Tag: power sector

  • Pakistan accepts IMF pre-condition to increase interest rate by 2%

    Pakistan accepts IMF pre-condition to increase interest rate by 2%

    Pakistan has agreed to increase its policy (interest) rate by two percent or 200 basis points, as a pre-condition for the release of $1.1 billion in critical funding from the International Monetary Fund (IMF). The funding is part of a $6.5 billion bailout package.

    The increase is based on rates set by the government in an auction to raise domestic debt and will push the interest rate to 19 per cent. This is just below the previous record of 19.5 per cent set in October 1996.

    Sources from the Ministry of Finance stated that there had been technical-level discussions between Islamabad and the IMF review mission and that it was expected that Islamabad would increase the interest rate by two percent. Most of the pre-conditions set by the IMF had been fulfilled, according to these sources.

    Sources also indicated that discussions on some issues related to the power sector were in the final stages, after which a staff-level agreement with the IMF would be reached. Additionally, Pakistan provided a detailed briefing to IMF officials on the sources of foreign exchange until June.

  • PM Shehbaz approves hike in gas and electricity tariffs to fulfill IMF demands

    PM Shehbaz approves hike in gas and electricity tariffs to fulfill IMF demands

    With only three days remaining to resolve differences, Prime Minister Shehbaz Sharif approved an increase in electricity prices on Monday in an attempt to reach an agreement with the International Monetary Fund (IMF). The annual base tariff is expected to increase by approximately 33 per cent.

    The decision was made during a virtual meeting held at the Prime Minister House after the IMF maintained its stance that Pakistan must fulfill its prior commitments.

    Sources familiar with the discussions indicated that there may be an average increase of Rs7.74 per unit in the base tariffs, but the increase for higher consumption levels will be much higher. Despite this, the Prime Minister still hopes that the Power Division can negotiate with the IMF to reduce the demanded increase.

    With the Prime Minister’s approval, the revised circular debt reduction plan, which includes details of the increase in prices due to quarterly and annual base tariff adjustments, will be shared with the IMF today.

    Power Minister Khurram Dastgir declined to comment on whether the Prime Minister had agreed to increase electricity prices, including the maximum increase for high-end consumers.

    According to sources, the IMF is seeking a 50 per cent increase in prices, while the government is proposing a range of 20 per cent to 33 per cent increase. The discussions began on January 31st and the IMF delegation was in Islamabad until February 9th.

    The IMF has stated that it is in Pakistan at the request of Prime Minister Shehbaz Sharif, with the expectation that the government will implement all of its outstanding actions, including tax increases. If the IMF agrees to the measures proposed by the government, a meeting between Finance Minister Ishaq Dar and IMF Mission Chief Nathan Porter may take place the same day to finalise the measures.

    The sources stated that the Power Division presented several options for increasing tariffs to the Prime Minister, including a Rs4.26 per unit increase in quarterly tariffs and a Rs7.74 per unit average increase in the base tariff.

    The IMF has asked the government of Pakistan to increase electricity prices by over Rs12 per unit to fully cover the additional budget subsidy demand of Rs675 billion. The Power Division believes it can recover Rs43 billion with a lag from July to December 2023, reducing the need for a price hike by the same amount.

    During budget planning, the government allocated only Rs355 billion for power subsidies in the current fiscal year, but the Power Division has requested an additional Rs675 billion in subsidies, bringing the total requirement to over Rs1.03 trillion. In a recent meeting, it was noted that the delayed decision-making has increased the cost of reviving the IMF program.

    The government still hopes the IMF will consider absorbing some of the increase through subsidies, but these subsidies must be supported by additional revenue measures. The IMF also refused the government’s request to exempt up to 300 units for consumers from the price increase, remaining firm on its stance to raise prices for consumers who use 200 units or more per month.

    According to Express Tribune, the Prime Minister has given direction to implement a maximum increase in electricity prices to those with high consumption levels. However, these consumers may struggle to bear the additional cost, which is primarily due to political decisions such as subsidies for exporters and insufficient subsidies in the budget, as well as inefficiencies in the power sector.

  • PTI govt waives off Rs228 billion dues of rich industrialists

    PTI govt waives off Rs228 billion dues of rich industrialists

    The Pakistan Tehreeke Insaf (PTI) government has waived off Rs228 billion of influential industrialists and owners of fertilizer, CNG and power sector companies through a presidential ordinance enforced with immediate effect from August 28 The News International has reported.

    As per the details, President Arif Alvi waived half of the outstanding liabilities of the said players of the amount collected from May 22, 2015 to December 21 2018.

    Furthermore, the government also reduced Gas Infrastructure Development Cess (GIDC) rates by up to 75%, which would push down prices of gas and fertiliser for the end-consumers.

    According to the Petroleum Division statistics, as of the end of December 2018, the total principal liabilities of these sectors stood at Rs416.3 billion and half of those were written off by the government.

    Cumulative GIDC collection since 2012 was recorded at Rs701.5 billion till the end of December 2018, out of which only Rs285 billion had been deposited.

    The government further waived the late payment surcharge, which was supposed to be paid at the rate of 4% plus three-month Karachi Interbank Offered Rate (Kibor), which currently stands at 13.7%, meaning the government has written off 17.4% mark-up, which brings the total to over Rs300 billion.

    The ordinance also did not address the issue of how to refund 50% GIDC to those companies that timely discharged their legal obligations and paid the entire amount of GIDC.