The government has budgeted Rs 188 billion subsidy to the power sector for the current year against Rs 118 billion in the current fiscal year - an increase of 59 percent. Advisor to Prime Minister on Finance Miftah Ismail publicly stated that an increase in power generation would raise the need for higher subsides and the government, while keeping this aspect in view, has allocated the power sector higher subsidies in 2018-19 compared to current fiscal year.
The Advisor also stated that the present government will issue Term Finance Certificates (TFCs) to eliminate accumulated circular debt before the end of its tenure. He said present government will ensure sustainability of power supply for the first six months of next fiscal year.
Power Division has reportedly prepared and shared a plan with Ismail for settlement of circular debt of over Rs 500 billion till December 2017 to ensure uninterrupted power supply during the period covering the forthcoming general elections.
This will be the second settlement of the circular debt during the past five years given that the present government settled Rs 480 billion on the second last day of the fiscal year 2013-14. Senior officials of Finance Ministry expressed confidence that Rs 188 billion earmarked for power subsidies will be sufficient for the entire fiscal year, however, they did not dispute that increase in power generation will also increase the quantum of subsidies required for power sector.
The officials contended that merger of three surcharges - Neelum Jhelum, tariff rationalization surcharge and debt equalization - will ease tariff differential subsidy for the next fiscal year. An official dealing with the matter stated that subsidies are released against the monthly claim put forward to the Finance Ministry by power distribution companies through central power purchasing agency (CPPA).
Finance Ministry verifies subsidy claims ahead of forwarding them to the Accountant General of Pakistan Revenue (AGPR) for clearance and payment through State Bank of Pakistan (SBP). According to back ground interaction with officials, allocation for contingent liabilities are also earmarked in the budget to cater for unforeseen expenditure.
The official added that usually quantum of subsidies for power sector escalates significantly in Ramazan because the government is compelled to run the oil guzzlers and inefficient power plants to reduce load shedding hours. This requires additional subsidy of Rs 8-10 billion monthly to make full use of installed capacity by running some Gencos which are operating at as low as 29 percent capacity.