IMF allows leeway on electric bills, raises gas prices by 50%

This understanding is pending approval by interim PM and his cabinet

ISLAMABAD:

The International Monetary Fund (IMF) has granted Pakistan permission to extend the payment of electricity bills for consumers using up to 200 units over three months. In exchange, Pakistan has to announce an increase in gas prices of up to 50% effective from July and a crackdown against electricity theft.

This understanding between the IMF and Pakistani authorities is pending approval by interim Prime Minister Anwaarul Haq Kakar and his cabinet, according to sources in the energy ministry.

The sources revealed to The Express Tribune that the IMF has conditionally approved the gradual payment of August’s electricity bills over three months for consumers not eligible for subsidies and using up to 200 monthly units. Lifeline consumers and those within this consumption bracket who are protected from price increases will not be eligible for this temporary relief.

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As a result, only around four million consumers, approximately 10% of the total, will be eligible for this assistance. The government had initially requested permission to stagger bills for consumers using up to 400 monthly units, which would have benefited 32 million consumers or 81% of the total, but this request was not accepted by the IMF.

For consumers using up to 100 units, the government raised prices by Rs7.28 per unit, bringing the cost to Rs24.21 per unit. For consumers using 101 to 200 units, the price increased by Rs8.28 per unit, reaching Rs30.68 per unit. These increases in electricity bills prompted public outrage.

Interim Energy Minister Mohammad Ali did not respond to requests for comment on this matter. However, the temporary relief for electricity consumers will come at a cost for gas sector consumers. The IMF has stipulated that Pakistan must simultaneously announce relief for a specific group of power consumers, initiate a crackdown against theft and low bill recoveries, and notably, increase gas prices.

The IMF has urged Pakistan to increase gas prices, which have already been determined by the Oil and Gas Regulatory Authority (OGRA) but remain pending notification. The previous government did not raise gas prices due to political considerations, contributing to circular debt in the gas sector.

Also read New power bills proposal sent to IMF

In June, OGRA announced a 50% increase in gas prices for consumers of the Sui Northern Gas Pipeline Limited (SNGPL) and a 45% increase for the Sui Southern Gas Company Limited (SSGCL), equivalent to a Rs417.23 per unit hike in gas prices.

However, the earlier Pakistan Democratic Movement (PDM) government did not increase the price of gas in violation of the law, which the OGRA had to notify within 45 days. OGRA had issued the determination on June 3rd.

Sources said that the IMF has also called for the implementation of the weighted average cost of gas (WACOG) to fully recover imported gas prices from consumers. This would involve calculating the gas price by considering both imported liquefied natural gas (LNG) and local gas prices, determining an average price, and setting consumer-specific prices accordingly. Additionally, the IMF has requested Pakistan to announce a plan to improve efficiency through cracking down on electricity theft and recovering past arrears, said the sources.

Energy Minister Mohammad Ali has already announced a crackdown on electricity theft, aiming to reduce technical and commercial losses faced by power distribution companies. He emphasised the importance of curbing theft and unpaid bills, citing an annual loss of Rs589 billion due to these issues, which ultimately leads to higher bills for law-abiding consumers. “Until this is stopped, electricity prices will not come down,” the minister added.

In another effort to stabilise the economy, Pakistani authorities have taken measures against currency speculators driving up the price of the dollar in the open market. These measures have reduced the dollar price to Rs312 per dollar, marking a gain of Rs11. The difference between open and interbank rates has decreased to less than 2% but remains slightly higher than the IMF benchmark of 1.25%. The State Bank of Pakistan (SBP) has implemented administrative measures to limit the role of exchange companies in influencing the dollar’s value. Commercial banks have been encouraged to engage actively in foreign exchange business through wholly-owned exchange companies.

Published in The Express Tribune, September 7^th, 2023.

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