Assurance to IMF: Circular debt money to be recovered from consumers

The per unit cost of electricity is expected to rise by a minimum 7-8%.

ISLAMABAD:

Pakistan has assured the International Monetary Fund (IMF) that it will recover over Rs300 billion debt, along with interest that had been obtained from banks to retire the circular debt, from electricity consumers by increasing power tariffs – a move tantamount to punishing honest consumers and rewarding thieves.

The government has incorporated the costs of servicing the syndicated term credit finance facility into the tariff petition, according to the Memorandum of Economic and Financial Policies (MEFP), signed by Finance Minister Ishaq Dar and submitted to the IMF recently.

This will increase the per unit cost of electricity by minimum 7-8% that will be recovered from consumers who have already paid their bills and now will be forced to pay in place of those involved in power theft.



The syndicated term finance credit is the amount that the federal government has borrowed from commercial banks at an interest rate of over 11% to retire the crippling circular debt, which had piled up due to non-payment of bills by some consumers and electricity theft and line losses. According to sources, the outstanding amount is in the range of Rs300 billion to Rs350 billon excluding the interest.

The government further told the IMF that the National Electric Power Regulatory Authority (Nepra) has refused to add this into the cost of electricity generation. However, living up to its reputation of ‘smart accounting’ the federal government has come up with a novel idea to add this cost to electricity and also convince Nepra.

“The government will incorporate this (debt cost) in the review petition (against Nepra decision) as an eligible capital expenditure”, the government said in its assurance to IMF.

The government admitted that servicing loans “continues to add to circular debt”, according to the MEFP. It assured the IMF that by end-April it will “design a roadmap to prevent the accumulation and recurrence of payables arrears including the payables due from the servicing of term credit finance facility”.

Commenting on the issue, Shahid Sattar, a former Member Energy of Planning Commission and an expert in energy affairs said: “This is neither working capital nor capital expenditure. The government wanted to recover about Rs50 billion per annum from the electricity consumers, which will add up to the cost of power generation.

This is tantamount to punishing honest electricity consumers who have already paid their bills but now will be paying for those who have consumed electricity without paying the bill.

A similar attempt was made during the PPP government’s term, when the former water and power minister Naveed Qamar had entered into an agreement with the IPPs to pay them idle capacity charges by recovering through electricity bills. However, the move had been thwarted by the finance ministry.

Nevertheless, now the Letter of Intent signed by Ishaq Dar suggests that the finance ministry is spearheading the move.

A finance ministry official said that the government had an option either to pay the amount from the budget or recover it from consumers and it has decided upon the latter choice.

According to the MEFP, the government has also assured the IMF that under its three-year plan to fully recover the cost of generation from the consumers, “it will finalise the details for (next) round (of increase in prices) by end-April based on new power tariffs determined by the Nepra”.

The sources said the dispute over recovering circular debt from consumers was delaying the Nepra determination tariff, as the government wanted to add this into the tariff.

Meanwhile, a spokesman for water and power ministry was unavailable for comment on the issue.

Published in The Express Tribune, March 26^th, 2014.