In an attempt to comply with the targets set by the International Monetary Funds (IMF), the federal government is trying to recovering the additional costs of power losses from consumers by imposing a new set of tariffs.
Once the new tariffs come into effect, not only will they finance power sector loans but they will also raise more than Rs. 250 billion in revenue annually.
The Economic Coordination Committee (ECC) will discuss this today. ECC is seeking approval from the cabinet for amending the Regulation of Generation, Transmission, and Distribution of Electric Power Act 1997, to address circular debt worth Rs. 1.72 trillion as of December 2019.
ECC is also seeking funds for clearing the outstanding dues of Sui Southern Gas Company Ltd and other supplementary grants. It plans to grant a Rs. 5 billion loan to the Utility Stores Corporation as well. The federal government will soon raise Rs. 200 billion loans from banks and transfer a substantive portion of the circular debt to its public debt.
Under the first review of the IMF program, Adviser to Prime Minister on Finance and Revenue, Dr. Abdul Hafeez Shaikh, and Governor State Bank of Pakistan (SBP), Dr. Reza Baqir, pledged a revised structural benchmark that will allow the government to cover the cost of capacity payments of the current month by increasing the power tariff. They also pledged to eliminate delays in tariff adjustments.
The federal government also agreed to confer more powers to the National Electric Power Regulatory Authority (NEPRA) via amendments. The amendments will allow NEPRA to determine, notify quarterly tariffs on its own and ensure that the circular debt remains in check.
Moreover, the gap between determining regular annual tariffs and notification by the government would be eliminated after the amendment to the NEPRA act. It will also bind the distribution companies to submit annual and quarterly petitions on time.
Under the IMF program, the amendments to the NEPRA act were to be presented in the parliament in December. However, the government has communicated to the IMF that it will continue to notify tariffs quarterly until the process to adjust quarterly power tariffs gets automated.
The federal government has also committed to streamlining the procedures to ensure timely disbursement of subsidies for the power sector. It will also sign performance-based agreements with distribution companies to increase collections and efficiencies. The following performance indicators will be incorporated in the agreements: increase in collections, decrease in losses, and timely submission of petitions.
In the performance review by the IMF, the federal government also committed to initiating legal proceedings against defaulters. The government will also revisit all power sector subsidies by March 2020.