ISLAMABAD: Pakistan’s financial and electricity managers will start giving multiple briefings to the International Monetary Fund (IMF) from Monday (today) to seek its nod for its plans, carved out by the caretaker government, on circular debt stocks and tariff rationalisation, The News learnt on authority on Sunday.
Senior officials of Finance and Power Divisions said: “ Federal Minister for Finance, Revenue, and Economic Affairs Dr Shamshad Akhtar, Federal Minister for Energy Mohammad Ali, think tank of Power Division and officials of the finance ministry will be part of the meeting with the IMF and will seek concurrence of the Fund on the circular debt and new power tariff design.”
One of the relevant ministers also confirmed to The News that multiple briefings on circular stock debt and new tariff design would be held from today with the Fund people and Pakistan’s officials would respond on expected and unexpected questions from the IMF.
Top officials said the circular debt had reached Rs5.72 trillion as of November 2023 with Rs2.7 trillion in the power sector. “The circular debt came down in the management plan through a one-time cash injection of Rs745 billion. The circular debt of Rs1,268 billion (Rs1,013 billion in gas and Rs255 billion in the powers sector) would be settled in just 8 hours with the way forward to reduce the stock of the remaining debt on a sustainable basis.”
The IMF would be told that the one-time cash transaction would be made under one roof where the CFOs of all entities involved in the energy sector would be in attendance to get the amount. “They will assure the due amount to entities at the receiving end that they have received the amount against the receivables and pay for the fuel they procured for power generation and gas supplies to consumers.”
“In the past, linear payments were made i.e. only receivables were settled through budgeted grants. The circular aspect of debt is where the synergy of the scheme is in hand. This time grants to central power purchasers will not only adjust their receivables but will also be eventually diverted to pay off power producers. The scheme would not end here and will further ensure that power producers pay their fuel suppliers where gas is a major part supplied to power plants from the SUI network. SUIs will be eventually settled with the E&P companies who will now be sturdy enough to pay off dividends, which they could not in the past decade owing to their liquidity crisis.”
The one-time transaction, they said, would provide Rs1,013 billion to oil and gas exploration and production companies, enabling them to pay dividends to the government and initiate the pace of their slowed-down E&P activities for more indigenous oil and gas production.
Despite sustainability mechanisms for state-owned entities, supplying gas and power utilities to consumers built through Ogra and Nepra as regulators and governed under their respective statutes, the federal government in the past did inadequate pricing, which is its prerogative as per said laws and resulted in revenue shortfalls. The Sui Northern and Sui Southern take the gas from E&P companies like OGDCL, PPL and GHPL, but do not pay them fully due to inadequate pricing, causing circular debt and making the whole energy sector unviable and unsustainable.
The tariff rationalisation plan that would be pitched before the IMF shows the mismatch between fixed and variable components and withdrawal of the cross-subsidy of Rs222 billion from domestic consumers being extended by the industrial sector.
The industrial sector, the officials said, is factually giving Rs244 billion cross-subsidy to lifeline, protected and non-protected consumers up to those who use less than 400 units a month. The withdrawal of Rs222 billion cross-subsidy will help reduce the tariff of the industrial sector in the range of 8.5 cents per unit to 11.75 per cents. This will ensure the start of industrial growth across the country. However, withdrawal of cross-subsidy will increase the power tariff of domestic consumers who are getting cross-subsidy. The government would impose fixed charges of Rs50 to Rs450 per month on those who fall in the lifeline and the protected consumers’ category using electricity up to 200 units a month.
“At present, the power sector receives a total subsidy of Rs631 billion, out of which the government contributes Rs158 billion under the tariff differential subsidy (TDS), while the remaining Rs473 billion are funded by industrial, commercial, and high-end domestic consumers.”
Apart from the domestic consumers, agriculture consumers, who are getting Rs39.30 billion subsidy, would be done away with and this is how agriculture tariff would be brought at par with their cost of service after increasing their fixed charges and predicting variable tariff.
The government would not stop here, the officials disclosed, rather it would increase the fixed charges of unprotected consumers using electricity of more than 100 units and reduce their variable tariff ensuring that their net monthly bill increase is less than Rs1,000 units a month. The exemption would be the high-income/ consumption consumers whose bills will be impacted by less than 10 per cent.
“The higher fixed charge of Rs3,000 per month will be imposed on single-phase consumers, using more than 700 units per month, to force them to shift to categories using time of use (ToU) meters or three-phase meters.”
However, the government, they said, will lower the tariff of three-phased (ToU) consumers having a load of 5kW and above to reduce the cross-subsidy burden on them and attract single-phase consumers having consumption of more than 700 units per month to switch to three-phase connections. The cross-subsidy, however, will not be eliminated in toto, but it will only be rationalised. Those who have multiple connections in one house will be discouraged.
“On the one hand, the government has decided to end Rs222 billion cross-subsidy being given by the industrial sector to the domestic sector and, on the other hand, the government will also increase fixed charges for industrial consumers from Rs500 per kW to Rs1,500 per kW. However, its variable tariff will be reduced. In the wake of the said initiatives, the industrial tariff will be reduced in the range of 8.5 cents per unit to 11.75 cents per unit, which will enable the country’s industry to compete with the regional economies.”
“Commercial consumers are also extending a cross-subsidy of Rs64 billion to other consumers. No change is proposed in their cross-subsidy; however, the tariff design is proposed to be changed in line with the domestic and industrial consumers. The fixed charges on commercial consumers will be increased from Rs500 to Rs1,000 per kW with a corresponding reduction in their variable tariff. This will have no net impact on their monthly bills.”
“Single-point consumers are subsiding other consumers by Rs44 billion. They will continue to be subsidised. However, their fixed charges will be increased from Rs800 to Rs1000 per kW and their variable tariff will be reduced resulting in no net impact on their monthly bills.”