ISLAMABAD: The World Bank (WB) has expressed concerns over delay in implementation of ‘prior actions’ including measures to arrest circular debt flow which are mandatory for Second Resilient Institutions for Sustainable Economy (RISE-I), Development Policy Financing (DPF).
The Bank’s concerns have been conveyed by Najy Benhassine, Country Director, Pakistan to Finance Minister, Shaukat Tarin. On February 8, 2022, Bank’s team held a meeting with Finance Minister and discussed the RISE-1, DPF operation, during which Finance Minister assured the World Bank that pending RISE-II prior actions will be completed by March 31, 2022.
According to the Bank, there are a number of prior actions that are at risk of being delayed and will need to be closely monitored.
The Bank has also noted that aside from the prior actions of PACE II, demonstrating reform progress is critical. To this end, there are two areas of concern, namely (i) progress on the private participation in the Discos to improve efficiencies and customer service; and (ii) ensuring the downward trend of the circular debt flow.
The Bank argues that improving efficiencies at the Discos level is at the core of containing and eventually eliminating the circular debt flow and is an integral part of the Circular Debt Management Plan together with other short-term measures.
“Without showing progress on this aspect, the reform will be stalled and, as a result, Pakistan will continue to see an accumulation of circular debt flow,” the Bank said, adding that the first step in addressing this issue was approval and ratification by the Cabinet of the roadmap for private participation in Discos, as part of PACE I.
Najy Benhassine, in his letter maintained that road map for private participation in Discos was intended to be followed by the hiring of the financial advisor by the Privatisation Commission. However, to date, there has been no progress and the competitive procurement process that concluded in November 2021 failed to yield results. The Bank has facilitated discussions between the Privatisation Commission and IFC Advisory to undertake the role of Financial Advisor. The discussions are still on going and there is a need for Economic Coordination Committee (ECC) approval before the Privatisation Commission can sign an agreement with IFC.
WB highlights ‘deficiencies’ in EE&C-2022
PACE-II Matrix are as follows: (I) There has been no progress on the remaining IPPs that include those with foreign lenders (primarily Development Finance Institutions - DFIs), as well as, those on the G2G basis. Timing of this PA is very critical and currently is at risk of being delayed; (ii) First draft of NEP is finalized and is currently under consultations, and review. Final draft expected to be completed in March 2022 for CCoE approval in April 2022. This prior action is currently on track; (iii) Energy Efficiency (EE) policy initial draft is undergoing stakeholder consultations. The final draft is expected to be completed in March 2022 together with CCoE approval for final CCI approval in April 2022. This is currently on track but will depend on the CCI meeting schedule; (iv) final draft of Transmission System Expansion Plan Final of (TSEP) is expected to be submitted to NEPRA in April 2022. It is currently on track but needs close coordination and follow-up with NTDC;(v) The government has reduced subsidies for non-protected domestic consumers and removed the incremental block tariff benefits for electricity consumers; however, NEPRA’s decision and government notification are pending;(vi) The December 2021 report has not been published yet and notification of further adjustments in tariff is pending. MoE is expected to notify FY22 adjustments in March/April 2022 after NEPRA finalized determination, expected by end of February.
The Bank contends that the Risk until December 2021 circular debt was Rs 357 billion with projections for FY22 of Rs 275 billion, which is higher than what was in approved CDMP in November 2021 (FY22 - Rs 166 billion).
Both Grid Code and Commercial Code are currently on track; however, in order for NEPRA to approve them, there is a need for MoE to follow certain regulatory procedures. The summary has been prepared and this step is expected to be completed soon. This is still pending.
According to the Bank pending prior action of GST harmonization are as follows: (i) Finance Division and Provincial Finance Departments issue implementing regulations following the approval of common General Sales Tax (GST) laws passed by the Federal and Provincial Assemblies to generate a harmonized GST for goods and services across the country.
The Federal Parliament and Provincial Assemblies to approve amendments to the Federal and provincial sales tax laws whereas Finance Division and Provincial Finance Departments to issue implementing regulations based on the amended sales tax laws.
The key issues for the countrywide Sales Tax are as follows: (i) consensus on the definition of goods and services between federal and provincial revenue authorities (resolved in NTC); (ii) agreement on the place of supply rules (pending); (iii) agreement on the principle of taxation-origin-based versus destination-based [pending); and (iv) tax rate harmonization [pending).
The World Bank has suggested the following next steps: (i) convene meetings of the NTC Executive Council to discuss and develop consensus pending issues;(ii) receive endorsement by the NTC;(iii) amend federal and provincial tax laws to legislate the changes agreed in the NTC, as Technical Agreements have no legal sanctity unless enacted through the procedure provided for Money Bill(s) in the Constitution. If federal and provincial legislatures provide in their respective laws an irrevocable declaration of not revoking the provisions relating to harmonized sales tax on goods and services and specific delegation of powers to NTC, the objective outlined can be achieved. There is no specific need to go to CCI or NEC in this case;(iii) provincial laws allow their executive to make notifications, for example in the Punjab Sales Tax on Services Act 2012, the Second Schedule gives rates for specified services that can be changed by notification. We can now allow for such notifications that “may be issued on the recommendation of the National Tax Council” and; (I’ve) proposed legal language has already been provided to the Finance Division.
Another prior condition was Finance Division to absorb Rs 73 billion of Power Holding Pakistan Limited (PHPL) debt into the public debt stock in FY2l and refund Central Power Purchasing Agency Guarantee (CPPA-G/ DlSCOs Rs 240 billion for overcharged General Sales Tax.
The Finance Division is yet to issue a notification confirming: (i) total GST refunds due to DISCOS: (ii) the amount refunded in FY22 and to be refunded in a phased manner over FY23; and (iii) ceasing to charge GST on unbilled power.
The National Tariff Board is to approve a reduction of Additional Customs Duties from 7 to 6 percent on all tariff lines with Customs Duties equal or greater to 20 percent, and reduce the un-weighted average of total import duties by at least 5 percent, with respect to the baseline.
Provisional Assembly is completed but evidence that has been provided is incomplete, additional evidence is pending. WB has requested for customs, regulatory and additional customs duties by tariff line before and after the FY22 Finance act.
Copyright Business Recorder, 2022
Comments
Comments are closed.