Prime Minister Imran Khan yesterday decided to withdraw the controversial Gas Infrastructure Development Cess (Amendment) Ordinance 2019 promulgated by President Arif Alvi a few days ago. According to a statement from PM's office, the decision has been taken "in the interest of transparency and good governance" and in view of the recent controversy. It also said that the PM has directed the Attorney General for Pakistan to move an application for urgent hearing in the Supreme Court, so that the matter is decided at the earliest, "strictly in accordance with law and the Constitution." The statement further stated the total amount, stuck in the GIDC litigation from January 2012 till Dec 2018, is about Rs 417 billion. In the first round of litigation, the Supreme Court had annulled the GIDC statute whereas the federal government's review petition was also dismissed by the Supreme Court. Thereafter fresh legislations were brought about, which were presently under challenge before the provincial high courts and a set of appeals was also pending in the Supreme Court. In the above backdrop, an Ordinance was issued with a view to recovering 50 percent of the stuck revenue by way of an out of court settlement after consultation with the industry. "However, the Prime Minister wishes to inform the nation that going to the court carries a risk because the decision could go either way. This means that the government could get the whole amount or could lose it all and possibly forgo any prospect of future revenue collections under this head. Also on top of this, the government could be saddled with the burden of administering refunds of approximately Rs 295 billion of the principal amount."
Be that as it may, at best the controversial ordinance was being perceived as reflecting a complete lack of due diligence carried out by his government and, at worst, it could be seen as providing illegal and unfair advantage to the sectors (like Gencos, IPPs, etc.) that collect GIDC on behalf of the government since its levy in 2011 which they successfully challenged in court, obtained stay orders and in violation of the Supreme Court of Pakistan judgement of May 2005, have and continue to retain the GIDC collected instead of depositing in the treasury. The ordinance sought to waive 50 percent of the GIDC liability provided the litigants withdraw their court cases through which they have obtained stay orders and agree to pay in future GIDC at relevant rates reduced by 50 percent. An almost similar scheme waiving half of the GIDC collected but not paid by the CNG stations was offered through an act of parliament that received the presidential assent on May 30, 2018, i.e., by the outgoing PML(N) government and a significant number of CNG stations availed the benefit. This measure, perhaps due to the hustle and bustle of political activity concerning induction of a caretaker government and impending general elections, went unnoticed.
The GIDC legislation is a saga of federal governments trying to do what they are not allowed to do directly under the constitutional scheme or not following the constitution requirements diligently. Had the federal governments in their disdain towards the provinces not bypassed the Council of Common Interest (CCI), a constitutional body and, had involved the provinces who are direct stakeholders, perhaps, the outcome may have been different.
It all started in 2011 when in a meeting chaired by the Director General Petroleum Concessions in Islamabad that was also attended by representatives of the provinces, the federal government functionaries informally mentioned their intent to impose a levy for financing the cost of the Pak-Iran and TAPI gas pipelines. Subsequently, this led to discussions between the provinces and the federation as regards the implications and constitutional arrangements of such levy as to whether this would be tax or a fee or what? There already existed and still does a Gas Development Surcharge (GDC) that is transferred to the provinces from the federal divisible pool. The levy that was being contemplated was to be over and above the GDC.
The PPP government embedded the Gas Infrastructure Development Cess (GIDC) legislation in the Finance Bill 2011 and had it approved by the National Assembly as part of the Finance Bill. This was promptly challenged in the Peshawar High Court that declared it unconstitutional as it was not a money bill and directed that the amount so collected be refunded. The government appealed in the Supreme Court that upheld the decision of the high court. Thereafter, the PML(N) government in 2015 legislated the GIDC Act as an act of parliament. That too was successfully challenged in courts and blocked because the matter had not been routed through the CCI. This is where matters rest today as regards GIDC.
The ordinance promulgated by the PTI government too does not have CCI approval and may end up in courts. Furthermore, it lacks the necessary safeguard to ensure that it is not viewed as doling out a windfall to the rich in times of financial stringency and belt tightening where most people are suffering a drop in their take-home salaries and businesses witnessing erosion of profits. This controversial ordinance too, ignored the fact that any amount passed on to the consumer as a tax or levy by the government has to be deposited in the treasury and cannot be retained by any entity. In the case of GIDC, even the four Gencos that are owned and managed by the federal government are sitting on billions of rupees that they have collected from their customers under price determination by their regulator (Nepra).
Minister for Power Omar Ayub and Prime Minister's special assistant on petroleum Nadeem Babar attended the post-cabinet press conference and revealed that the cabinet has instructed the Law Ministry to conduct a forensic audit of relaxation in GIDC. Perhaps the word 'forensic' has been used loosely here, what is required is a regulatory audit. We, therefore, support the decision to carry out an audit but with a caveat; it should be a regulatory audit done by the Auditor General of Pakistan.