Pakistan yet to implement power tariff adjustment of Aug 2019

ISLAMABAD: Pakistan has not yet implemented quarterly power tariff adjustments for end August 2019 as envisaged under the IMF programme arguing that this tariff was already adjusted for hiking electricity prices through prior action in last financial year, it is learnt.

Secondly, the Ministry of Finance has not yet released subsidy amount for the current fiscal year 2019-20 so the piling up limit of circular debt envisaged at Rs23 billion for the first quarter (July-Sept) period is likely to be exceeded, although officials of both Ministry of Finance and Power Division took stance that the figures were not yet finalised.

Thirdly the government is preparing strategy to erase the monster of circular debt with envisaged limit under the IMF agreement. “Work is in progress on this front and will be finalised by end September 2019,” said top official sources on Wednesday.

The sources said that Pakistan had raised power tariff under the prior action of the IMF programme so they implemented the agreed tariff for August 2019 incorporated in it. “There was no need of any further hike for power tariff for end August 2019,” said the sources, but it was not yet known that how the IMF staff team would react on stance taken by Pakistani side. This might trigger another controversy with the IMF team, as claimed by some sources.

An IMF team is due in Pakistan from September 16 to 20 to deliberate upon all these issues. When contacted, Special Secretary Finance Ministry Omar Hameed, who is also official spokesman, said power tariff was increased through prior action couple of months back so there was no need to hike the prices of electricity for August 2019. On piling up of circular debt, he said that the figure for August 2019 from power was not yet received as normally they were received by September 12, 2019. These figures will be adjusted for both recoveries and subsidies and then it will be shared with the media, he added.

However, sources in the Power Division said that the Ministry of Finance had not yet released subsidy amounts allocated for the first two months, arguing that the audit was underway so it was hoped that the amount would be released soon. The envisaged limit for piling up of circular debt was envisaged at Rs23 billion for the first quarter but some sources pointed out that the limit had already exceeded. But it will be known only when the recoveries and subsidies amount would be incorporated collectively then the figures of piled up circular debt would be ascertained.

The Ministry of Power in its statement had claimed that its recoveries were improved by Rs19.95 billion as they curtailed line losses and collected more amounts of electricity bills. The monthly recovery of August 2019 has not yet been known so it will be known probably this ongoing week or next week.

The IMF in its last staff report stated that Pakistan’s power sector remains saddled with significant shortcomings. These include sizeable losses and insufficient collections, and weak governance and regulatory deficiencies. These gaps translate into distortions and losses, and the accumulation of cash flow shortfalls, or circular debt. Following years of steady declines in the flow of circular debt in the power sector, around Rs350 billion was accumulated in FY 2018- 2019. The stock of circular debt stands now at Rs762 billion, in addition to power sector liabilities of Rs807 billion parked in PHPL through March 2019.

“We have for the first time implemented a quarterly automatic tariff adjustment in the electricity sector by about 10 percent to generate Rs150 billion in additional revenues to reduce the circular debt accumulated over the first half of FY 2019 (prior action),” said the statement.

The remaining quarterly adjustment costs will be subsequently passed by end-August 2019. “Moreover, we will also notify the FY 2020 electricity tariff schedule as determined by the regulator by end-September, 2019 (structural benchmark). We will prepare by end September 2019 a comprehensive circular debt reduction plan. Over Rs200 billion of new circular debt was accumulated in the first half of FY 2019 from delays in updating tariffs. Introducing automatic quarterly tariff adjustments, similar to the process followed for automatic monthly fuel price adjustments, will be an important step to recover costs in a timely manner and reduce the flow of circular debt,” it said.

“We will submit to parliament by end-December 2019 changes to the NEPRA Act to (i) ensure full automaticity of the quarterly tariff adjustments and (ii) eliminate the gap between the regular annual tariff determination and notification by the government under structural benchmark, it concluded,” it added.