Govt approves power tariff hike to fulfil IMF demands

• Ishaq Dar chairs ECC meeting after IMF team left without signing agreement.
• ECC approves additional surcharge of Re1 per unit for FY2023-24.
• Okays surcharge to recover Rs76 billion in power sector liabilities.

ISLAMABAD: In order to implement one of the prior conditions of the International Monetary Fund (IMF) for striking a staff-level agreement, the Economic Coordination Committee (ECC) of the Cabinet Friday approved the withdrawal of subsidies in electricity tariff for the export-oriented sector and Kissan package.

According to a statement issued after the ECC meeting, Federal Minister for Finance and Revenue Senator Ishaq Dar presided over the meeting of the ECC which took stock of the revenue and fiscal measures to be taken to meet the Washington-based lender's demand.

Reforms in the energy sector and controlling the circular debt remained on top of the agenda during the talks held with the IMF mission that concluded 10-day parleys in Islamabad on Thursday.

The IMF team left Islamabad without signing an agreement and asked Pakistan to take corrective measures in this regard.

The ECC meeting was held to review the situation and take necessary steps. 

Power tariff

Under various heads including quarterly tariff adjustments, deferred fuel price adjustment, and imposition of a surcharge of Re1 per unit on big power consumers, the government approved a revised circular debt management plan (CDMP) where the tariff would be hiked around Rs7-8 per unit till August 2023.

The consumer base tariff will be increased from Rs15.28 per unit in June 2022 to Rs23.39 per unit till June 2023.

Sources said the IMF had asked the government for raising the base tariff by Rs4.06 per unit, but the government did not approve anything in this regard under the revised CDMP.

It is yet to be ascertained how the IMF demand has been incorporated in the Memorandum of Economic and Financial Policies (MEFP), handed over to Pakistan on Feb 10, 2023. It is assumed that if the IMF insists on hiking the base tariff further, then Pakistani authorities would have to hike the tariff in the range of Rs9 to 11 per unit.

So far, the government protected power users of 300 units from an upcoming hike in tariff.

However, the revised CDMP did not talk about any surge in the base tariff of electricity as demanded by the IMF in order to reduce the requirement of an additional subsidy of Rs335 billion.

Under the directives of the IMF, the additional requirement of subsidy was slashed from Rs675 billion to Rs335 billion and the government has indicated to make it part of the stocks of the monster of the circular debt.

Circular debt management plan

The revised CDMP revealed that the government had approved the withdrawal of power sector subsidy for the export-oriented sectors with effect from March 1, 2023, to save Rs51 billion. The government also withdrew the Kissan package to save Rs14 billion with effect from March 1, 2023.

With the base case scenario to add Rs952 billion to the circular debt in FY2023 and bringing it down to Rs336 billion, the government approved a plan under which the quarterly tariff adjustment (QTA) Q-1 from Feb 23 to March 23 at the rate of Rs3.21 per unit would be hiked so the government would recover Rs40 billion, QTA Q-2 from March 2023 to May 2023 at the rate of Rs0.69 per unit, the government would recover Rs17 billion, QTA-3 from June 23 to August 2023 at the rate of Rs1.64 per unit, the government would recover Rs16 billion.

The improvement in the distribution companies' (DISCOs) losses by keeping it at 16.27% on average would recover Rs12 billion.

The fuel costs adjustment (FCA) recovery till June 30, 2023, would help recover Rs31 billion, Power Holding Limited (PHL) mark-up recovery through the imposition of surcharge would recover Rs68 billion, discontinuation of the package of zero rating regime would save Rs51 billion, discontinuation of Kissan package with effect from March 1 would recover Rs14 billion, GST and other taxes on collection basis would recover Rs14 billion and reimbursement from the Federal Board of Revenue of Pakistan (FBR) would recover Rs5 billion.

The CDMP envisages that the government would provide an additional subsidy of Rs335 billion. The projected flow of the circular debt would be standing at Rs336 billion. The circular debt stock would be standing at Rs2,374 billion till the end of FY2023 if the revised CDMP was implemented fully and without any delays.

However, the CDMP was envisaged that the exchange on average would be kept at Rs234 against a dollar, Karachi Inter-Bank Offered rates (KIBOR) at 16.84%, LIBOR at 4.73%, RFO (USD/MT) $610, RLNG $14.30 per MMBTU, imported coal $236 per MT, local gas at the rate of Rs857 per MMBTU and demand 134 Bkwh. 

Originally published in The News