Ahmed Mukhtar Naqshbandi
ISLAMABAD: With only three days to end differences, Prime Minister of Pakistan Shehbaz Sharif gave the go-ahead to increase electricity prices to strike a deal with the International Monetary Fund (IMF).
This may further push the annual base tariff up by about 33 per cent.
The decision, in principle, was taken in a meeting held at the Prime Minister’s House after the IMF didn’t budge from its earlier stance that Pakistan should honour its past commitments. The prime minister chaired the meeting online, as he was in Lahore.
There might be an average Rs7.74 per unit raise in the base tariffs, but the surge for the upper consumption slabs could be much higher, according to the source privy to the discussion.
The prime minister still wanted the power division to win back some of the space by convincing the IMF to agree to lower than the demanded raise, according to a report in a major English daily.
The sources said that after the prime minister’s approval, a revised circular debt reduction plan could now be shared with the IMF on Tuesday, carrying the details of the rise in prices on account of quarterly and annual base tariff adjustments.
Power Minister Khurram Dastgir’s take on tariff raise
Power Minister Khurram Dastgir didn’t comment on whether the prime minister has agreed in principle to raise the tariff with a maximum increase for the upper category of consumers.
The IMF demanded a 50 percent increase in prices, but the government wanted to increase the prices from 20 per cent to 33 per cent. The IMF mission arrived on January 31 and is in Islamabad till February 9.
The IMF expects the government to implement all its outstanding actions, including raising taxes.
If the IMF agrees to the measures that the government now stands ready to take, a meeting between Pakistan’s Finance Minister Ishaq Dar and IMF Mission Chief Nathan Porter might take place the same day to give these measures final shape.
The sources said the power division presented various options to the premier to increase tariffs. These included an Rs4.26 per unit increase in quarterly tariffs and an Rs7.74 per unit average raise in the base tariff.
The IMF demanded the government raise the electricity price by over Rs12 per unit to offset the Rs675 billion demand for additional budget subsidy. The power division believes it can still recover Rs43 billion with the lag from July to December 2023, which minimizes the need for raise by the same amount.
At the time of the budget, the central government kept only Rs355 billion in power subsidies for the current fiscal year.
Circular Debt
In order to manage a flow of additional circular debt, the power division sought Rs675 billion in more subsidies, bringing the total need to over Rs1.03 trillion.
It had been discussed in the meeting that the delayed decision-making has further raise the cost of reviving the IMF program. The government hoped that the IMF could consider absorbing some raise through subsidies. But these subsidies could be backed by additional revenue measures.
The IMF also didn’t agree to the government demand to spare up to 300 units for consumers from the rise in prices, as it remained consistent on raising the prices for citizens having consumption of 200 units and more a month.
The Prime Minister has instructed that the maximum increase should be passed on to the citizens with higher consumption levels. But even citizens with higher consumption can’t bear the additional burden, mainly caused by the politically motivated decisions to give subsidies to exporters and provide less than demanded subsidies in the budget and the inefficiencies of the power sector.
The sources said the prime minister wanted to continue the exporters’ electricity subsidy package, but there are few chances that the IMF will agree to it in its present shape.
The sources said there was a possibility to raise the annual base tariff by Rs7.74 per unit or over 33 percent to address the IMF’s concerns. The average base tariff is around Rs24 per unit, which may jump to nearly Rs32 per unit by June. In case the IMF agrees to another option.
It could be the second raise in the current fiscal year after the government has increased the base tariff by Rs7.91 per unit under the IMF deal. The raise is not helping to stem the losses but forcing citizens to shift to an alternate energy source.
Power Division Submitted Plan
The power division has submitted the revised CDMP, which revealed a staggering Rs952 billion more added to the circular debt without increasing tariffs.
It has proposed that in addition to the annual base tariff raise, the government could impose three separate quarterly tariff adjustments, ranging from 69 paise per unit to Rs3.21 per unit from February to May this year, to reduce the gap of Rs73 billion.
The sources said that the first surcharge of Rs3.21 per unit could be imposed from this month, a second 69 paisa per unit from March, and the third Rs1.64 per unit from June.
A government official said the IMF sought a detailed plan to bring policy reforms to the power sector.
The sources said there was still some possibility that the gas tariffs could have to be raised to address the flow of the circular debt in the gas sector. They clarified that the gas prices raise because of the stock of debt might not come.
