Pakistan gas infrastructure tax decision to help fund projects, pipelines

Karachi — Pakistan's apex court has allowed the government to collect a pending gas infrastructure development tax amounting to billions of dollars from fertilizer, power, chemicals and cement companies, according to the court's verdict Aug. 13, a move that would help policymakers to use the funds to develop gas projects.

The government in 2011 had imposed a gas infrastructure development tax aimed at collecting funds to develop pipelines connecting different parts of the country as well to other countries to plug the energy deficit.

But in 2016, the companies took the battle to court and appealed in the Supreme Court against the tax. As a result, the government had not been collecting the gas infrastructure tax since 2016. According to court documents, the outstanding amount was Rupees 457 billion ($2.7 billion).

Elaborating on how the government would recover the dues, Muhammad Saeed Khalid, head of research in Karachi-based brokerage house Shajar Capital, said that the companies would be allowed to pay their outstanding dues in 24 monthly installments over the next two years.

Pakistan's domestic gas production is currently around 3.8 Bcf/day, while demand has been around 6.2 Bcf/day in the summer and 6.8 Bcf/day during the winter months.

Pakistan currently has two operational LNG terminals -- Elengy Terminal, having a capacity of 600 MMcf/d, and Gasport Pakistan Ltd., also having a capacity of 600 MMcf/d. The government currently pays $500,000/d in capacity charges on a use-it-or-lose-it basis.

The power sector accounts for 37.44% of gas consumption, industries 18.84%, fertilizer 17.06% and transport 4.84%, according to court documents.

With Pakistan turning out to be one of the fastest growing LNG markets since it first started importing in 2015, analysts say there is an urgent need to speed up building domestic gas infrastructure and import capacity expansions, which have been planned to absorb incremental inflows.