Islamabad working to slash baseline tariff by Rs8 to 10 per unit

ISLAMABAD: The federal government has devised an alternative plan to reduce the baseline power tariff by Rs8 to Rs10 per unit and eliminate circular debt, following the IMF’s rejection of the initial proposal to lower tariffs through tax cuts.

“This plan will utilise the available fiscal space created through a reduction in the debt servicing payment of Rs1.3 trillion to settle the cash-bleeding power sector. A major chunk of this available fiscal space to the tune of Rs1 trillion will be used to clear circular debt stocks,” top official sources confirmed while talking to The News here on Thursday.

An IMF review mission is all set to visit Islamabad from March 4, 2025, to discuss the first review under the $7 billion Extended Fund Facility (EFF). It remains to be seen how the lender responds to the reduction of the baseline tariff. When asked about the possibility of bringing down baseline electricity tariff, the IMF’s Resident Chief in Pakistan Mahir Bicini said that all issues would be discussed in the next review mission.

A high-powered committee working under Deputy Prime Minister Ishaq Dar has so far worked out a different proposal to reduce the baseline tariff by Rs8 to 10 per unit. The baseline tariff stands at Rs35.70 per unit at the moment and in case of a reduction, there are expectations of major relief for consumers. The monster of circular debt stands at Rs2.4 trillion and the government wants to address it by making payments up to Rs1 trillion.

One top official told The News on Thursday that the reduction in policy rate from 22 percent to 12 percent has created a fiscal cushion, besides the debt servicing bill has also been reduced to Rs8.4 trillion in the current fiscal. However, a nagging issue remains for the policymakers as the FBR also faces a shortfall of Rs468 billion in the first seven months of the current fiscal due to lower growth in large-scale manufacturing, reduced inflation and curtailed imports. This overall revenue shortfall might go close to Rs1 trillion in the whole financial year.