Another utility circus is expected to hit consumers as the government plans to add Rs. 952 billion to Pakistan’s circular debt but also cancel it out by raising electricity prices, while at the same time offering Rs. 675 billion in additional subsidies.
The government in its revised Circular Debt Management Plan (CDMP) has proposed three separate quarterly tariff adjustments ranging from 69 paisas per unit to Rs. 3.21 per unit from February to May this year to recover Rs. 73 billion.
In order to woo the International Monetary Fund (IMF), the government has decided to levy Rs. 2.93 per unit debt surcharge in addition to implementing the pending fuel cost adjustments (FCA), according to Express Tribune.
On the surface, the plan appears to be unrealistic, as it is based on an unrealistic rupee-dollar exchange rate of Rs. 232 (real 268) and a negative yield KIBOR rate of 16.84 percent (real ~18 percent).
In any case, the cost of electricity can rise any time now between February-June by an additional Rs. 3.62 per unit to Rs. 6.14 per unit, excluding the impact of the pending FCAs. This may worsen if Pakistan and the IMF fail to agree on the extent of the Rs. 675 billion additional subsidies that the Ministry of Energy plans to fill the Rs. 952 billion circular gap expected in the current fiscal year.
The plan has been shared with the IMF and discussions are set to begin this week. Everyone is expecting some serious grilling from the lender since the plan appears overly ambitious given the lack of such space in the budget.
The government was earlier supposed to shed Rs. 284 billion from the circular debt but decided otherwise and wanted the plan postponed for two more years despite IMF pressure. In its defense, the Power Division said the delay was due to uncertain assumptions such as fluctuations in fuel prices, changes in economic parameters, resource availability, and changes in the commercial operation date (COD) of upcoming power plants.
Today, the government has decided to give it another go under the revised CDMP, but the use of unrealistic parameters has made it a bit complicated. This time, the government has set KIBOR at 16.84 percent and 1 USD at Rs. 232. While a bit unrealistic, they look better than rates that were used almost a month ago. Previously, the Power Division assumed KIBOR at 10.50 percent when the 3-month lending rate was going above 14 percent. Earlier than this, the Power Division set the USD at 195 which it actually closed at 204 in the previous fiscal year.
