Friday June 21, 2024

IMF may raise concern over AJK subsidised power tariff

By Jawwad Rizvi
May 22, 2024
A person stands near a logo of IMF. — Reuters/File
A person stands near a logo of IMF. — Reuters/File

LAHORE: IMF may raise concerns with Pakistan on the recent announcement of the Prime Minister of Pakistan to provide relief to the AJK people after massive protests as the people will subsidise the power tariff over there as compared to Pakistan.

The power tariff of domestic consumers in AJK is Rs3 to Rs6 per unit while in the rest of the country it starts from Rs6.72 to maximise Rs35.26 per unit. Similarly, commercial users in AJK are paying Rs10 to 15 per unit as compared to the rest of Pakistan is Rs40.8 to 46.56 per unit.

The huge disparities between the two tariffs are raising concerns. However, the economist looks at it with a different lens and believes that the government of Pakistan shall brief the IMF properly then no issue will be raised on it.

Talking to this scribe here, Director at the Center for Research in Economics and Business (CREB), Professor of Economics at the Lahore School of Economics Dr Naved Hamid said that the IMF would not like it but they understand the special position of AJK and will accept it provided their main target is met.

That is no increase in power sector circular debt. That means, the rest of the consumers in the country will have to pay for the subsidy. Since consumers in KP and rural Sindh don’t pay power bills and Karachi is outside the system, that means consumers in Punjab will have to bear the cost of the subsidy in form of even higher power tariffs.

Dr Nadia Tahir said the finance minister in his statements clearly indicated that in this upcoming budget he needs to have a 1.5 percent reduction in fiscal deficit and the strategy is to impose Petroleum levy (non-tax revenue) which expected to collect at least Rs1.1trillion and remaining will be collected by selling SOEs.

Prime minister’s instant relief package of 23 billion which is almost $ 8.2 million package is a welcome step and it’s not a big hole in the kitty of the federal government which will deteriorate the fiscal situation. In fact, these were the payments of water usage charges which the regulator should have paid to the AJK province since 2018.

In September 2023, the government was allowed to increase the average generation tariff from Rs4.96 per unit to Rs3.85 per unit in FY22. People of AJK are demanding their water use charges and not willing to pay for inefficiencies of Federal institutions. Neelum-Jhelum Hydropower project supplying clean energy of 969 MW to the national grid from 2018. On the other hand, the AJK was demanding its share in net hydro profits which is huge.

Regulator has decided to pay water rights usage charges to AJK which would increase AJK’s share to Rs5.44bn to Rs712m in FY22. This increased share of revenue is only for the last year. It might have had an impact on revenue and fiscal deficit but not in terms of giving people its rights and it is due share. IMF needs to be briefed about the water usage charges, Dr Tahir observed.

Dr Qais Aslam said that the IMF asked the government of Pakistan to meet the revenue targets, and controlled the circular debt. However, technically AJK is not part of Pakistan, nor Pakistan is paying water user charges to it against which it is generating electricity. So, Pakistan can justify the reduced power tariff to AJK.

But Dr Qais believed that it is political injustice for the rest of the country and especially with Punjab which is always paying the highest of the taxes, power tariff while all the provinces always abuse it as well. Furthermore, the line loses or in other words power theft is higher in KP, Sindh and Balochistan as compared to the Punjab. So, the people of Punjab face the major wrath of all the policies. Additionally, the government officials are getting free power supplies and other utilities so they don't bother what is happening with the general public.

However, it is important to see how the IMF deals with Pakistan in extending the loan program as in a recent statement from Washington, IMF complained that Pakistan is not fulfilling the agreed conditions. He suggested an unformed tariff across the country so everyone gets a level playing field.