- The Ministry of Energy writes a letter to the Ministry of Finance in this regard.
- The FY25 budget includes Rs 1,229 billion in energy subsidies.
- The IMF recommends institutionalizing anti-theft procedures.
ISLAMABAD: To avoid slippages due to the escalation of circular debt agreed with the International Monetary Fund (IMF), the Ministry of Energy has issued an SOS (Save Our Soul) requesting the release of subsidies to the tune of Rs400 billion by the end of December, Les Nouvelles reported.
Of the Rs 1,229 billion in subsidies allocated for the current fiscal year, the Finance Ministry has so far released only Rs 82 billion. An additional Rs318 billion needs to be released quickly to meet an indicative target set under the IMF’s $7 billion Extended Financing Facility (EFF) programme.
If the allocated grant amount is not released before December 31, this could result in a violation of the indicative target agreed with the IMF for the creation of circular debt.
In an official letter addressed to the Ministry of Finance, the Ministry of Energy has requested that the grant of Rs 400 billion be released within the stipulated time.
Under the Circular Debt Management Plan (CDMP), the government has considered a multi-pronged strategy, including cost recovery, provision of grants of Rs 1,229 billion for the entire fiscal year 2024-25, as well as privatization and the conclusion of concessional agreements with certain electricity distribution companies. in the first phase. The tariff determination agreed with the IMF could not be implemented from July 2024, therefore it increased the cost of the subsidy to the tune of Rs 125 billion.
The FY25 budget includes Rs 1,229 billion (1.0% of GDP) in energy subsidies to meet liquidity needs. This, combined with tariff adjustments and cost-oriented reforms, would help stabilize the circular debt stock overall.
The subsidy would cover (i) the projected tariff differential (Rs663 billion) (ii) arrears payments of Fata and K-Electric (Rs174 billion) (iii) agricultural tube wells (Rs0 billion) and (iv) stock payments of circular debt to offset the projected circular debt flow via Power Holding Company (PHPL) principal repayments (24 billion rupees) and arrears of power producers (358 billion rupees).
The use of all resources allocated in the FY25 budget would be decided during the financial year, with the option of withdrawing up to an additional Rs 35 billion of circular debt stock or returning these resources to the Treasure.
At the same time, the government, with support from the World Bank, continues its efforts to reform tubewell subsidies, which mainly benefit large agricultural users, and has not budgeted for tubewell subsidies for three provinces for the FY25. In the medium term, the government has committed to the IMF to eliminate household cross-subsidies and replace them with directly targeted cash transfers for vulnerable households, which would be delivered through the BISP.
According to the IMF’s prescription, key reforms to reduce costs and circular debt focus on improving distribution efficiency, including accelerating measures to improve the management of distribution companies through the participation of the private sector and its structural reference share until the end of January 2025; institutionalize anti-theft procedures to reduce losses; improve the political and regulatory framework of the transport system which constitutes a major bottleneck; privatize inefficient production companies; improve the efficiency of power plants; complete the transition to a competitive electricity market; and reduce capacity payments by renegotiating power purchase agreements (which represent around 60% of production costs).