ISLAMABAD: The government and the International Monetary Fund (IMF) are said to have agreed on an increase of Rs 2.60 per unit (20 percent) of electricity instead of 25 percent across-the-board except domestic consumers using up to 300 units per month, raising the tariff to Rs 15.58 per unit from existing rates of Rs 12.98 per unit, well-informed sources told Business Recorder.

However, increase in tariff will be staggered in two phases. In the first phase, tariff will increase by Rs 1.30 per unit from July 1, 2019 whereas in the second phase increase of Rs 1.30 per unit will be effective from September 1, 2019. The current level of subsidies to domestic consumers will continue as per existing practice. The IMF had sought an increase of 25 per cent in power tariff from next fiscal year. The tariff rise is one the major conditionalities of the IMF’s much negotiated bailout package of $ 6 billion, yet to be approved by the IMF Board of Directors.

An official told this scribe that the increase agreed with the IMF is over and above increase/decrease due to monthly fuel price adjustment, adding that since the price of fuel is constantly rising, the monthly FCA- based tariff will also increase, which implies that consumers may face the brunt of an even higher increase than negotiated with the IMF.

According to sources, the government has also given an assurance to the IMF that circular debt (as per specified definition) which is over Rs 600 billion will be brought down to Rs 96 billion. For this purpose, the government shared its plan with the IMF Staff Mission. The debt stock of Rs over 800 billion placed in the books of PHPL is over and above Rs 600 billion circular debt.

“The IMF is satisfied with current pace of reduction losses through anti theft drive and recovery from defaulters will improve the financial health of power sector,” the sources added.

The IMF was informed that in order to eliminate circular debt, following four major steps have been identified: (i) theft and recovery program; (ii) tariff to recover actual cost including uncovered prior year costs; (iii) eliminating of transmission constraints; and (iv) status of subsidies ( Tariff Differential Subsidy “TDS” and others). For FY 2017-18 and projected figures for FY 2018-19 and 2019-20 show that tariff differential subsidy in FY 2017-18 was Rs 49 billion whereas it was Rs 52 billion till December 2018 and an additional Rs 48 billion for Jan-June 2018-19. The projected TDS during July-December 2019-20 will be Rs 47 billion and Rs 42 billion in January- June, totaling Rs 89 billion.

“Circular debt will be reduced from Rs 450 billion in 2017 to Rs 293 billion in 2018-19 and further reduced to Rs 96 billion in 2019-20,” sources said, adding that circular debt is targeted to be completely eliminated by 2020.

Efforts to eliminate circular debt have begun at various levels. Theft control drive was launched in late October 2018 and started showing results in December 2018. Collection improved by Rs 61 billion for the period between November 2018 to March 2019 as compared to the same period last year.

The sources said following measures are required to bring down losses to zero: (i) the impact of increase per unit on consumers would be from Rs 12.98 per unit to Rs 13.85 per unit in March 2019 and then Rs 15.31 per unit in June 2019 to stop flow of subsidies due to quarterly adjustments; (ii) the flow in 2018-19 will be Rs 223 billion (Rs 2.14 per unit) and flow in 2019-20 will be Rs 97 billion (Rs 0.94 per unit) after initiatives; (iii) to bring the flow to zero starting from FY 2019-20 in addition to quarterly adjustment notifications, an additional increase of Rs 0.94 per unit will be required; and (iv) total tariff will be Rs 16.24 per unit from Rs 12.98 per unit, indicating a net increase of Rs 3.26 per unit.