ISLAMABAD: The Ministry of Power has issued an urgent appeal for the release of Rs400 billion in subsidies by December 2024 to meet the International Monetary Fund’s (IMF) conditions under the $7 billion Extended Fund Facility (EFF). Failure to comply risks escalating the circular debt beyond the agreed threshold, jeopardizing financial stability and IMF commitments.
So far, only Rs82 billion of the allocated Rs1,229 billion subsidy for FY2024-25 has been disbursed by the Ministry of Finance. To meet IMF requirements, another Rs318 billion must be released immediately.
Under the Circular Debt Management Plan (CDMP), the government pledged a multipronged approach, including subsidy allocation, tariff adjustments, and cost-side reforms, to stabilize the circular debt stock. However, delays in implementing tariff hikes since July 2024 have added Rs125 billion to subsidy costs.
Subsidy Allocation Breakdown for FY2024-25
The Rs1,229 billion subsidy covers:
Tariff Differential Subsidy: Rs663 billion.
Arrears for FATA and KE: Rs174 billion.
Payments for Circular Debt Stock: Rs358 billion.
PHPL Principal Payments: Rs24 billion.
Efforts to reform agricultural tube-well subsidies, primarily benefiting large farmers, are ongoing with World Bank support. No tube-well subsidies are budgeted for three provinces in FY2025.
Reforms to Address Circular Debt
The government, in alignment with IMF recommendations, is committed to:
Privatizing power distribution companies by January 2025.
Reducing theft and improving distribution efficiency.
Enhancing the transmission network.
Renegotiating power purchase agreements to reduce capacity payments, which account for 60% of generation costs.
Phasing out cross-subsidies and replacing them with cash transfers for vulnerable households via BISP.
These measures aim to ensure sustainable power sector reforms and mitigate the financial burden of circular debt.
Story by Mehtab Haider
