Options to settle power sector debt on the table for IMF policy talks
ISLAMABAD: Consumers must brace for another hike in electricity tariff as the government was left with no other option but to receive additional payment from consumers to retire the power sector debt hovering at Rs1,000bn.
This will be in addition to a slew of other measures, including removal of subsidies and other adjustments, to retire the debt. The move is part of the government’s actions to meet preconditions set by the International Monetary Fund (IMF) to resume the loan programme.
The development came a day before the visiting IMF mission and the government were set to begin policy-level talks on Tuesday, after concluding extended technical consultations on Monday.
Officials said the government has no option but to cover Rs952-1,000bn power sector circular debt through tariff measures as the IMF had made it clear that it was no longer acceptable to park the gaps in power holding companies.
The gap had to be financed through a combination of budget measures and tariff surcharges, officials said.
According to the breakdown, the electricity base tariff has to be jacked up by more than Rs7 per unit to generate almost Rs600bn for the power sector on top of three quarterly adjustments for another Rs75bn during the current fiscal year.
The combined impact of base tariff adjustment and quarterly adjustment would average around Rs10 per unit in the first round — starting in February — but would remain around Rs7.65 per unit in the second phase i.e. March through May with quarterly tariff adjustments, power ministry sources said.
This will be other than expenditure cuts and additional revenue measures expected to be announced in a couple of days.
Moreover, gas price adjustments and immediate removal of subsidies for industrial consumers are also set to be modified as the government desperately attempts to meet the IMF’s demands.
The finance and power ministries have already finalised “Revised Circular Debt Management Plan,” based on the Rs2.253 trillion amount as of June 30, 2022.
Under the plan, the government will have to find ways to manage debt of Rs952bn during the current fiscal year, including Rs675bn worth of additional subsidies.
However, the IMF was not on board with it as it sought full financing of the circular debt through tariff measures. Thus, about Rs600bn additional funds would now be recovered from consumers through increase in base tariff on top of outstanding quarterly adjustments from last year.
Among the taxation measures that would still need to be finalised over the next three days include flood levy, increased taxes on sugary drinks and banking sector’s windfall gain tax on top of increased tax collection due to inflation and exchange rate depreciation.
Published in Dawn, February 7th, 2023