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LOW Source:
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Pakistan Cases
1.12% positivity

ISLAMABAD: The Power Division is to submit new Circular Debt Management Plan (CDMP) to the International Monetary Fund (IMF) and the World Bank at the end of the current month with an innovative approach, well-informed sources told Business Recorder.

Power Division, sources said, is considering reviewing the terms and conditions of public debt used to establish power plants by the government like RLNG-fired plants, Neelum Jhelum Hydropower Project and other Wapda hydropower projects. There is a proposal to extend debt payment tenures or reduce interest rate; likewise, the payment period of loans of K-2 nuclear power plant, financed by the public sector, will also be extended.

With this mechanism, estimated reduction in cost will be adjusted to stop further increase in tariff, the sources added. Another option which is under consideration is to further increase the tariff subsidy from the Rs 330 billion earmarked in the budget 2021-22. The required amount can be taken from the Public Sector Development Program (PSDP) of Rs 900 billion as PSDP allocations are rarely fully disbursed.

"When the amount of subsidy is enhanced, there will be no need to further increase consumer tariff," the sources continued. The third option which will not be applicable during next calendar year is that Pakistan Railways will lay a line from coal mines of Thar and connect it to the Railway network. The cost of this project is estimated at Rs 26 billion, PC-1 of which is ready. The cost of wagons for this track is Rs 20 billion which implies the total estimated cost of project is Rs 46 billion.

"If this project is completed within 18 months, the cost of Thar coal can be reduced to $ 26 or $27 per ton from $ 56 or $57 per ton of imported coal. This reduction in cost may be used to withhold further increase," the sources added. Sahiwal coal-fired plant which is operated on imported coal can be run on 50 per cent local coal without any modification which will also reduce cost.

The sources said previous tariff was determined on the basis of Rs 167 per dollar which has now come down which can be readjusted. "These are some proposals which are being considered and will be shared with the IMF and World Bank by the end of June 2021 but tariff certainly has to be increased to some extent next year," the sources maintained.

The World Bank officials are reportedly more annoyed than the IMF for not increasing tariffs by Rs 1.39 per unit from 1 June 2021 as per the agreement. Nepra had determined an increase of Rs 3.34 per unit in power tariff through rebasing of which Rs 1.95 per unit was notified from January 2021 and the remaining Rs 1.39 per unit was to be notified from June 1, 2021. However, the government decided to club it with QTA to be applicable from 1 October, 2021 and its impact will be only Paisa 7 or 8 per unit as Nepra has approved imposition of surcharge to the tune of Rs 1.25 per unit on consumers using over 700 units monthly to offset impact on lower categories.

"We have requested World Bank to give some breathing space on tariff increase issue as other reforms including privatisation of Discos are approved by the cabinet," the sources maintained.

The issue of tariff also came under discussion at a recent meeting of federal cabinet. Electricity tariff will not be increased during this calendar year as pledged by Prime Minister Imran Khan to the people but what will be the course of action from January 2022 on tariff adjustment is not clear. This question is being asked both by the World Bank and International Monetary Fund (IMF).

According to the CDMP plan shared with the Fund and World Bank, the government has to increase tariff by Rs 4.93 per unit as QTA and annual rebasing. The government has projected circular debt stock at Rs 2.48 trillion, which is expected to touch Rs 2.7 trillion as the government has not allocated the required amount of Rs 501 billion as subsidy.

The government has allocated subsidy of Rs 330 billion for 2021-22, which implies that the remaining amount of Rs 171 billion will be added to the current stock of circular debt. An amount of Rs 136 billion has also been earmarked in the budget 2021-22 for PHPL to be used for payment of interest on loans as Finance Division paid Rs 72 billion from its own resources on this account during the current fiscal year.

Copyright Business Recorder, 2021

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