Power subsidies to agriculture withdrawn to win IMF loan

The coalition government on Wednesday revoked the power subsidy given to agriculture consumers — under the Kissan Package announced in October 2022 — as it strives to strike a deal with the International Monetary Fund (IMF) to secure more than $1 billion in funding.

In December last year, the National Electric Power Regulatory Authority (NEPRA) notified a power tariff cut of Rs3.60 per kWh in concurrence with Kissan Package 2022 announced by Prime Minister Shehbaz Sharif. However, owing to the conditions set by the Washington-based lender the Ministry of Energy discontinued the package with immediate effect.

“Federal Cabinet […] has approved the Discontinuation of Kissan Package for base rate relief of Rs3.60/kWh to private agriculture consumers from 1st March 2023,” the notification issued by the Power Division read.

It mentioned that the decision of the federal cabinet was conveyed for immediate implementation and necessary action.

The premier has announced the Kissan Package for the growers in the wake of the unprecedented flash floods caused by historic monsoon rains that have washed away roads, crops, infrastructure and bridges, killing over 1,700 people and affecting more than 33 million, over 15% of the country's 220 million population.

The NEPRA had reduced the power tariff by Rs3.60 per unit at the then-base rate of Rs16.80 after which the farmers were consuming electricity at the base rate of Rs13.

However, after the discontinuation of the facility, agriculture consumers will now pay Rs16.60 in the base rate.

Owing to this decision, the federal cabinet is expected to collect Rs14 billion by June. It should be noted that the Power Division has written letters in this regard to the K-Electric and other distribution companies.

The division has also informed the Ministry of Finance and the Ministry of Food and Agriculture via letters written in this regard.

The IMF has placed four prior actions including the imposition of a permanent power surcharge of Rs3.39 per unit plus 0.43 paisa (Rs3.82 per unit), market-based exchange rate, hiking discount rate by 150 to 250 basis points and securing confirmation from bilateral partners to meet external financing gap of $7 billion.

On the power surcharge, the Pakistani side has argued that the EFF programme was going to expire in June 2023, so how the IMF could demand slapping a permanent surcharge of Rs3.82 per unit.