ISLAMABAD: The Ministry of Finance (MoF) has requested an update from all ministries on the status of reported structural benchmarks, other actions, quantitative performance criteria and indicative targets under the Expanded Financing Facility IMF (EFF) for Pakistan by October 4, 2022 (today), official sources said company registrar.

The Ministry of Finance, sources said, has written letters to secretaries of all relevant ministries/divisions, including the State Bank of Pakistan, urging them to share the required updates immediately. The new finance minister, Ishaq Dar, held talks with the resident representative of the IMF in this regard.

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 structural benchmarks, indicative targets and other relevant actions for the Ministry of Energy. According to the Ministry of Finance, there are two structural benchmarks relating to the Ministry of Energy: (i) the completion of the Combined Annual Rebasing (AR) for FY22 and FY23 by the end of September to take effect October 1, 2022 ; and (ii) submission to NEPRA of requests for (a) the FY23-July APP by the 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 the end of September, and by Rs 157 billion by the end of December 2022 , and an increase of Rs 30 billion in March 2024.

Ministry of Energy: the Ministry of Finance requests an update on the commitments made with the IMF

According to the Ministry of Finance, the Pakistani authorities have assured the IMF that: (i) they remain committed to timely implementation of regular tariff adjustments in accordance with established formulas, as this will help ensure cost recovery and increase the escalation of the new tariff structure for consumer residential services; (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 the terms of the PPA in exchange for the clearance of 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; (b) 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 the 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); (v) the authorities are also committed to continuing to fully pass on international oil price movements to consumers in order to contain fiscal spending and 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) resulting from the electricity tariff adjustment trajectory.

Copyright Business Recorder, 2022

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