No more funds for CPEC

Islamabad:

Pakistan has assured the International Monetary Fund that it does not intend to allocate additional budget to settle the Rs 493 billion debts of Chinese power plants. The global lender also questions the effectiveness of the energy sector’s anti-theft campaign.

The government also faced questions over a record Rs 7 per unit hike in electricity prices in March due to the power ministry’s flawed policy of using expensive imported fuel, sources said.

The Fund is wary of the government’s claim of capping losses due to non-recovery of accounts at Rs 263 billion in this financial year, as the figure has already reached nearly Rs 200 billion in just seven months. This has serious implications for curbing the total circular debt to Rs 2.31 trillion by June this year.

The IMF asked about the government’s decision on allocating funds for Chinese power plants beyond the 48 billion rupee budget for the current fiscal year, energy ministry officials said.

They added that the IMF was informed that there was no plan to approve additional funds to retire the outstanding debt of Chinese power plants.

Outstanding China-Pakistan Economic Corridor (CPEC) energy project arrears rose alarmingly to Rs 493 billion or $1.8 billion at the end of January. The amount was Rs 214 billion or 77% higher than in June last year.

The Chinese debt pile-up violates the 2015 Energy Framework Agreement, which commits Pakistan to allocating sufficient money to a special fund to keep Chinese investors immune from cyclical debt. However, the government grants only Rs 48 billion annually with the condition of withdrawing a maximum of Rs 4 billion per month.

Sources said the IMF appeared skeptical about the long-term success of the government’s anti-theft campaign and the military’s involvement in monitoring the performance of electricity distribution companies.

Reading: Economic revival, CPEC and Agenda 2047 – IV

Energy ministry officials said the IMF believes the anti-theft campaign can only work in the short term and the government should focus on digitally monitoring the electricity distribution network.

The government has claimed to have recovered Rs 82 billion in this financial year due to the anti-theft campaign, although there is no publicly available breakdown of recoveries from private and public sector consumers.

Sources said the IMF’s view was that such measures could only be beneficial in the short term. The IMF also did not seem comfortable with third-party involvement in monitoring the anti-theft campaign, the sources said. For the global lender, as such interventions could reduce the role of power distribution company management and their boards.

Low account recovery and high-line losses contribute Rs 589 billion annually to the cyclical debt build-up – an amount the government recovers either through further price hikes or budget subsidies.

For this fiscal year, the government estimates a loss of 263 billion rupees due to lower bill recovery by power distribution companies. Despite the anti-theft campaign, in seven months, there has already been an increase of Rs 200 billion under this head.

Energy ministry officials argued before the IMF that recoveries have increased to 92% of the invoiced amount, marginally better than last year. They also said that recoveries will improve once charges are raised during the summer season.

Power ministry officials said the finance ministry will release over Rs 250 billion in subsidies this month to keep the debt cycle at the agreed level for this fiscal year.

The IMF was told that circular debt rose by Rs378 billion in the first half of the year, reaching Rs545 billion by the end of March. However, the government has agreed to keep the total debt stock at Rs 2.310 trillion by settling the addition through the budget by June this year.

The government also faced questions from the IMF over a sharp monthly hike of Rs 7 per unit due to the monthly fuel cost adjustment in electricity bills. The spike highlighted mismanagement by the energy ministry, which failed to implement the planned use of various fuels to keep prices low.

Sources said the IMF argued that there was no justification for the hike of Rs 7 per unit when the exchange rate was stable and global commodity prices did not change.

The energy ministry explained that the government had to pursue the price increase due to the use of expensive fuel during the winter to generate electricity. High speed diesel, furnace oil and imported gas were used due to a misguided policy of allocating cheaper local gas to other sources.

Sources said the IMF has also sought a new timeline for ending agricultural subsidies in Balochistan.

Published in The Express Tribune, March 17^u2024.

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