Power ministry seeks urgent release of Rs400bn subsidy to curb circular debt

The Ministry of Power has issued an urgent appeal for the release of Rs400 billion in subsidies by the end of December to prevent slippages in managing the circular debt, a key target agreed upon with the International Monetary Fund (IMF), The News reported. 

So far, only Rs82 billion of the Rs1,229 billion allocated for subsidies in the current fiscal year has been released by the Ministry of Finance.

Failure to release the funds by the December 2024 deadline could lead to a breach of the agreed targets, the Ministry of Power warned in an official communication sent to the Ministry of Finance.

Under the Circular Debt Management Plan (CDMP), the government outlined a strategy involving cost recovery, subsidy allocation, and privatisation or concessional agreements for select power distribution companies. However, a delay in implementing the tariff adjustments agreed with the IMF in July 2024 increased the subsidy requirement by Rs125 billion.

The FY25 budget includes Rs1,229 billion, equivalent to 1% of GDP, in power subsidies to address liquidity challenges. These funds are allocated for tariff differentials (Rs663 billion), arrears for FATA and K-Electric (Rs174 billion), and payments related to the circular debt, including Power Holding Company principal payments (Rs24 billion) and arrears to power producers (Rs358 billion).

The IMF has prescribed key reforms aimed at reducing costs and stabilising the circular debt. These include improving distribution efficiencies, institutionalising anti-theft measures, addressing bottlenecks in the transmission system, privatising inefficient power generation companies, and renegotiating power purchase agreements, which currently account for 60% of generation costs.