Finance ministry agrees to release Rs104b for power subsidy

Payments will go to AJK, K-Electric, industrial and FATA consumers

ISLAMABAD: The Ministry of Finance has agreed to release Rs104 billion to settle pending power subsidy claims for the current fiscal year 2016-17.

The subsidy, estimated at Rs104.4 billion, is due to be paid to Azad Jammu and Kashmir (AJK), K-Electric, industrial consumers and Federally Administered Tribal Areas (Fata).

In the budget for FY17, the government had allocated Rs118 billion in subsidy for power consumers, which was 0.3% of Gross Domestic Product (GDP). This is markedly lower than the Rs676 billion, or 2.4% of GDP, earmarked for subsidy in 2012-13.

The finance ministry agreed to pay the subsidy after the water and power secretary requested Prime Minister Nawaz Sharif, in a high-level meeting earlier this month, to direct the ministry to make subsidy payments immediately as liquidity has gone short in the energy supply chain.



The cash crunch has been the result of growing circular debt as energy companies fail to clear outstanding bills of each other. This has sparked prolonged power outages as well as caused replacement of previous water and power secretary Younus Dagha.

The increase in load-shedding runs contrary to the government’s repeated claims that it will bring power outages to an end in 2018. The ruling PML-N has also come in for a lot of flak from opposition political parties that have launched an anti-government campaign.

Among the energy companies, Pakistan State Oil (PSO) has huge receivables in its books amounting to Rs300 billion. The oil marketing giant has already cautioned the government about an impending disruption in oil supplies if its dues are not swiftly cleared.

The Ministry of Petroleum and Natural Resources has laid the blame on the Ministry of Water and Power because power distribution companies could not pay dues of electricity producers, which in turn could not be able to settle PSO’s bills.

On its part, the power ministry has put the onus on the finance ministry, saying the latter has not released the subsidy allocated in the budget. The subsidy payments are still awaited, though the financial year is going to end on June 30.

In a meeting held on April 18, the prime minister was informed that the Ministry of Water and Power had approached the Finance Division for the release of subsidy earmarked for the power sector. The division agreed, in principle, to dole out the money.



According to the finance ministry, the circular debt stood at Rs329 billion on April 5, 2017. The power ministry has held the National Electric Power Regulatory Authority (Nepra) responsible for the swelling circular debt.

Ministry officials argue that because of the difference between Nepra’s assumptions and actual bill recoveries and line losses of the distribution companies, the circular debt had surged from Rs320 billion in October 2014 to Rs374 billion in December 2016.

Published in The Express Tribune, April 30^th, 2017.

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