Big power consumers to face increased tariff due to IMF conditions

The Economic Coordination Committee (ECC) of the Cabinet approved the removal of subsidies in electricity tariffs for the export-oriented sector and the Kissan package in order to meet one of the International Monetary Fund’s (IMF) preconditions for reaching a staff-level agreement.

Federal Minister for Finance and Revenue Senator Ishaq Dar presided over the meeting, where the revenue and fiscal measures were discussed to fulfill the IMF’s demands.

The recently concluded 10-day IMF mission in Islamabad had energy sector reforms and reducing the circular debt as the main focus of the talks. However, the IMF team left without signing an agreement and requested that Pakistan take corrective measures. The ECC meeting was convened to evaluate the situation and implement necessary steps.

The government approved a revised Circular Debt Management Plan (CDMP) that includes quarterly tariff adjustments, a deferred fuel price adjustment, and a surcharge of Re1 per unit for large power consumers. The approved tariff hike ranges from Rs7-8 per unit until August 2023, with the consumer base tariff expected to increase from Rs15.28 per unit in June 2022 to Rs23.39 per unit by June 2023.

According to sources, the IMF had requested the government to raise the base tariff by Rs4.06 per unit, but this request was not approved under the revised CDMP. It is yet to be determined how the IMF’s demand was incorporated into the Memorandum of Economic and Financial Policies (MEFP) that was presented to Pakistan on February 10, 2023.

If the IMF continues to insist on a higher base tariff, it is estimated that the Pakistani authorities will have to raise the tariff by a range of Rs9 to 11 per unit.

The government has so far protected electricity users consuming 300 units or less from a planned tariff increase. However, the revised Circular Debt Management Plan (CDMP) does not address the IMF’s demand for a higher base tariff in order to reduce the need for an additional subsidy of Rs335 billion.

In accordance with IMF directives, the additional subsidy requirement has been reduced from Rs675 billion to Rs335 billion, and the government has indicated that it will be included as part of the circular debt management plan.