IMF assured: No more funds for CPEC

Fund questions increase of Rs7/unit in electricity prices, circular debt handling

ISLAMABAD:

Pakistan has assured the International Monetary Fund that it does not plan to allocate additional budget to settle the Rs493 billion dues of Chinese power plants. The global lender is also questioning the efficacy of the power sector’s anti-theft campaign.

The government also faced questions about a record Rs7 per unit increase in electricity prices in March due to the energy ministry’s faulty policy of using expensive imported fuels, according to sources.

The Fund is sceptical about the government’s claim of restricting losses due to non-recovery of bills to Rs263 billion in this fiscal year, as the amount has already almost reached Rs200 billion in just seven months. This has serious implications for restricting the overall circular debt to Rs2.31 trillion by June this year.

The IMF inquired about the government’s decision on the allocation of funds for the Chinese power plants over and above the budgeted amount of Rs48 billion for this fiscal year, said officials of the Ministry of Energy.

They added that the IMF was informed there was no plan to approve additional funds for retiring the outstanding debt of the Chinese power plants.

The outstanding dues of power projects of China-Pakistan Economic Corridor (CPEC) alarmingly increased to a record Rs493 billion or $1.8 billion as of end January. The amount was Rs214 billion or 77% higher than June last year.

The build-up of Chinese debt violates the 2015 Energy Framework Agreement, which binds Pakistan to allocate sufficient money in a special fund to keep Chinese investors immune from the circular debt. However, the government is allocating only Rs48 billion annually with a condition to withdraw a maximum of Rs4 billion per month.

Sources said the IMF appeared sceptical about the long-term success of the government’s anti-theft campaign and the military’s involvement in monitoring the performance of power distribution companies.

Read: Economic revival, CPEC and Agenda 2047 – IV

Energy ministry officials said the IMF believes the anti-theft campaign can work only in the short term and the government needs to focus on digital monitoring of the power distribution network.

The government claimed it has recovered Rs82 billion in this fiscal year because of its anti-theft campaign, although there is no publicly available breakup about recoveries from private and public sector consumers.

Sources said the IMF’s view was that such measures can only be beneficial in the short term. The IMF also did not appear satisfied with the involvement of third parties in monitoring the anti-theft campaign, said the sources. For the global lender, as such interventions could diminish the role of power distribution company management and their boards.

The low recovery of bills and high line losses contribute annually to Rs589 billion in the circular debt build-up – a sum that the government recovers either through further price increases or budget subsidies.

For this fiscal year, the government estimates Rs263 billion in losses due to lower bill recovery by power distribution companies. Despite the anti-theft campaign, in seven months, there has already been an increase of Rs200 billion under this head.

Energy ministry officials claimed before the IMF that recoveries have increased to 92% of the billed amount, marginally better than last year. They further said recoveries would improve once billing increases during the summer period.

The energy ministry officials said the finance ministry would release over Rs250 billion in subsidies this month to keep the circular debt flow at the agreed level for this fiscal year.

The IMF was informed that circular debt increased by Rs378 billion during the first half, jumping to Rs545 billion by end March. However, the government has agreed to keep the overall debt stock at Rs2.310 trillion by settling the addition through the budget by June this year.

The government also faced IMF questions over a sharp monthly increase of Rs7 per unit due to monthly fuel cost adjustment in electricity bills. The sharp increase highlighted mismanagement by the energy ministry, which failed to implement planned use of various fuels to keep prices low.

Sources said the IMF argued there was no justification for the Rs7 per unit increase when the exchange rate was stable and global commodity prices did not change.

The energy ministry explained the government had to seek the price increase due to using expensive fuels during winter for electricity generation. High-speed diesel, furnace oil, and imported gas were used due to a faulty policy of allocating cheaper local gas to other sources.

Sources said the IMF has also sought a fresh timeline for ending agriculture tube-well subsidies in Balochistan.

Published in The Express Tribune, March 17^th, 2024.

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