IMF demand: Farmers, export industries lose power subsidies

ISLAMABAD: On the IMF demand, Pakistan has discontinued its subsidised energy supply packages to the zero-rated industrial sector and agriculture tube-wells (Kissan Package) from March 1, 2023, to manage the ballooning power circular debt.

The federal cabinet recently approved the summary for ending these subsidy packages, after the approval of the Economic Coordination Committee of the Cabinet (ECC). The Power Division, to this effect, issued two separate notifications on Wednesday, saying that these packages stand discontinued from the start of the month, to manage the energy sector circular debt that had ballooned to over Rs3 trillion. In October last year, Prime Minister Shehbaz Sharif announced the Kissan Package, but now after four months, the subsidised facility had been discontinued. Two weeks back, the federal cabinet approved the revised circular debt management plan, which includes transferring an additional Rs65 billion to the power consumers till June 2023 and withdrawing Rs65 billion in subsidies from the export-oriented and agriculture sectors from March 1.

An official said that the discontinuation of subsidy from March 1 would have an impact of Rs51 billion on the export sector and Rs14 billion on the agriculture sector under the Kissan Package.

Likewise, in October 2022, the government set the power tariff at Rs19.99/unit for the zero-rated export-oriented sector. It was estimated that the move would burden the national kitty to the tune of Rs 90-100 billion. The five zero-rated sectors are textile, carpets, leather, sports and surgical goods. The agricultural tube wells were granted a fixed rate of Rs13/unit, with a subsidy of Rs3.6/unit. Now, after this package ends, these tube wells, which are around 0.3 million, would pay the normal tariff to operate these irrigation wells.

The move to end the subsidised regime for the export sector and agriculture tube-wells have been taken on the instructions of IMF under the revised Rs952 billion circular debt management plan (CDMP). By June-end 2023, the government would receive Rs250 billion from power consumers.

The CDMP plan calls for a surcharge of Rs3.39 per unit. Moreover, the increase in quarterly adjustments until June would yield Rs73 billion. In February, as a result of the quarterly adjustment, electricity could cost up to Rs4.46 more than the current rate per unit.