Subsidies for the power sector may cross the annual budget allocation of Rs118b as the government has already exhausted Rs84b worth of subsidy and independent power producers (IPPs) seek the clearance of the looming circular debt.
Additional Secretary Budget Syed Ghazanfar Abbas informed the Senate Standing Committee on Finance on Wednesday that till the end of February this year, the Ministry of Finance had made payments of Rs84.3b in tariff differential subsidies to Pakistan Electric Power Company (Pepco) and K-Electric. These payments accounted for 71pc of the annual budget allocation hinting that the subsidies would exceed the target set by the parliament for the fiscal year 2016-17.
The government is trying to contain the subsidies as per the directives of International Monetary Fund (IMF). The reduction in subsidies is part of the three-year $6.6b IMF loan programme. The subsidies totalling Rs368b accounted for 2pc of gross domestic product (GDP) in 2012-13, which the government squeezed down to 0.6pc of GDP at the end of the previous fiscal year.
Of the Rs84.3 billion, Rs73.5 billion had been paid to Pepco as tariff differential claims and subsidy for agriculture tube wells in Baluchistan. These payments are 81pc of Pepco’s annual allocation. K-Electric received Rs10.8b which translated into around 40pc of its annual allocation.
On the other hand, the issue of the mounting circular debt that now amounts to Rs 385b largely remains unsettled and IPPs have been aggressively highlighting this to be an inefficiency of the government.
In a meeting of the Cabinet Committee on Energy held during the current week, Prime Minister Nawaz Sharif has asked the Ministry of Water and Power and the Ministry of Finance to seek an early settlement of the circular debt. Whether the government will be issuing long-term bonds to finance the circular debt awaits confirmation.
In comparison to the allotted subsidies, fund disbursement for power generation and distribution companies for improvement in networks remained limited, the finance ministry documents have revealed.
Against the Rs60b cash development loan for power generation companies, the government has only disbursed Rs25.6b to them in the first eight months. There have been no disbursements for the power wing of Wapda in the eight months of the current fiscal year despite its annual budget allocation of Rs 14b.
