ISLAMABAD: The government has yet to fully comply with some of the commitments made to the International Monetary Fund (IMF) on power sector reforms, tariff increase and amendments in the Nepra Act prior to the sixth review due in June 2021.
The government gave the commitment to the Fund that it will get powers through amendments in the Nepra Act to impose surcharge on consumers with the approval of cabinet, however, this has not yet been met, but the authorities enacted reforms via alternative procedures.
The government has obtained approval from the National Assembly Standing Committee on Power, through a majority vote but the Bill is yet to sail through Senate Standing Committee on Power.
On electricity tariff adjustment, the government has implemented the first stage of the FY 2021 annual rebasing of Rs 1.95 kWh in January 2021 and completed the FY 2020 Q2 and Q3 quarterly tariff adjustments of Rs 1.63 /kWh in December 2020. However, another increase of Rs 1.39 / kWh as second phase of rebasing was pledged to be implemented on June 1, 2021. Finance Ministry and Power Division are engaged with the IMF and World Bank, to try to convince them not to press for an increase of Rs 1.39/kWh.
On Wednesday, the ECC also deferred a proposal of Power Division regarding passing on FCAs from November 2019 to June 2020 in the bills of May and June 2021 with the Finance Minister pledging to settle this issue with the World Bank.
The Cabinet also approved first steps to reform energy subsidies to reduce the regressive nature of the tariff structure on March 16, 2021.
The government has also approved Circular Debt Management Plan (CDMP) in line with international partners' advice on March 16, 2021. However, the plan is now to be revised in light of recent talks led by the newly-appointed Finance Minister Shaukat Tarin and the World Bank which is playing the lead role in the electricity sector.
The IMF has given indicative targets on (i) clearing power sector payment arrears, including non-recoveries from supply to Azad Jammu and Kashmir (AJ&K), Industrial Support Package (ISP), other federal and provincial governments including FATA, private consumers, and Baluchistan tube wells; (ii) accrued markup from servicing of PHPL; (iii) line losses and non-collections that are not recognized by Nepra; (iv) GST non-refunds; (late payment surcharges); (v) delays in subsidy payments; and (vi) delays in tariff determinations.
The Fund has also given other structural conditionalities which are as follows: (i) reduction in CPPA-G payable to power producers through a payment up to PRs 180 billion with no more than 1/3 in cash and the remainder in debt instruments by end-May 2021; and (ii) finalization of the energy cross-subsidy reform for the FY 2022 budget (end-June 2021).
Copyright Business Recorder, 2021