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Govt jacks up electricity prices, withdraw subsidy on Kissan pkg in compliance of prior actions of IMF

ISLAMABAD (Eshfak Mughal):- The coalition government led by Prime Minister Shehbaz Sharif Pakistan has decided to jack up the prices of electricity by Rs.7.91/unit, discontinuation of Kissan and Zero-Rated Industry (export oriented sector), recovery of Pakistan Holding Limited markup surcharge and additional subsidy from govt in compliance of prior action slapped by the International Monetary Fund (IMF).

The Economic Coordination Committee (ECC) of the Cabinet met under the chairmanship of Finance Minister Ishaq Dar here on Friday. The meeting has adopted the revised Circular Debt Management Plan to save Rs.952 billion to curtail the circular debt which has been mounted Rs.2.3 trillion in Dec 2022.

The Finance Ministry had shared this plan to curtail the circular debt of energy sector with the IMF team during the 9th Review Meeting under the Extended Fund Facility during 31st Jan to 09th Feb 2023 in Islamabad.

After the conclusion of the talks with Pakistan, the IMF mission has issued a statement. “Key priorities include strengthening the fiscal position with permanent revenue measures and reduction in untargeted subsidies and enhancing energy provision by preventing further accumulation of circular debt and ensuring the viability of the energy sector”, said in the statement.

“The timely and decisive implementation of these policies along with resolute financial support from official partners are critical for Pakistan to successfully regain macroeconomic stability and advance its sustainable development”, further said in the statement of the IMF.

The ECC has increased the electricity prices by Rs.7.91/unit in Quarterly Tariff Adjustment (QTA) from February to August 2023 under Circular Debt Management Plan to generate Rs.73 billion.for reducing the stock of circular debt.

Sources said that the Energy ministry has presented a Rs952 billion revised circular debt management plan for fiscal year 2023.

The Ministry of Energy has projected QTA From February to March 2023 @ Rs 3.21/unit to generate Rs.40 billion, QTA From March to May 2023 @ Rs 0.69/unit to generate Rs.17 billion and QTA From June to August 2023 @ Rs 1.64 per unit to generate Rs.16 billion.

In addition, government under the plan will minimize DISCOs losses to 16.27% through timely tariff increases by end FY 2023 for getting Rs.12 billion during the period.

Similarly, the government has decided to save Rs.65 billion through discontinuation of Kissan and Zero-Rated Industry (Export Oriented Sector) packages from March 1, 2023, according to the revised circular debt management plan.

Under the approved package, markup saving due to IPP stock payment would be Rs.11 billion , FCA recovery till June 2023 to save Rs.31 billion, the Pakistan Holding Limited markup surcharge recovery Rs.68 billion, GST and Taxes on collection basis Rs14 billion, Reimbursement from FBR Rs.5 billion and additional subsidy from government would be projected Rs.335 billion.

Meanwhile, the projected Circular Debt flow for the year would be Rs.336 billion whereas the revised Circular Debt projection after stock payments would be Rs.122 billion.

The circular debt stock would be Rs.2374 billion in FY2023 which included Rs.765 billion amount parked in PHL, Rs1509 billion payable to power producers and Rs100 billion GENCO’s payable to fuel suppliers.

According to the plan, the variation of Rs.1.0/USD in exchange rate could result in around Rs.5.0 billion change in power purchase invoice.

The plan covers the FY 2023 and describes the mechanism to address the circular debt issue in Pakistan power sector and how to control the flow of circular debt. The plan also envisages measures, to reduce the stock of circular debt by paying off the arears of power producers.

Under the Kissan Package announced by the Prime Minister Shehbaz Sharif last year, the government had given relief to farmers through electricity bills at lower rates. The Prime Minister had said that there are around 300,000 agri tube-wells in the country, and the government has planned to solarize these tube-wells for which a massive subsidy will be provided. He had said a flat rate of 13 rupees per unit will be charged on agricultural tube-wells.

The gap in consumer reference rate and projected cost of supplying power will be mitigated through timely tariff increase. The DISCOs’ losses shall be reduced to 16.27 percent be end of FY2023. The plan also assume that the Govt committed subsidies will be budgeted properly and released in timely manner.

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