Govt faces IMF delay over bill crisis

Caretakers need foreign lender’s approval before announcing relief to people

ISLAMABAD:

The International Monetary Fund (IMF) on Tuesday did not immediately approve Pakistan’s request for recovering August’s electricity bills over a period of six months amid raging protests in many parts of the country that continued for the fifth day running against back-breaking bills.

Adding more vigour to the protests, the traders’ community also joined the protests on Tuesday, putting further pressure on the government.

Read Nationwide protests erupt against inflated electricity bills

In a high-level meeting, the global lender sought time to review Pakistan’s request for making six installments of August’s electricity bills, which have forced the consumers to stage protests across various cities.

Hours before the meeting with the IMF, the federal cabinet linked its approval to recover the bills for the month of August from October 2023 to March 2024 with the prior approval of the IMF.

However, monthly tranches would not lessen the people's burden as they would be forced to pay their regular bills along with the installments of the bills for the month of August.

The Power Division had proposed recovering the bills in three monthly installments and to compensate power distribution companies by taking loans from commercial banks. The cabinet did not approve the request due to incomplete work and lack of endorsement by the IMF, according to the sources.

They said that the Power Division did not have the requisite numbers about the financial impact of the proposal to recover the bills for the month of August in six months. The division proposed that the electricity bills of the consumers having monthly consumption of up to 400 units should be recovered in installments.

There were 31.4 million or 81% of the total consumers that fall within the consumption level of 400 units.
It was revealed in the meeting that the Power Division had passed two months’ increases in the monthly bills of August, which resulted in effectively up to Rs16 per unit increase for some categories of the consumers.

The cabinet of former prime minister Shehbaz Sharif had approved increasing the electricity prices over Rs8 per unit on July 31 but with effect from July 1. As a result, the power distribution companies not only increased the prices for August but also recovered arrears for the month of July, they added. The average per unit increase was Rs5.45.

There was a consensus in the cabinet meeting that the bills should be received in six monthly installments but the final decision was postponed due to its financial impact, a cabinet minister told The Express Tribune.

The finance ministry informed the cabinet that it would need the IMF’s prior endorsement before the cabinet makes any decision about recovering these bills in installments.

After that Pakistani authorities held a meeting with the IMF with a request to allow the government to make six monthly installments of these bills. Pakistan proposed that the bills would be recovered from October 2023 to March 2024.

The IMF sought time to review the financial impact of the proposal on the circular debt, budgeted power subsidies and the overall primary budget surplus target of 0.4% of GDP.

Pakistani authorities assured the IMF that they would abide by the agreement approved by the IMF board in July and this would be temporary relief having no major financial impact. The IMF was assured that the power subsidies would not cross from the annual level of Rs976 billion.

The interim government created a storm in the tea cup by calling an emergency meeting on Sunday but could not reach a conclusion. Prime Minister Anwaarul Haq Kakar chaired the second meeting on Monday but again he could not make a decision. It was for the third time when the matter was discussed on Tuesday but left until the final approval by the IMF.

Under the IMF programme, Pakistan has committed to increase electricity prices on account of annual revision. As a result, the maximum per unit price for domestic consumers is now Rs51 per unit, while for industrial and commercial consumers, it is Rs47 per unit. The government has also planned to increase prices by Rs4.37 per unit on account of last fiscal year’s quarterly tariff adjustment.

Read more Power tariffs raised under IMF deal: PM

The sources said that Pakistan had informed the IMF that there would not be any blockage in payments to power producers despite recovering the bills in six tranches. The shortfalls in the power distribution companies’ revenues would be offset by taking commercial loans. The interest on the commercial loans would either be picked by improving recoveries or paying from the budgeted subsidies.

A cabinet member claimed that the financial impact of dividing the bills over six months would be less than Rs10 billion.

An official who attended the IMF meeting said that the fund team had concerns that the Power Division might not be able to achieve what it was claiming at this stage. The Power Division has a history of missing its targets agreed with the IMF.

Read also Govt falls short of giving power relief

The power sector-related goals are already overambitious and the government has made the first revision in the quarterly circular debt reduction targets agreed with the IMF.

Against an earlier plan of reduction of Rs155 billion in circular debt by September this year, the Power Division has now estimated an increase of Rs292 billion in the first quarter, they said.

The sources said that against a month-old projection of Rs386 billion rise in the circular debt by March 2024, it was estimated that the flow could now increase by Rs545 billion even before making the installments of the bills, a deviation of around 41% in a month.