ISLAMABAD: The Ministry of Finance has requested an update from the Ministry of Energy (Electricity Division and Petroleum Division) on commitments/actions made with the International Monetary Fund (IMF), including tariff adjustments of electricity and the increase of the PDL to Rs 50/litre.
The combined seventh and eighth reviews of the IMF’s EFF program have been completed. The Memorandum of Economic and Financial Policies (MEFP) agreed with the IMF provides a structural benchmark, indicative targets, and other relevant actions for the Ministry of Energy.
According to the Ministry of Finance, there are two structural benchmarks: (i) the completion of the combined annual rebasing (AR) for fiscal years 22 and 23 by the end of September to take effect on October 1, 2022; and (i) submission to NEPRA of petitions for (a) FY23-July APP by end of August; and (b) FY23-Ql QTA by the end of October, which will ensure full recovery of revenue requirements (including revenue loss due to the postponement of the first stage of the FY22-23 annual rebase to July 2022) during FY23 Q2.
FY 2022-23 Indicative targets for capping electricity sector arrears to reduce the cumulative flow of circular debt by Rs 208 billion by end-September, and Rs 157 billion by end-December 2022 and increase by Rs 30 billion in March 2024.
Domestic consumers: electricity tariff adjustments will continue, assures the IMF
According to the Ministry of Finance in other points, the Pakistani authorities have assured the IMF (i) that they remain committed to timely implementation of regular tariff adjustments in accordance with the established formulas as this will help to ensure the collection of costs and increase the progressivity of the new tariff structure for residential consumers; (ii) plan to launch a consultative process to design a comprehensive subsidy rationalization program for agricultural tubewells with the aim of submitting a concrete reform proposal to Cabinet by November 2022; (iii) in FY23, the government will continue to renegotiate. PPA terms in exchange for clearing unsecured CPPA-G arrears. The authorities will settle up to Rs 180 billion earmarked for IPPs and GPPs with revised PPA terms, using the established contractual structure; (iii) the government will convert expensive government-guaranteed PHPL debt into cheaper public debt. The government has only created fiscal space to settle Rs 35 billion out of the Rs 165 billion due from the budget and renew the public guarantee for the remaining Rs 130 billion using the established contractual structure; (iv) pursue other reforms, especially: a) increase private participation in DISCOs in order to improve their governance and efficiency; (a) request NEPRA to approve a Transmission System Expansion Plan (TSEP) that meets the requirements for an increased share of variable and cheaper renewable energy in the generation mix; and (c) seek NEPRA’s approval of the updated Network Code and Commercial Code to set out the objectives, principles, rules, procedures, rights and obligations that govern trading in the new wholesale market and thereby improve distribution efficiency; (iv) as a matter of principle, the authorities have assured that they will endeavor to reduce capacity payments, as they pay arrears, either by renegotiating the PPAs or by extending the duration of bank loans, depending on adequate budgetary space and progress in the implementation of the CDMP. The same principle applies to the assumption of the amortization of the PHPL by the federal budget. The authorities will also continue to refrain from clearing cross arrears (unless they are independently audited); using “non-monetary” settlements (such as debt against repayment of loans on-lent to DISCOs); and issuing government guarantees (for example, for Sukuks issued by PHPL to transfer debts from CPPA-G to PHPL); risks. To this end, the government will follow a two-step approach. First, it will increase the PDL in line with our commitments to raise it to a target level of Rs 50/litre by January for petrol and April for diesel. Once fully unsubsidized prices are achieved, including the restoration of full taxation levels, they will establish an automatic pricing mechanism in consultation with IMF staff; and (vi) electricity subsidies (either directly to CPPA-G and generators, or indirectly to consumers, including through targeted transfers by the BISP) will be limited. In principle, energy subsidies will only be granted by the federal government and will ensure equity between the provinces. They will be contained at Rs 570 billion, of which Rs 225 billion will be earmarked for the Differential Tariff Subsidy (TDS) arising from the electricity tariff adjustment trajectory.
The Ministry of Finance has urged the Ministry of Energy to ensure that the commitments/actions agreed with the Fund are completed on time, under the intimation of the Finance Division. In addition, bi-monthly meetings to review the status of implementation of actions/commitments will be held at the Joint Secretary level with the Ministry of Energy focal point.
Copyright Business Recorder, 2022