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June 13, 2021

Budget document on power sector misleading: SAPM

ISLAMABAD: The budget document has hoodwinked the people when it says the government has allocated Rs596 billion for the power sector, whereas it is actually Rs330 billion, which is Rs170 billion less than Rs501 billion the Power Division had actually asked for.

Actually, the government included Rs266 billion, meant for the IPPs as their second installment and as debt servicing of loans parked in PHPL (power holding private limited), as the subsidy in the overall sectoral allocation, inflating the subsidy figure to Rs596 billion.

“We wanted the finance ministry to allocate Rs 501 billion in the budget against the actual subsidies needed, but it instead allocated Rs330 billion. The gap of Rs170 billion will either cause increase in the circular debt or the government will have to increase the tariff of Rs1.70 per unit,” says Special Assistant to the Prime Minister on Power and Petroleum Tabish Gauhar.

While talking to The News, he also admitted that the increase of petroleum levy on POL products to collect Rs610 billion will be inflationary but the government was compelled to do so on the insistence of the IMF. He said the petroleum division had opposed the decision as the increase in petroleum levy from Rs 5 per liter to Rs30 per liter will cause more surge in inflation, making the price of petrol and diesel to increase by Rs25 per liter each. Gauhar hoped that the decision to collect RS610 billion might be rationalized.

The SAPM said the big economies such as USA, EU countries, Japan, China have managed to vaccinate their 60 to 70 percent population to come out of Covid-19 pandemic causing their economies to recover and in next stage they will adopt aggressive growth led policies creating demand of POL products, LNG and LPG in the international market resulting in more increase in the price of crude oil. Right now the crude oil price has surged to $70 per barrel.

He also admitted the increase in petroleum levy on LPG will also cause an increase in inflation. However, Gauhar said he is in favour of imposition of petroleum levy on LPG imported from Iran arguing that it is cheaper and substandard also. It will ensure a level playing field. However he said he is not sure if the petroleum levy has been increased on domestic LPG production.

To a question SAPM said that he is working on revising Circular Debt Management Plan (CDMP) as the earlier one agreed with IMF under which the government was bound to increase the power tariff by Rs4.50 to Rs5 per unit, has been rejected by Prime Minister Imran Khan. He said that the revised CDPM will be submitted to the IMF, World Bank and Asian Development Bank after prime minister’s approval.

He said under the revised CDMP, we are working on three options to contain the circular debt. EAD gets loan at 2 percent but it loans that amount to state owned power plants at 15 percent interest. The Power Division is trying to bring down the interest rate to 2 percent and if that is done, then there will be give a huge relief in the range of Rs90 billion to Rs100 billion. This would drastically bring down the tariff to Rs0.90 per unit or Re1 per unit.

The government is in the process of rebasing the tariff which has to be increased to Rs3.34 per unit, while in the first phase it has already increased the tariff by Rs1.95 per unit. He said when Rs1.95 per unit was increased the value of US dollar was at Rs 160 which has now tumbled to Rs155. This will provide a relief of Rs30 billion which would translate to Rs0.30 per unit. He said that the government also provides loans through PSDP to the government power plants such as those that run on RLNG and Hydropower plants like Neelum-Jhelum. The Power Division also wants the government to extend the tenure of its loan period from two year to ten years or convert the loans into equity in the project. SAPM said that the government has also arranged some loans for public sector power projects against sovereign guarantees. He said Finance Minister Shaukat Tarin who is also one of the successful bankers in the country will ask the banks to extend the loan payment tenure from 10 to 20 years. This will provide relief also in the tariff.

He said the government would hand over the management of Discos to the private sector after offloading 26 percent shares. The Board of Directors have also been changed with the best available experts from the private sector. The new management will run the Discos to reduce losses, improve recovery and ensuring the efficiency gains.