Pakistan commits to electricity tariff increase in IMF negotiations

Pakistan has committed to the International Monetary Fund (IMF) to increase electricity tariffs and address the outstanding generation costs of over Rs210 billion.

This decision is part of ongoing negotiations for a $1.1 billion loan tranche, expected to be disbursed next month, pending board approval. The government aims to enhance the financial stability of the power sector through these measures.

Prime Minister Shehbaz Sharif recently established a committee to oversee the transfer of power distribution companies to provincial governments, signaling a shift in policy by the PML-N administration.

However, the IMF has expressed concerns over the continuous rise in electricity prices and the efficiency of power distribution.

The Ministry of Energy informed the IMF that Pakistan is prepared for the next annual base tariff adjustment, set to be finalized by June, with the new tariffs effective from July. This will mark the third consecutive year of tariff increases, following the previous annual adjustments that raised prices by Rs7 to Rs8 per unit.

The exact increase in tariffs will be determined after the power distribution companies complete their filings with the National Electric Power Regulatory Authority (NEPRA).

The circular debt in the electricity sector, currently at Rs2.7 trillion, and budget subsidies will influence the final decision on the tariff hike.

The IMF has also discussed with Pakistani authorities strategies to reduce generation costs and has requested data on the expiry of existing Power Purchase Agreements to potentially lower prices.

Additionally, the IMF has urged a review of the policy providing subsidized gas to fertiliser plants, as it impacts the power sector's reliance on expensive imported gas.

Negotiations between Pakistan and the IMF are progressing well, with a staff-level agreement anticipated next week.