By Ali Imran
ISLAMABAD: The International Monetary Fund (IMF) on Monday turned down Pakistan’s proposals to settle Rs1.3 trillion of energy sector circular debt and reduce electricity prices for industries, saying these proposals would overburden the residential consumers and also carry fiscal risks.
“The proposed (industrial tariff reduction) plan does not address the underlying problems and in particular, the circular debt neutrality of the tariff rationalization plan is doubtful,” IMF’s Mission Chief to Pakistan Nathan Porter said in a statement issued on Monday.
The IMF’s public disapproval of both the plans dampens the hopes of the interim government that was expecting to at least settle over one-fifth of the energy sector circular debt before leaving office.
The mission chief further added that the industrial tariff reduction plan “would place a significant additional burden on vulnerable households”.
The interim government had proposed to reduce the cross-subsidy burden of the industrial sector by 91% or Rs222 billion and in return it suggested to increase the subsidy burden of the residential consumers of over 400 units by 41% or Rs22 billion.
The government’s plan was also throwing an additional burden of Rs50 to Rs3,000 per month fixed charges in the electricity bills of all residential consumers.
The interim government’s proposal would have put an additional burden on the already overburdened residential consumers who are now facing extreme difficulties in paying their monthly bills.
“We will share our views on the IMF’s concerns and will continue our engagement on circular debt reduction and tariff rationalization to work towards finding common grounds to address both issues faced by the country’s power sector,” Energy Minister Mohammad Ali told The consumers of up to 400 units of equal monthly consumption are receiving Rs592 billion subsidies at Rs13.65 per unit rate. Out of this Rs592 billion, the lifeline and protected consumers get Rs375 billion subsidies –a burden that the federal government should pick instead of passing on to other consumers..
Porter said restoring the viability of the energy sector was critical to Pakistan’s economic recovery and fiscal sustainability. However, it is essential for the government to focus on broad-based reforms, including reducing the high cost of energy, improving compliance and reducing theft and line losses.
He also emphasized focusing on ending gas to the captive power plants owned by the industrialists and fixing the governance and management of distribution companies (DISCOs), as well as keeping up with regular tariff adjustments to address the circular debt issue.
