The government is finding it extremely difficult to consider any increase in power tariff despite immense pressure to eliminate subsidy and reduce the existing 33 percent gap between power production cost and tariff, sources in the Finance Ministry said.
They added that the economic managers of the country would try to convince the IMF that any increase in power tariff in these circumstances is not possible. The government has failed to comply with two critical conditions of the IMF: (i) implementation of reformed GST, and (ii) withdrawal of subsidies to the power sector. Technical discussions with the IMF are currently under way in Washington DC for an extension of the deadline to meet these conditions.
Sources said the high-ups of the Ministry of Finance and the Planning Commission held meetings with Public Sector Enterprises (PSEs), particularly Pepco and Pakistan Railways, to discuss measures required to curtail losses. The Ministry of Finance spokesman Asif Bajwa told this scribe that the economic team is in discussion with the IMF which would enable the Fund to complete the review of Pakistan economic performance for the quarter ended June 30, 2010. "Our priority is to complete the review," he said, adding that it will not make any difference if the IMF decides to release the remaining two instalments in one go or in sequence.
Sources said according to estimates there is about 33 percent gap between power production cost and tariff recovery and subsidy of Rs 84 billion earmarked in the budget for this purpose is not adequate to cover the estimated cost of Rs 180 billion on this account.
The government was weighing three possible options to resolve the energy crisis: Improve Pepco''s performance, explore cheaper generation sources, or increase tariffs by 33 percent. However, the proposed options have been shelved in the wake of floods and the IMF would be informed that any increase in the power tariff was not possible in the prevailing circumstance.
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