IMF seeks donor on energy plans

Shahbaz Rana April 15, 2010

ISLAMABAD: The International Monetary Fund (IMF) is learnt to have linked the approval of the fifth tranche of its $1.2 billion assistance plan with a Letter of Comfort from the World Bank (WB) and the Asian Development Bank (ADB).

Officials in the finance ministry told The Express Tribune that the WB and the ADB have requested the government to finalise the energy sector recovery plan so that they could issue a Letter of Comfort to the IMF in a timely manner. “The IMF is not a party to the power tariff increase issue, but it will certainly seek certification from the WB and the ADB that all outstanding issues have been resolved,” the officials said.

Pakistan, the WB and the ADB had entered into an agreement last August to increase the electricity tariff by 24 per cent in 3 phases between October 2009 and April 2010. An official of the finance ministry said that Pakistan had mentioned a six per cent power tariff increase in the memorandum of economic and financial policies document, which would be circulated among the fund’s board members.

The Fund would not have any problem in releasing the fifth tranche if other donors certify that the government of Pakistan has agreed to implement a new roadmap for overcoming its energy sector problems, the official said.

The Fund has already twice postponed the executive board’s meeting scheduled earlier to be held last month after Pakistan could not meet the pre-condition of tabling value-added tax in provincial assemblies. The Fund has given May 3 as a tentative date for the approval of the fifth tranche. Pakistan has so far borrowed $6.4 billion under an $11.3 billion standby programme.

An IMF delegation also rushed to Islamabad last Thursday to seek assurances on VAT implementation from July 1. The IMF is pushing Pakistan to levy the tax to increase tax-to-GDP ratio, the lowest in the South Asia. A delegation, led by Additional Secretary External Finance Saleem Sethi, would also go to Washington before the board’s meeting, it was disclosed.

The WB and the ADB have been negotiating with the government to resolve the issue of circular debt and power tariff increase. Donors have asked the government to change the fuel mix to reduce the cost of generation, minimise line losses and reduce the difference between cost of generation and consumer price, said an official who attended the meetings of the donors and the Finance Ministry.

Donors have also requested the Petroleum Ministry to give second priority to the power sector after domestic users in gas distribution. He said that the ADB and the WB would issue Letters of Comfort after Prime Minister Yousuf Raza Gilani approves recommendations of the Cabinet’s Crises Management Committee.The Committee has recommended provision of 350 mmcfd gas for power generation and recovery of Pepco arrears to improve its financial health.

According to APP, Regional Head South Asia of IMF assured Prime Minister Yousaf Raza Gilani here late Wednesday that the IMF board would approve the release of the next tranche on May 3. During a meeting with the prime minister, the IMF official said he was confident of successful completion of the IMF programme for Pakistan by December this year, and it was now for the government to decide by fall this year if it wanted to start negotiations for the next programme. The prime minister is said to have urged the IMF to take into account practical difficulties while suggesting reform measures.