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SIFC directives: New power tariff to be introduced after IMF nod

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8 months ago

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  • Govt to get a nod from IMF to accelerate economic growth.
  • Power Division completes task of restructuring existing power tariff.
  • Total cost of electricity unit comprises 72% fixed charges at present.

ISLAMABAD: In line with the direction from the Special Investment Finance Council (SIFC), the Power Division has deposited the draft of a new power tariff design with the Finance Ministry.

This has been done to get a nod from the IMF to accelerate economic growth as the existing tariff regime is causing economic meltdown.

The SIFC’s Apex Committee, which met on January 3, 2024, directed the top mandarins of the Power Division to restructure the power tariff regime in a way that economic activities could accelerate, top officials in the SIFC Secretariat and energy ministry told The News.

Caretaker energy minister confirmed to The News that the Power Division has completed its task of restructuring the existing power tariff regime and has submitted it to the Finance Ministry, which will take it up with the IMF.

At present, the total cost of electricity unit comprises 72% fixed charges and 28% variable charges. Still, on the revenue side, the fixed charges stand at just 2% and variable charges stand at 98%. The relevant authorities, the officials said, have found a mismatch in the electricity tariff between cost and revenue structure and around 98% of domestic consumers (29 million consumers) are getting a subsidy of Rs631 billion. Of Rs631 billion, the government is providing a subsidy of Rs158 billion but the rest is being borne by industrial, commercial and high-end domestic consumers.

Under the current tariff regime, the government is offering power at the rate of 14 cents to the export industry owing to which Pakistan products are no more competitive if compared with products of Vietnam, Bangladesh and India as their electricity tariff stands at 9-10 cents per unit. All categories of electricity consumers — industrial, commercial and high-end domestic consumers are experiencing higher tariffs which has miserably slowed down the economic activities. Right now, Rs473 billion cross-subsidy is being offered to 29 million protected consumers and some unprotected domestic consumers who consume up to 300-400 units a month.

Restructuring the tariff regime would bring down the wheeling charges from Rs27 per unit demanded by CPPA to a reasonable level to ensure bilateral BtB electricity trade. In the fixed charges of electricity cost, capacity payments stand at 57%, Discos’ assets, including administrative costs, stand at 10% and transmission and market operator’s costs account for 4.5%. The variable charges include fuel cost, maintenance cost and the losses’ impacts. “The authorities are working to increase the tariff of the fixed charges which currently stand at 2% to a reasonable level and bring down the 98pc variable charges to rationalize the existing tariff design.”

The officials said the government intends to end the Rs244 billion cross-subsidy being extended from the industrial sector to protected and unprotected consumers using up to 300-400 units a month.

The withdrawal of cross-subsidy will cause an increase in the tariffs of protected and some unprotected consumers. This will provide the government space to bring down the industrial sector tariff to 9 cents per unit helping the industry to thrive and increase exports. They also mentioned that under the National Electricity Plan 2023-27, fixed charges would increase to 20% in 2027.

Apart from the Rs158 billion subsidy on the part of the government, industrial, commercial and high-slab domestic consumers are extending Rs473 billion cross-subsidy to the protected consumers and some non-protected consumers consuming up to 400 units, whose tariffs did not increase for decades. By doing so, the burden on industrial, commercial and high-slab domestic consumers has increased manifold.

In the last increase in electricity tariff, the non-protected consumers falling in the 1-100 units slab category saw an increase in tariff by Rs3 per unit, those using 100-200 units have an Rs4 per unit hike, Rs5 per unit increase for those consuming 200-300 units slab and Rs6.5 per unit for those in the bracket of 301-400 units as compared to other high-end categories whose tariff was increased by 7.5% in the rebasing of electricity tariff for FY24.

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It is anticipated that 150 ships would arrive at Gwadar by the year 2045, allowing the port to handle fifty percent of all imports.

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3 days ago

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In an effort to strengthen the port’s economic importance, the Federal Government has made the decision to direct fifty percent of all imports from the public sector to Gwadar Port.

