Two ‘innovative’ power sector plans fail to attract MoF support

ISLAMABAD: The much-talked about circular debt reduction plan (inter-company adjustment) and rationalisation of electricity tariff for industrial sector, both the brainchild of caretaker Minister for Power and Petroleum, Muhammad Ali, are reportedly not being supported by the Finance Ministry in their present form as both are not covered in the IMF-dictated federal budget, well informed sources told Business Recorder.

Both the plans, i.e., adjustment of Rs 1250 billion of companies (with an estimated benefit of Rs 400 billion after adjustment in books of concerned companies) and reduction in electricity tariff to Cents 9 per cent from Cents 14 per unit, have been tailored by the those outside the Power and Petroleum Divisions to keep them a secret from the top bureaucrats.

On January 24, 2024, caretaker Prime Minister Anwar ul-Haq Kakar presided over a meeting on power sector on the two plans with the direction to Finance Ministry to consider their “feasibility” with respect to IMF conditions, sources added.

Energy sector: Major step taken towards reducing circular debt

“Timing is an issue. IMF’s Standby Arrangement (SBA) stipulates sticking to what was agreed and that is the budget which was approved by Parliament,” the sources added.

Caretaker Minister’s plan is slightly outside the bounds of the revised budget approved by the IMF. Now, there are discussions that the circular debt reduction plan should not be in conflict with pledges made to the Fund.

“There is thinking that we should be careful as we are on a tight rope. The current situation requires us to be careful. We should be very, very, mindful at every step,” the sources continued.

Finance Ministry, sources said, highlighted all those points during the meeting chaired by the caretaker Prime Minister, which they already submitted in writing which indicates that the two plans are outside the bounds of the government’s pledges to the IMF.

“If the assumptions of circular debt reduction plan are reconciled and prove that these are not beyond IMF program, then the plans will proceed,” the sources said, adding that power sector assumptions are in accordance with the budget but Petroleum Division’s adjustment is over and above what was agreed with the Fund in the budget.

“Caretaker Prime Minister’s meeting was a step forward but it should have been placed before the IMF team early November 2023 so that it could have been part of the first review’s Staff Level Agreement and the Board’s agenda. Now the IMF Board will hold its next meeting in May 2024. This is a barrier at the moment. Caretaker PM has asked all parties to revaluate the situation and think what is possible at the present time,” the sources continued.

Both sides, i.e., Finance Ministry and Power Division spoke openly during the meeting. Caretaker Prime Minister presented his views very effectively.

The Caretaker Minister for Power spent about a month on the plans but he was late, sources continued.

“The proposal is out of the box, beyond budget and prepared at a time when there is no Parliament,” the sources further stated. Finance Division does not take decisions on its own. Its decisions are backed Parliament which is not present at the moment.

Commenting on the proposal of reduction in electricity tariff from current Cents 14 per unit to Cents 9 per unit, the sources said, this issue is with the NEPRA. Also there is no Council of Common Interests (CCI), approval of which is also required for adjustment in tariff. This is not the right time, the sources concluded.

Copyright Business Recorder, 2024