KARACHI: Pakistan has fulfilled a major International Monetary Fund (IMF) condition for the revival of a $7 billion bailout program by notifying measures to generate about Rs335 billion from power sector consumers, said analysts on Saturday.
The National Electric Power Regulatory Authority (NEPRA) on Friday notified the decision to discontinue concessional tariff of Rs19.99 per kilowatt hour (kWh) to five export-oriented sectors along with the removal of special relief of Rs3.60/kWh to private agriculture consumers in their current base rate of Rs16.60/kWh.
On the instruction of Pakistan’s federal cabinet, the measures have already come into force from March 1. The electricity cost of export-oriented sectors has raised by Rs12.13 per unit while farmers are paying an additional Rs3.60 per unit for power consumption.
The development comes against the backdrop of the ongoing Pakistan-IMF talks to unlock $1.1 billion which have remained stuck since last November.
“This was one of the major conditions of the IMF because our power sector is problematic and has accounted for unfunded losses of about Rs700 billion this year,” Tahir Abbas, head of research at Arif Habib Limited, told Arab News.
“These losses mainly owe to currency depreciation and lack of growth in electricity dispatches that was estimated to be five percent but declined by nine percent,” he continued. “The transmission and distribution losses also increased further and recovery ratio declined.”
The government also allowed the power distribution companies (DISCOs) to recover fuel cost adjustment (FCA) which was deferred for two months after last year’s catastrophic floods.
The FCA will be recovered in eight monthly instalments, starting from the current month.
Consumers in all categories will be charged up to Rs14.24 per unit during for eight months, according to another notification issued on Friday.
Abbas said the government was expected to recover Rs335 billion through fuel adjustments, withdrawal of subsidies to export-oriented sectors, and discontinuation of agriculture tariff for tube wells.
He added the decision to withdraw subsidies and impose additional surcharges would further increase the inflation rate which had already reached an unbearably high level.
“The power has significant weightage in the consumer price index,” Abbas continued. “We expect the recent measures to have around 1.5 percent impact in the overall monthly price index.”
Dr. Ikram ul Haq, a Lahore-based economist, agreed with Abbas, saying the withdrawal of power sector subsidy was ultimately going to hit the consumers badly.
“The country is already suffering the highest inflation in its history,” he told Arab News.
Driven by high food and energy costs, Pakistan’s inflation jumped to nearly 50-year high of 31.5 percent on a year-on-year basis in February.
According to the Pakistan Bureau of Statistics, the weekly inflation measured by the Sensitive Price Index (SPI) recorded an increase of 42.27 percent since the beginning of last September until Thursday, March 9.
Analysts anticipate the inflation on a monthly basis to hit 34 to 35 percent in another three months.
Haq said the impact of the withdrawal of concessional power tariff for export-oriented sectors would be “substantial.”
“The exports, especially textile and related items, will become uncompetitive,” he maintained. “Despite massive devaluation of the Pakistani rupee against the US dollar, the country will not be able to reap any tangible benefit through growth in its exports.”
“The situation is also going to get worse for industries with historic high discount rate by [the State Bank of Pakistan],” Haq added.
Pakistan’s central bank jacked up its policy rate to 20 percent to curb the burgeoning inflation rate in the country.
