Pakistan-IMF Talks $1B Loan Power Tariff Cuts & Privatization
Pakistan and the IMF have commenced policy-level talks for the disbursement of a $1 billion loan tranche under the ongoing loan package.
The officials held a lengthy session of talks with the IMF team to cut the electricity tariff by 1.5 to two rupees per unit, according to sources.
“Final decision to slash basic tariff of electricity will be held in the next month”. According to sources, the IMF has in principle approved a cut in the basic tariff of electricity.
“Pakistan has to submit a comprehensive privatization plan of distribution companies (Discos) to slash the power tariff,” sources shared.
The IMF has been dissatisfied with the performance of Discos and expressed concern over losses of the power distribution companies.
The IMF team has pointed out below par performance of the distribution companies as the main hurdle in reforms in the energy sector, sources shared.
“The government has presented a plan of privatization of three power distribution companies initially,” sources said. “In the first phase IESCO, FESCO, and GEPCO will be privatized,” sources said. While MEPCO, LESCO, and HESCO will be privatized in the next phase”.
The IMF has insisted that the energy sector could not be rejuvenated without privatization the distribution companies, according to sources.
Discussions focussed on the National Finance Commission (NFC) and agricultural income tax yesterday, with officials briefing the IMF that there is a revenue potential of Rs300 billion from the agricultural taxation.
A special session on the circular debt management plan is also scheduled. Pakistan has reportedly proposed a Rs1,250-billion reduction in circular debt and is considering borrowing Rs1,250 billion from banks to address the issue.
Sources indicate that this loan would be obtained at an interest rate of 10.8%, while a surcharge of Rs2.8 per unit on electricity consumers is being proposed to repay the bank loans.
The negotiations will also include a dedicated session with NEPRA, where Pakistan will brief the IMF on the implementation of NEPRA’s power tariff decisions. Additionally, discussions will be held on the distribution of revenue between the federal government and provinces under the National Finance Commission (NFC) framework.
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