By taking this action, which has the backing of the Special Investment Facilitation Council, the port’s financial situation is going to be improved.

The Cabinet will be presented with a summary of imports through Gwadar by the Ministry of Maritime Affairs, which will take place after Prime Minister Shehbaz Sharif’s recent trip to China.

When the next Cabinet Meeting takes place, Ahsan Iqbal, the Federal Minister for Planning, Development, and Special Initiatives, will examine the Chinese offer for the Karachi to Hyderabad Section of the ML-1 Project and bring it to the Cabinet.

Company preparations for the Shanghai International Import Expo, which will take place in November 2024, are being made by the Board of Investment and the Ministry of Commerce of Pakistan.

One of the most important aspects of the China-Pakistan Economic Corridor is the Gwadar port, which serves as a significant commerce route connecting China, the Middle East, Africa, and Europe. At this time, the Gwadar Port is able to accommodate two huge ships, and by the year 2045, it is anticipated that it would be able to handle up to 150 ships.

By developing the Gwadar Port, regional connectivity would be improved, employment will be created, and international investment will be attracted.

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The price of gold in Pakistan has experienced a significant surge.

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3 days ago

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Gold prices in Pakistan surged significantly on Thursday following two consecutive days of decline, with the price per tola rising by Rs2,000 to reach Rs262,100. This increase was in accordance with the downward trend in international market values.

The All-Pakistan Gems and Jewellers Sarafa Association (APGJSA) reported that the price of 10 grams of 24-karat gold rose by Rs1,714, reaching Rs224,708.

Conversely, the world gold market experienced an upward trajectory. According to the APGJSA, the global price of gold surged to $2,503 per ounce following a $22 gain during the trading session.

The local market experienced a significant decline in silver prices, decreasing from Rs50 to Rs2,900 per tola after a prolonged period.

The local market’s gold prices remain subject to the ever-changing dynamics of the international market, as well as domestic considerations such as currency exchange rates and domestic demand.

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The government has not met the deadline set by the International Monetary Fund (IMF) for the approval of a $7 billion loan.

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4 days ago

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On Tuesday night, there were virtual talks between representatives of the Finance Ministry and the IMF delegation, with the main topics being external finance and income generation.

According to people familiar with the situation, no date has been set for the IMF’s Executive Board to approve the loan despite the ongoing negotiations.

Officials from the Finance Ministry informed the IMF mission about the government’s initiatives to get outside funding during the discussions. Updates on loan rollovers and fresh finance commitments from allies were included in this. According to sources, the IMF has received a schedule, and loan rollovers are expected to be finished by the end of next week.

The $12 billion in debt must be rolled over before the loan can be approved by the Executive Board, according to the IMF mission.

In the virtual discussions, representatives of the Federal Board of Revenue (FBR) conversed with the IMF team over the revenue deficit. The FBR must reach its revenue goals for this month, according to the IMF mission. As a result, the IMF has asked the FBR to submit a thorough strategy outlining how it will close the gap left by the shortfall and guarantee that revenue goals are reached.

Apart from the conversations on outside funding, there are rumors that the Finance Ministry is actively holding talks with commercial banks in order to obtain new funding. According to reports, negotiations are taking place with four distinct sources for commercial loans, which are anticipated to support the government’s overall financial plan.

Finance Minister Muhammad Aurangzeb disclosed on Tuesday that the IMF was in favor of introducing targeted subsidies. He said that qualifying recipients might receive these subsidies through the Benazir Income Support Programme (BISP).

In order to guarantee consistency, the minister announced that this week’s talks with chief ministers will focus on implementing a similar policy across the country. He was having a casual conversation in parliament with the journalists.

In response to queries about outside funding, Aurangzeb revealed a $2 billion deficit and said that talks to close this gap are progressing. He stressed how crucial it is to obtain business loans.

He went on, “At this point, there’s a need to secure an agreement for commercial loans, not exactly their issuance,” emphasizing that debt rollover negotiations are nearing their conclusion and doing well. The minister expected that these developments would shortly be reported to the governments of allied countries by relevant authorities.

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