Friday September 29, 2023

Govt seeks IMF consent for unbudgeted subsidy to unprotected electricity consumers

Average increase in rebase tariff from July 1, 2023 for consumers will have an inflationary impact

August 31, 2023
Headquarters of the International Monetary Fund, Washington DC. — AFP/File
Headquarters of the International Monetary Fund, Washington DC. — AFP/File

ISLAMABAD: The government is seeking IMF’s consent for an unbudgeted subsidy to provide relief to electricity consumers from its additional monthly collection, senior officials of Finance and Power Divisions told The News. The average increase in rebase tariff of Rs5.75 per unit effective from July 1, 2023 for commercial, industrial, and agriculture consumers will have an inflationary impact.

“In July, Rs58 billion revenue collection was achieved additionally from commercial, industrial, and agriculture consumers, and because of this monthly factor, the power sector would have close to Rs500 billion additional revenue per annum. The monthly collection would keep fluctuating in the range of Rs48-50 billion. The additional revenue of Rs500 billion under the agreement with the IMF will be used to improve the financial health of DISCOs and reduce the monthly flow in circular debt. Power Division and Finance Ministry officials are in talks with IMF on every proposed relief incentive and its impact. We have also sent to IMF, the government proposals with its impacts, so that the Fund staff could come up with their response.”

Under the latest scenario, the government wants the IMF to allow it to use one-third of the additional monthly revenue as an unbudgeted subsidy to provide relief to unprotected electricity consumers using 201-300 units per month. Currently, the government is extending a budgeted subsidy worth Rs310 billion to IPPs in FY24, Rs80 billion to AJK, Rs39 billion for FATA, and Rs150 billion to DISCOs in the head of TDS (Tariff Differential Subsidy).

Meanwhile, the Power Division has sought monetization for the officers of BPS 17-21 Grade in DISCOs, GENCOs, NTDC, NPCC, CPPA, PEPCO, and Wapda Hydel Company against free electricity units worth Rs2.1 billion per year.

Currently, the 17-Grade officer is getting 450 units free of cost per month, Grade 18 officer 600 units. Grade 19 officers 880 units, Grade 20 officers 1,100 units, and Grade 21 officers 1,300 units. This is how in 12 months’ time, the 17-Grade officer has been allotted 5,400 units, a Grade-18 officer 7,200 units, a Grade 19 officer 10,560 units, a Grade 20 officer 13,200 units and a Grade 20 officer 15,600 units.

The most alarming aspect of using electricity free of cost is that employees are allowed to save units in winter months and use carry-over units in the summer season.

The Power Division has not recommended any monetization to employees of 1-16 grades in the said entities fearing backlash of the employees’ unions. The employees in the said entities of 1-4 grade are allowed to use 100 units a month free of cost, 5-10 grade employees 150 units, 11-15 grade officials 200 units, and 16-grade officials 300 units a month. The yearly impact of electricity units consumed by employees of 1-16 grades stands at Rs6 billion.

The senior official at the Energy Ministry said the IMF has also been briefed about the proposal under which some portion of the tariff, up to 30 percent, for August and September, would be scaled down and the impact of reduced tariff would be passed on to consumers in six months of the winter season, from October 2023 to March 2024 in a staggered manner.

The second proposal was to pass the one-slab benefit to consumers. If the first proposal is enforced, then the power sector may face a cash flow situation and payments to IPPs against their invoices would further be delayed. If the second proposal is enforced, then the World Bank may get agitated as the government has earlier done away with the slab benefit facility under one of the covenants of the WB loan.

As far as the proposal to reduce taxes or erase them from the electricity bills for a certain period is concerned, the federal cabinet was informed that the IMF’s consent was required to this effect.