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ISLAMABAD: The Government and International Monetary Fund (IMF) have reportedly agreed to freeze the energy sector circular debt at current level of Rs 2.4 trillion till June 30, 2023, well-informed sources told Business Recorder.

“Power Division and Finance Division have evolved a consensus on a number of measures like efficiency in the system, rationalization of subsidy, tariff increase and resolution of KE’s receivables,” the sources added.

“The graph of the circular debt will be higher than Rs 2.4 trillion and sometimes, it will be less than Rs 2.4 trillion but its average will remain within the range agreed with the Fund,” the sources continued. ‘Circular Debt Management Plan (CDMP)’ has already been agreed with the IMF and will be submitted to it after it is finalized with the Prime Minister’s concurrence and subsequently approved by the Cabinet Committee on Energy (CCoE) and Federal Cabinet, the sources maintained.

According to the CDMP, Rs 60 billion on tubewells in Balochistan will be done away with by shifting tubewells on solar system, Rs 38 billion subsidy to AJ&K and Rs 200 billion of KE will also be made part of the CDMP. The sources said the Power Division has requested Finance Division to allocate Rs 430 billion for power subsidy instead of Rs 140 billion per annum. However, Finance Division will earmark the amount for energy sector subsidy in the federal budget keeping in view the available fiscal space. Finance Division is still silent on Power Division’s request.

According to Secretary Power, Ali Raza Bhutta, consumers using over 300 units per month are paying Rs 23 per unit “and rightly so,” as they are cross-subsidizing 70 per cent of domestic consumers. The sources further stated that imposition of surcharge on power sector consumers is also part of the CDMP aimed at recovering the amount of interest on loans raised from banks to retire the circular debt. Power Division, sources said, is facing a severe liquidity crunch due to which payments to the Independent Power Producers (IPPs) are stalled and it has now requested Finance Division to grant a Technical Supplementary Grant (TSG) of Rs 114 billion.

“We want to control and reduce the flow of circular debt from Rs 538 billion to Rs 112 billion per annum,” the sources maintained. A parliamentary panel has also sought assurance from the Ministries of Finance and Power that circular debt will not increase from the existing level of Rs 2.4 trillion. The sources said the government has already assured the lenders that debts amounting to Rs 1 trillion parked on the books of PHPL will be made part of the national debt as and when those mature, however, the interest on those loans will continue to be paid by the consumers.

Copyright Business Recorder, 2021

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