ISLAMABAD: The Finance Ministry is currently reviewing the progress of commitments made under the IMF’s Extended Fund Facility (EFF) for 2024-27. Reports indicate that the ministry has obtained updates from relevant ministries regarding both structural benchmarks and other required actions.
A delegation led by Finance Minister Muhammad Aurangzeb will participate in the upcoming IMF-World Bank annual meetings scheduled for October 21-26, 2024, in Washington, DC. During these meetings, the delegation will provide updates on Pakistan’s commitments to IMF officials.
Key Structural Benchmarks for the Power Sector
The following structural benchmarks and indicative targets have been identified for the power sector:
- Policy Actions for Discos: Complete necessary policy actions to prepare two Distribution Companies (Discos) for transactions by end-January 2024.
- Payment Arrears Ceiling: Manage cumulative payment arrears, projected to reach Rs 461 billion by December 2024, Rs 554 billion by March 2025, and Rs 417 billion by June 2025.
- Non-Cash Settlements: Avoid netting out cross-arrears unless independently audited, and refrain from using non-cash settlements and government guarantees unless substituting existing guarantees.
- Capacity Review: Carefully evaluate the need for additional capacity and refrain from further commitments until new transmission infrastructure is operational and existing capacity is fully utilized.
- Renewable Energy Transition: Accelerate the transition to renewable energy by enhancing the share of cheaper renewable energy in the generation mix, supported by private sector investments.
- Debt Management: Convert government-guaranteed PHPL debt into cheaper public debt, creating fiscal space to settle Rs 24 billion due in FY25.
- Settlement of IPPs Payments: Settle up to Rs 263 billion for Independent Power Producers (IPPs) and Government Power Producers (GPPs) under revised Power Purchase Agreements (PPAs).
- Capacity Payment Reduction: Strive to reduce capacity payments while addressing arrears, renegotiating PPAs as budget space allows.
- Coal Transition: Initiate the conversion of imported coal-fired plants to domestic coal usage through an in-depth study.
- Disco Privatisation: Issue a Request for Proposals (RFP) for the first Disco concession by end-May 2025 and for the first Disco privatization by end-September 2025.
- Cross-Subsidy Elimination: Aim to eliminate cross-subsidies to households, replacing them with targeted cash transfers via the Benazir Income Support Programme (BISP).
- Power Subsidies in FY25: Allocate Rs 1,229 billion (1.0% of GDP) for power subsidies to address liquidity needs, covering tariff differentials, arrears, agricultural tubewells, and projected cash flow payments.
Ongoing Efforts with the World Bank
In parallel, the government is reforming tubewell subsidies, primarily benefiting large agricultural users, and has not budgeted for these subsidies in three provinces for FY25. The decision on the use of any additional resources allocated in the FY25 budget will be made during the fiscal year, with the potential to retire additional debt or return resources to the Treasury.
