According to media sources, Pakistan has agreed to the International Monetary Fund (IMF) to implement timely increases in energy tariffs, including the collection of delayed generation expenses worth more than Rs. 210 billion.
This action, while intended to improve the financial sustainability of the power sector, is likely to burden the population.
Furthermore, Islamabad has told the IMF that it is willing to relinquish ownership of electricity distribution businesses to the private sector through concession agreements—a significant policy shift for the Pakistan Muslim League-Nawaz (PML-N) government.
Prime Minister Shehbaz Sharif has appointed a committee to oversee the handover of these enterprises to provincial authorities.
These assurances were given during ongoing efforts to reach a staff-level agreement on the release of a $1.1 billion loan tranche.
Unlike in past cases, the IMF met fewer roadblocks during conversations with the Ministry of Energy this time. Pakistan’s commitments aim to improve the financial health of the power sector.
While there is no formal necessity to raise tariffs simply for the sake of the upcoming loan tranche, officials hope to finalise the next annual base tariff adjustment by June, with implementation scheduled for July.
This will be the third straight year of rising electricity prices due to annual adjustments, as well as monthly and quarterly price swings.
Despite these increases, the circular debt in the power sector remains large, estimated at Rs. 2.7 trillion, with Rs. 378 billion accrued in the first half of the current fiscal year.
The IMF has raised worries about ongoing price increases and is working with Pakistani authorities to reduce generation costs, including modifications to power purchase agreements.
Furthermore, the IMF emphasised the need to recoup outstanding generation costs and questioned the government’s privatisation strategy for distribution corporations.
Pakistan has told the IMF that it will involve the private sector in the management of these firms. However, the proposal to delegate management to provincial governments raises worries since it may not solve underlying inefficiencies in the electrical system.
Furthermore, the IMF has encouraged Pakistan to publish information on the expiry of existing Power Purchase Agreements and to reconsider measures such as subsidised gas for fertiliser plants, which divert resources away from the power industry and contribute to price increases.
Negotiations are proceeding smoothly, and a staff-level agreement is expected within the next week as both parties try to resolve these complex concerns.
To read our blog on “IMF proposes 18% GST on petrol, food to bring in Rs. 1.3T,” click here
