The IMF program review report is out and it reads much of the same for the energy sector, in terms of progress and plans. What stands out is the power sector circular debt which the IMF projects to stay virtually unchanged from FY23 at Rs2.3 trillion by the end of FY24. It is great news but sounds a lot more optimistic than ground realities.
Firstly, the circular debt stock as per the IMF by the end of January 2024 had grown to Rs2.6 trillion – an increase of Rs301 billion over June 2023. This is in line with the World Bank’s numbers for circular debt stock presented in the Development Outlook series for Pakistan in April 2024. Only that as per the World Bank, the circular debt stock at Rs2.63 trillion represents an increase of Rs463 billion over June end, 2023.
This essentially means a change of base by nearly Rs130 billion from the Ministry of Energy’s publicly provided dataset. What also muddles the picture is the inability of the Ministry to publicly disclose the circular debt flow – since October 2023. It is a coincidence that ever since the pause in the public release of circular debt data, the IMF has been told of zero net accumulation in the flow for the next four months.
A little puzzling is the fact that even the IMF review published in March relies on numbers for the end of January 2024. As per the program’s very own Monitoring and Reporting Requirements, energy arrear stock and flow of arrears data are to be shared with the IMF within 45 days of the end of each month by the authorities. Clearly, the authorities must have a valid explanation for this, as the IMF does not seem to have raised any eyebrows over data availability in this regard.
Be that as it may, reducing the stock by more than Rs300 billion in the last five months of the fiscal year appears a daunting task. Yes, the flow has stemmed after timely quarterly adjustments, but the biggest contributors to the flow have been discos under-recoveries and excess T&D losses. With record-high tariffs, recoveries have been hampered, and the gain on the T&D front is minimal.
The IMF’s net-zero debt accumulation also assumes disbursement of the entire Rs976 billion budgeted subsidies by June 2024. By the end of January 2024, only Rs350 billion or a little over one-third of budgeted power sector subsidies had been disbursed. Tariff differential subsidies and subsidies related to PHL stock and arrear payments form a big chunk of the amount yet to be disbursed and the sailing may not be as smooth as projected.
What the review report also makes clear in no uncertain terms is that non-cash settlements on the lines of the much-celebrated earlier circular debt clearance plan – will not be entertained by the IMF and the authorities have finally given in. The IMF continues to remain lenient on how the discos operate in the future–happy with either privatization or long-term management concessions. The authorities in response have also mentioned “improvement in governance” of discos – without mentioning any intent of privatizing. It appears that the realization is there that privatization of discos is nearly off the menu. The onus then remains on cost-side, infrastructure, and usage – to life the power sector from the rubble.
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