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Print Print 2024-02-06

IMF briefed about tariff, circular debt plans

  • International Monetary Fund seeks some clarification from the caretaker government’s team
Published February 6, 2024

ISLAMABAD: The caretaker government’s team on Monday formally interacted with the International Monetary Fund (IMF) through a video call to seek the latter’s support for tariff rationalization and circular debt reduction plans, well-informed sources told Business Recorder.

Both plans have been developed by two teams dedicated by the caretaker Minister for Power and Petroleum, Muhammad Ali, who intends to get IMF and Federal Cabinet nod, prior to end of the caretakers’ mandate.

The sources said the IMF has sought some clarification from the caretaker government’s team, comprising Ministries of Finance and Energy, which will be responded in a day or two so that things become more clear prior to next round. World Bank officials have already been taken on board.

Energy sector: Major step taken towards reducing circular debt

According to the proposed rationalization plan, tariff for the industry will be slashed between Cents 8.5 - 11.75 / kWh from cents 14 per unit through subsidy neutral proposal. However, protected categories of consumers will be further loaded from Rs 50 to Rs 450 per month fixed charges to minimise cross subsidy.

Likewise, energy sector circular debt stock of Rs 1,268 billion will be settled using funding from the government of Pakistan (GoP) for one to two days.

According to sources, the Executive Committee of Special Investment Facilitation Council (SIFC), in its meeting held on January 24-25, 2024, decided that a detailed and compressive technical paper to be developed in consultation with the Finance Division, along with key guiding principles to reduce circular debt and presented in the Apex Committee for an in- principle decision for inclusion in the next budget. On tariff rationalization proposal Power Division to take Finance Division on board to review the proposed plan, for discussion with concerned international stakeholders.

However, the decision of EC of SIFC has been overruled by Apex Council of SIFC with respect to wait for the budget for final approval. There is an apprehension that if the proposals prepared by the caretaker setup with hard work are not cleared during the term of caretakers, then chances of their approvals will be minimal after elected government takes the charge of government affairs.

“Now this was done and approved in the AC (Apex Council. It doesn’t need to be included in the budget as this can be done by the caretaker government,” said an official.

At a recent meeting of Senate Standing Committee on Power, Additional Secretary In-Charge, Asad Gilani said that power tariff is a genuine issue. Currently, the industry in Pakistan is getting expensive electricity and gas. He said due to expensive electricity, the local industry cannot compete with its regional competitors. He acknowledged the negative impact of elevated power tariffs on businesses and export industry and efforts are underway to formulate a model aimed at overcoming the obstacles posed by the current tariff structure.

In Pakistan, he said, power tariff for the industrial sector was the highest at Cents 14 per unit against the region’s rate of Cents 9 . He further stated that working on bringing the industrial tariff to cents 9/kWh has been completed.

“The revision of tariff is necessary to run industry. lf the wheel of industry moves, then people will get employment and issue of circular debt between various entities will also be resolved,” he added.

Commenting on the IMF’s concerns regarding reduction in Discos revenue due to tariff rationalization, the sources said, the projected gap will be bridged through recent collection from anti-theft drive which will continue.

Copyright Business Recorder, 2024

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