ISLAMABAD, (MANEND NEWS): The Ministry of Energy has demanded Rs1.54 trillion in power subsidies for the next fiscal year, a colossal amount that is 70% more than this year’s revised budget, aimed at reducing circular debt to a level agreed with the International Monetary Fund (IMF).
The demand is surprising since the government has twice increased electricity tariffs in the outgoing fiscal year in order to reduce subsidies and control circular debt.
Sources in the Ministry of Energy told The Express Tribune that Rs1.54 trillion was needed in fiscal year 2023-24 for avoiding any further increase in circular debt and settling arrears.
The amount included Rs250 billion for paying dues of China-Pakistan Economic Corridor’s (CPEC) energy projects, the sources said.
The development comes at a time when the PML-N led coalition government is going to unveil next fiscal year’s budget around June 10, as it has not accepted Pakistan Tehreek-e-Insaf’s (PTI) demand to let a caretaker government present the budget.
In the absence of an IMF umbrella, there is apprehension that the coalition government may give preference to its political objectives over economic needs in the upcoming budget.
The demand for Rs1.54 trillion is Rs634 billion, or 70%, higher than the estimated power subsidies in the outgoing fiscal year. However, as compared to the original budget, the demand was higher by 203%.
A senior official of the Ministry of Energy was of the view that like the outgoing fiscal year, the finance ministry may again give lower-than-required funds to manage both the flow and stock of circular debt.
But there are some transparency issues that the ministry should address. There is concern about electricity subsidy claims for the erstwhile Federally Administered Tribal Areas and the domestic and agricultural consumers of Balochistan. However, these numbers are not independently verifiable.
Authorities’ numbers also do not match with regard to the subsidy claims for Azad Jammu and Kashmir.
Cumulatively, power sector subsidies have become the third largest expenditure after debt servicing and defence needs. The amount of Rs1.54 trillion is more than the total cost of building the Mainline-I project of Pakistan Railways from Peshawar to Karachi.
Earlier, the PML-N led coalition government has twice increased electricity tariffs, first in July last year and then in February this year.
Pakistan Bureau of Statistics (PBS) in August last year reported a 124% increase in electricity prices on a yearly basis and then 33% rise in March this year.
Despite hiking the tariffs, the government added a net Rs419 billion to the power sector circular debt in the first eight months of current fiscal year, pushing the total circular debt to Rs2.67 trillion.
Average per-month increase in circular debt from July to February came in at Rs52.4 billion. The circular debt at the beginning of current fiscal year had been Rs2.25 trillion.
Under an agreement with the IMF, the government has approved an additional Rs335 billion in subsidy for the power sector in the current fiscal year. Out of this, Rs205 billion has already been sanctioned.
But the Ministry of Energy officials said that the finance ministry released Rs12 billion less than the commitment, which would add to the circular debt.
Sources said that for the next fiscal year, the Ministry of Energy demanded Rs164 billion as price differential subsidy for the government-run power distribution companies.
Besides, Rs170 billion is being demanded for picking up the cost of subsidy for K-Electric consumers. Similarly, it has sought Rs7 billion for settling arrears of the Prime Minister’s Industrial Support Package for KE consumers in the next fiscal year.
Sources said that the Ministry of Energy did not seek funds for PM’s special packages. Instead, in order to settle current claims of CPEC projects and retire some of their old bills, the ministry has sought Rs250 billion.
Last month, PM Shehbaz Sharif said that Pakistan owed Rs450 billion to the CPEC energy projects.
In addition, the Ministry of Energy has demanded Rs260 billion to clear the outstanding dues of private power producers, excluding Chinese investors.
However, it is not yet clear whether the Ministry of Energy has credible plans to reduce line losses and increase the collection of bills.
The Ministry of Energy has sought another Rs195 billion for paying subsidies to Quetta Electricity Supply Company, but there is a lack of transparency in these claims. The ministry has in the past not shared the breakdown of such claims.
Compared to the subsidy of Rs20 billion for the erstwhile FATA in the current fiscal year, the energy ministry has demanded Rs48 billion in the new budget.
It has sought a major chunk of Rs127 billion for clearing arrears of AJK consumers that are getting highly subsidised electricity.