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‘Cost-side reforms’: IMF says Pakistan needs to revisit terms of power purchase agreements

  • Remarks come in staff report for the second and final review under $3-billion Stand-By Arrangement
Published May 11, 2024

The International Monetary Fund (IMF) has urged “strong cost-side reforms” for restoring the viability of Pakistan’s energy sector, highlighting also the need to revisit, where feasible, terms of power purchase agreements as part of the agenda.

In its staff report for the second and final review under the recently-concluded $3-billion Stand-By Arrangement, the IMF also said Pakistan should be able to meet its fiscal year 2023-24 circular debt management plan (CDMP) target of Rs2.3 trillion with zero net zero stock accumulation.

“Timely notification of the FY25 annual rebasing will be critical to the continued prevention of further circular debt flow, as will further collections efforts, including steps to enhance and institutionalise digital monitoring,” the IMF said in the report released on Friday.

“In parallel, the authorities should press ahead with agricultural tube well subsidy reform, for which a finalised plan is targeted by end-FY24.”

However, the IMF added, that restoring energy sector viability requires strong cost-side reforms.

This includes:

  • continuation of efforts to improve transmission infrastructure, including for better integration and expansion of renewable energy capacity;

  • improving DISCO performance via either privatization or long-term management concessions;

  • moving captive power demand to the grid;

  • revisiting, where feasible, the terms of power purchase agreements; and

  • continuing to convert publicly-guaranteed PHPL debt into cheaper public debt“.

The staff report is a crucial 65-page document as it broadly outlines the reforms’ agenda that has either been undertaken by Pakistan or where Islamabad needs to put more efforts.

In the case of the energy sector, terms of power purchase agreements have not come heavily under the scanner as the focus has first been on taking recovery and tariffs to a sustainable level.

Higher energy prices triggered mass protests across Pakistan last year and have also stifled energy demand with policymakers scratching their heads on how to move forward for the sector’s viability.

Pakistan pursued an aggressive policy to add power capacity, but years of slow economic growth, power theft, and under-investment in transmission and distribution networks have meant that bill recovery has not been at par.

With runaway inflation triggering record high interest rates, demand for energy has reduced further, leaving Islamabad in a ‘catch-22’ situation.

In its staff report, the IMF also admitted that the only sustainable solution for the sector is decisive action to address cost-side and infrastructure issues.

The IMF’s staff report is also an important document as many see it as a guideline in the light of Pakistan’s pursuit for a longer, larger programme with the IMF.

A mission of the lender is expected to visit this month ahead of the budget-making exercise where new taxation measures targeting non-filers and retailers are currently being pursued.

In the letter of intent, part of the IMF staff report, Pakistan also agreed that it will focus on “mobilising significant additional revenue” especially in undertaxed sectors.

Bilal Memon

Bilal Memon is the Head of Digital Content at Business Recorder. His Twitter handle is @bilalahmadmemon

Comments

200 characters
KU May 11, 2024 11:53am
Well, our patriotic leaders/govt servants made a fool of nation with elusive mutually beneficial agreements with IPPs, now IMF wants it corrected. On side-lines, efforts to nip solar energy is afoot.
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NotSurprised May 11, 2024 01:05pm
IMF will only want Chinese PPA renegotiated. Others they will never ask for nor allow govt to break its sovereign guarantee. But wherever China is involved, they wish to create conflict. So obvious
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Amran Arshad May 11, 2024 04:31pm
Who d hell IMF to dictate us,yes we should take IPPs to courts as they have ruined d economy but our leaders should say or Do no IMF
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Abrar Ahmed May 11, 2024 04:38pm
@Usman, on bullseye. GoP needs to activate NBP & SBP for undertaking forex buying only, and the difference will become amply visible
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Pakistani May 11, 2024 05:27pm
Glad IMF has highlighted it. Time will tell if some of the people who are beneficiaries of this arrangement and are also the policy makers, will negotiate it for the good of the nation.
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Maqbool May 11, 2024 06:25pm
Remember it was World Bank supported by the other loan giving Agency's that insisted that their IPP draft agreements must be followed by GOP when giving permissions,they should Now take responsibility
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Ali May 12, 2024 02:35am
Billions are paid to IPPs for merely setting up a plant . Everyone at top gets their share of $$$ .
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