IMF conditions: Re1/unit surcharge imposed on big power consumers

ISLAMABAD: In order to implement one of the prior conditions of the International Monetary Fund (IMF) for striking a staff-level agreement, the Economic Coordination Committee (ECC) of the Cabinet Friday approved the withdrawal of subsidies in electricity tariff for the export-oriented sector and Kissan package.

Under various heads including quarterly tariff adjustments, deferred fuel price adjustment, and imposition of a surcharge of Re1 per unit on big power consumers, the government approved a revised circular debt management plan (CDMP) where the tariff would be hiked around Rs7-8 per unit till August 2023. The consumer base tariff will be increased from Rs15.28 per unit in June 2022 to Rs23.39 per unit till June 2023.

Sources said the IMF had asked the government for raising base tariff by Rs4.06 per unit, but the government did not approve anything in this regard under the revised CDMP. It is yet to be ascertained how the IMF demand has incorporated in the memorandum of economic and financial policies (MEFP), handed over to Pakistan on Feb 10, 2023. It is assumed that if the IMF insists on hiking base tariff further, then Pak authorities would have to hike tariff in the range of Rs9 to 11 per unit. So far, the government protected power users of 300 units from upcoming hike in tariff.

However, the revised CDMP did not talk about any surge in base tariff of electricity as demanded by the IMF in order to reduce the requirement of additional subsidy of Rs335 billion. Under the directives of the IMF, the additional requirement of subsidy was slashed from Rs675 billion to Rs335 billion and the government indicated to make it part of the stocks of the monster of the circular debt.

The revised CDMP revealed that the government had approved withdrawal of power sector subsidy for the export-oriented sectors with effect from March 1, 2023 in order to save Rs51 billion. The government also withdrew Kissan package to save Rs14 billion with effect from March 1, 2023.

With the base case scenario to add Rs952 billion to the circular debt in FY2023 and for bringing it down to Rs336 billion, the government approved a plan under which the quarterly tariff adjustment (QTA)-Q-1 from Feb 23 to March 23 at the rate of Rs3.21 per unit would be hiked so the government would recover Rs40 billion, QTA-Q-2 from March 2023 to May 2023 at the rate of Rs0.69 per unit, the government would recover Rs17 billion, QTA-3 from June 23 to August 2023 at the rate of Rs1.64 per unit, the government would recover Rs16 billion. The improvement in the distribution companies (DISCOs) losses by keeping it at 16.27 per cent on average would recover Rs12 billion.

The FCA (fuel costs adjustment) recovery till June 30, 2023 would help recover Rs31 billion, Power Holding Limited (PHL) mark-up recovery through imposition of surcharge would recover Rs68 billion, discontinuation of package of zero rating regime would save Rs51 billion, discontinuation of Kissan package with effect from March 1 would recover Rs14 billion, GST and other taxes on collection basis would recover Rs14 billion and reimbursement from the FBR would recover Rs5 billion. The CDMP envisages that the government would provide additional subsidy of Rs335 billion. The projected flow of the circular debt would be standing at Rs336 billion. The circular debt stock would be standing at Rs2,374 billion till end of FY2023 if the revised CDMP was implemented fully and without any delays.

However, the CDMP was envisaged that the exchange on average would be kept at Rs234 against a dollar, Karachi Inter-Bank Offered rates (KIBOR) at 16.84 per cent, LIBOR at 4.73 per cent, RFO (USD/MT) $610, RLNG $14.30 per MMBTU, imported coal $236 per MT, local gas at the rate of Rs857 per MMBTU and demand 134 Bkwh. According to a statement, issued after the ECC meeting on Friday, Federal Minister for Finance and Revenue Senator Ishaq Dar presided over the meeting of the Economic Coordination Committee (ECC) of the Cabinet.

The Ministry of Energy (Power Division) presented a summary on refinancing of Power Holding Limited’s debt and a surcharge to recover markup payments.

The ECC, after discussion, approved the proposal to recover Rs76 billion while exempting non-ToU domestic consumers having consumption of less than or equal to [ ] 300 units and private agriculture consumers in four months period from March 2023 to June 2023 to recover the markup charges of PHL loans and allowed to impose additional surcharge of Rs1/unit for FY 2023-24 to recover additional markup charges of PHL loans not covered through the already applicable FC surcharge. The above surcharges will be applicable to K-Electric consumers to maintain uniform tariff across the country.

The ECC also deferred PHL’s principal instalments payable in respect of Rs283.287 billion for a period of two years from the date of execution of fresh facilities and directed Finance Division to issue a government guarantee for repayment of principal as well as interest/fees, etc., for the fresh facilities of Rs283.287 billion.

The ECC considered and approved the proposals contained in another summary of Ministry of Energy (Power Division) regarding recovery of staggered fuel charges adjustment applicable for the months of August and September 2022.

The ECC deferred the electricity bills for the month of September 2022 for commercial consumers in the flood affected areas till the next billing cycle and waived off electricity bills for the months of August and September 2022 for the non-ToU domestic consumers having 300 units consumption. The ECC also approved additional supplementary grant of Rs10.34 billion to cover waiver of electricity bills in flood affected areas. The ECC also considered another summary of Ministry of Energy (Power Division) and approved the Revised Circular Debt Management Plan.

The ECC considered and approved in principle a summary of Finance Division on Kamyab Pakistan Programme and entrusted State Bank of Pakistan to validate the claims of Wholesale lenders (WLs) after due diligence, due to non-existence of Program Management Unit (PMU) at Finance Division.

The ECC considered a summary of Ministry of Energy (Petroleum Division ) and granted approval for declaration of commerciality (DOC),Field Development Plan (FDP) and Development and Production lease (D&PL) for the period of five years w.e.f. January 25, 2022 over Jugan Field (Latif Block) to M/s United Energy Pakistan (UEP) Beta.

The ECC also considered another summary of Ministry of Energy (Petroleum Division) and granted two years extension in renewal in Missa Keswal Development and Production Lease (D&PL) covering an area of 23.43 sq kms in district Rawalpindi, Punjab w.e.f. April 11, 2022.

The ECC also approved in principle a technical supplementary grant of Rs450 million in favour of Ministry of Defence.