As people are already facing the consequences of alarming inflation, the IMF wants Pakistan to pass Rs65 billion to the electricity consumers – an amount related to the deferred Fuel Price Adjustment (FPA) during the summers this year.
Reports suggest that the government has agreed to charge the power consumers to recover Rs55 billion. However, the remaining Rs10 billion would be absorbed through the allocation of subsidy.
It is estimated that the power sector’s accumulated losses might climb up to Rs1,734 billion for the current fiscal year if there is no policy change or “reforms” – a word synonym to increased tariffs in Pakistan, but actually it results in jumping theft in this sector.
The report comes at a time when there are suggestions that the government may opt for discounted rates to supply electricity to those who consume up to 300 units per month – a proposal which is difficult to be fulfilled amid the current fiscal space.
Out of an amount of over Rs1,700, there is a possibility of a subsidy of Rs1,000 billion with Rs700 to 800 billion piling up in the monster of circular debt.
However, the multilateral creditors like the IMF and World Bank are asking the government to come up with plans to finance the un-budgeted subsidies, including the K-Electric subsidy for which the Ministry of Finance allocated Rs26 billion against revised projections of Rs162 billion, surfacing a gap of Rs136 billion where no amount was available to bridge this gap.
The same scenario prevailed for the Zero Rating Industry and Kissan Package for which the government did not make subsidy allocations of Rs118 billion and Rs28 billion respectively in the current fiscal year.
Meanwhile, the theft of electricity target is also missed as the Transmission and Distribution (T&D) losses target was revised upward from 15.83 percent to 16.27 percent, which would result in a deficit of Rs31 billion.
The hike in markup in recent months also jumped up liabilities of the power sector which increased from Rs185 billion to Rs249 billion.
In the wake of less demand for power from 45 billion units to 40 billion units in the first quarter of the current fiscal year, the revenues dropped from Rs493 billion to Rs347 billion, registering a loss of Rs55 billion. The non-recovered GST paid to FBR is projected to cause a loss of Rs91 billion in the current fiscal year.
Now, it is expected there will be a possibility of generating financial losses in the range of Rs700 to Rs800 billion accumulating into the form of circular debt in the current fiscal year if the government did not hike the tariffs, bring efficiency and improve governance in cash-bleeding power sector.