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ISLAMABAD: Finance Ministry and Power Division are said to have started internal consultations to devise strategy for talks with International Monetary Fund (IMF), the schedule of which is yet to be finalized, well informed sources told Business Recorder.

Power Division, sources said, has been informed that Finance Ministry is in contact with IMF for technical level talks virtually, and as the scheduled date is finalized, the former will be updated.

“In view of the upcoming 7th Review Mission of the IMF’s Extended Fund Facility (EFF) a virtual technical meeting during this week has been requested by the IMF,” the sources added.

The agenda of the meeting is “resuming ongoing discussions and reviewing plans for FY 22 and 23 specifically implementation plan for delayed tariff adjustments and quarterly circular debt flow projections.”

IMF programme may be crucial, but Pakistan's economic woes run really deep

The sources said, main issue of power sector is delay in notifications of re-basing of Discos’ tariffs and Quarterly Tariff Adjustment (QTA) which was the responsibility of National Electric Power Regulatory Authority (NEPRA).

According to the sources, circular debt stock which was $13.5 billion during FY 20 (5.6 per cent of GDP)and projected at $ 11 billion (4.5 per cent of GDP) in 2021 but it is expected to be $ 12.5 billion at the end of FY 22.

The Circular Debt Management Plan (CDMP) was updated in November 2021 with actualized value of monthly Circular Debt (CD) reports submitted to the Cabinet and quarterly reports shared with the IMF that are not made public.

The CDMP envisages a gradual decrease of circular debt flow and stock, based on timely tariff adjustments, structural reforms and finalization of historic stock. Circular debt declined from $ 3.4 billion in FY 20 to $ 2 billion in FY 21, but the latest updated CDMP targeted $ 1 billion in FY 22 but it is likely to end up closer to FY21 value. Although, the CD flow and stock are still large, the largely increasing trend from FY 17-20 has been disrupted. Future success to eliminate CD will depend on government’s ability to continue updating and implementing ambitious CDMPs.

A delayed base tariff adjustment(Rs 1.39 per unit from FY 21) was notified and effective in November 2021. FY 22 annual rebasing has been delayed. The determination tariff rebasing is awaiting updated investment plans from Discos. Currently it is expected to finalize determinations only by April/ May, 2022 with Ministry of Energy (Power Division) notification earliest in June 2022.

However, international financial institutions fear a moderate risk for FY 22 annual rebasing only in July 2022.

According to the World Bank (WB) more than Rs 500 billion will be added to the circular debt in FY 2021-22 as many prior actions were not honoured by the government.

Hartwig Schafer, Regional Vice President (VP) of World Bank Group for South Asia Region who is on a visit to Pakistan will discuss power sector related issues with Power Division’s top brass on Tuesday (today).

According to the World Bank, further delays in tariff adjustments and KE settlement risk CD flow for FY 22 to reach Rs 350 billion pending the end March 2022 CD projections by Power Division. The World Bank is projecting CD flow to be actually much larger by the end of FY 22, possibly more than Rs 500 billion.

The sources said, Finance Division has extended required subsidy to power sector as per allocations in the budget but delay in notification of QTAs and rebasing of tariff has added substantial amount to the circular debt.

Copyright Business Recorder, 2022

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