Power Ministry seeks Rs 400 billion subsidies to meet IMF condition

• The Ministry of Energy addresses a letter to the Ministry of Finance regarding this.
• The 25th year budget includes Rs 1.229 billion in electricity subsidy.
• The IMF defines statutory anti-theft procedures.

Islamabad: To avoid slippages due to the escalation of cyclical debt agreed with the International Monetary Fund (IMF), the Ministry of Energy has issued an SOS (Save Our Soul) seeking the release of subsidies of up to Rs 400 billion by the end of December. the News reported.

Of the Rs 1,229 billion in subsidies allocated for the current financial year, the Finance Ministry has released only Rs 82 billion so far. An additional Rs 318 billion must be released immediately to meet an indicative target set under the IMF’s $7 billion Extended Fund Facility (EFF) programme.

If the subsidy amount is not released by December 31, the indicative target agreed with the IMF for the accumulation of cyclical debt may be breached

In a formal letter to the Finance Ministry, the Power Ministry has sought the release of the Rs 400 billion subsidy within the stipulated time.

Under the Circular Debt Management Plan (CDMP), the government has envisaged a multi-pronged strategy, including cost recovery, providing a subsidy of Rs 1.229 billion for the entire financial year 2024-25, and privatization and entering into concession agreements with selected electricity distribution companies. energy in the first phase. The tariff fixing agreed with the IMF could not be implemented with effect from July 2024, thus raising the cost of the subsidy to Rs 125 billion.

The FY25 budget includes Rs 1,229 billion (1.0% of GDP) in energy subsidies to address liquidity needs. This, together with tariff adjustments and cost-side reforms, will broadly stabilize the cyclical stock of debt.

The subsidy would cover (i) projected tariff differential (Rs 663 billion) (ii) arrears of Fata and K-Electric (Rs 174 billion) (iii) agricultural pipelines (Rs 0 billion) and (iv) circular stock payments of debt to offset the projected debt cycle through Power Holding Company (PHPL) capital payments (Rs 24 billion) and arrears payments to power producers (Rs 358 billion).

The use of any resources made available in the 25th budget will be decided during the financial year, with the possibility of withdrawing up to an additional Rs 35 billion in revolving debt or returning these resources to the public treasury.

At the same time, the government, with the support of the World Bank, continues its efforts to reform tube well subsidies, which primarily benefit large rural users, and has not provided tube well subsidies for three provinces for the 25th year. In the medium term, the government has committed to the IMF to remove cross-subsidies to households and replace them with directly targeted cash transfers for vulnerable households delivered through the BISP.

According to the IMF prescription, key reforms to reduce costs and cyclical debt focus on improving distribution efficiency, mainly by accelerating steps to improve the management of distribution companies through the participation of the private sector and the sector of the structural benchmark by the end of January 2025. institutionalizing anti-theft procedures to reduce losses; improving the policy and regulatory framework of the transmission system; which has been a key obstacle; privatizing inefficient generation companies; improving the efficiency of power stations; completing the transition to a competitive electricity market; and reducing capacity payments through renegotiation of electricity market arrangements (representing around 60% of the cost production).