Power tariff hike gets PM’s nod to salvage IMF deal

Islamabad: Prime Minister Shehbaz Sharif approved power hike  on Monday in an effort to reach an agreement with the International Monetary Fund (IMF) with just three days remaining to resolve disputes. This could cause the yearly base tariff to climb by an additional 33%.

In a meeting held at the Prime Minister House, the decision in principle was made after the IMF refused to change its initial position that Pakistan must uphold its previous commitments. Since he was in Lahore, the prime presided over the meeting online.

According to sources with knowledge of the discussions, the basic prices may increase on average by Rs7.74 per unit, but the increase for the higher consumption slabs will be significantly greater.

The prime minister still wished for the Power Division to regain some ground by persuading the IMF to accept a decrease from the demanded rise.

The sources stated that following the PM’s approval, the updated circular debt reduction plan—which will include information on price increases due to quarterly and annual base tariff adjustments—would be communicated with the IMF on Tuesday (today).

If the PM agreed in principle to raise power hike  with a maximum increase for the upper group of consumers, it was not made clear by power minister Khurram Dastgir.

According to the sources, the administration sought to hike the prices by 20% to 33% instead of the almost 50% increase that the IMF is requesting. The expedition remained in Islamabad till February 9th, and the negotiations had started on January 31st.

According to the IMF, it is in Pakistan at the prime minister’s request and anticipates that the government will carry out all of its unfinished business, including raising taxes.

Ishaq Dar, the finance minister, and Nathan Porter, the head of the IMF mission, could meet that day to finalize the measures the government is now prepared to take, should the IMF approve them.

According to the sources, the Power Division gave the PM many possibilities for power hike tariffs. These comprised a base pricing hike of Rs7.74 per unit on average and a quarterly tariff increase of Rs4.26 per unit.

However, the IMF has asked that the government raise power costs by more than Rs. 12 per unit in order to fully offset the demand for an additional Rs. 675 billion in budgetary subsidies. According to the Power Division, it is still possible to collect Rs43 billion with a delay from July to December 2023, which should reduce the need for a similar rise.

For the current fiscal year, the government has only set aside Rs355 billion in power subsidies at the time of the budget. The Power Division requested an extra Rs675 billion in subsidies, bringing the total amount needed to almost Rs1.03 trillion, in order to manage the flow of the new circular debt.

The expense of resuming the IMF program was discussed during the conference as a result of the delayed decision-making. The administration was still holding out hope that the IMF might think about subsidizing some of the hike. However, these subsidies will require new sources of funding.

The IMF declined to agree to the government’s request to exempt up to 300 units of consumption from the price hike, as it continued to raise rates for those who consume 200 units or more per month.