ISLAMABAD:
Pakistan has informed the International Monetary Fund (IMF) that the power sector will bleed another Rs535 billion in losses during the current fiscal year – 35% higher than last year – due to inefficiencies and under-recovery of electricity bills, as it continues to resist an ambitious circular debt reduction target.
Bringing the flow of circular debt to zero may again remain a dream under the 25th IMF bailout programme, a target Pakistan had first committed to achieving over 12 years ago under the 22nd programme.
The Power Division informed the IMF that Rs505 billion may be added to the circular debt flow this fiscal year, although the global lender wanted it restricted to Rs200 billion, said sources.
According to official sources engaged in the ongoing discussions, Pakistani authorities informed the lender that higher line losses and poor recovery of bills would add another Rs536 billion in losses. This projected figure is Rs139 billion, or 35%, more than the losses incurred in the previous fiscal year.
The Power Division conveyed that inefficiencies in power sector companies alone were expected to add Rs276 billion to losses this fiscal year. The amount is Rs11 billion, or 4%, higher than last year.
However, the real challenge lies in the under-recovery of electricity bills, which will contribute another Rs260 billion in additional losses this fiscal year, said sources. These losses are Rs128 billion, or 97%, higher than last year’s.
As per sources, the IMF questioned the reason behind the doubling of losses from under-recoveries and was told by officials that recoveries would suffer due to floods and other external factors.
When contacted, the Power Division’s spokesperson declined to comment.
Despite repeated efforts by both civil and military leaderships to improve the efficiency of the power sector and stem its losses, including renegotiations with Independent Power Producers (IPPs), the real issue of inefficiencies and under-recoveries remains unaddressed, with performance continuing to deteriorate.
The Power Division further told the IMF that even after making certain adjustments, the circular debt flow would still increase by Rs505 billion, which are to be cleared through budgetary payments said source.
While the IMF pushed for a Rs200 billion flow target, the Power Division resisted, arguing that there was little room to cut line losses or improve recoveries significantly, added sources.
The spokesperson also did not respond to questions on whether the division was reluctant to accept the IMF’s ambitious target, citing limited scope for improvement in the current fiscal year.
Improving poor governance in state-owned enterprises and reforming the ailing tax system remain two of the biggest failures of successive IMF bailout packages.
The continued rise in circular debt also raises questions about the Power Division’s performance. The government now relies heavily on budgetary subsidies to control the increase and is also taking new loans to manage the circular debt stock.
The IMF insisted on a tighter target because the sector’s losses last fiscal year were far lower than the agreed targets, and the lender wanted to maintain the momentum.
Sources said the IMF appreciated the government’s efforts in cutting the circular debt stock from Rs2.42 trillion to Rs1.6 trillion by June this year, mainly through subsidies and reduced losses from theft and lower recoveries.
Official data showed that during the July-August period of this fiscal year, the government added Rs153 billion in losses from lower-than-targeted bill recoveries and excessive line losses. The Rs153 billion in losses are 37% lower than the same period last year.
Due to this early improvement in the first two months, the IMF asked why the Power Division could not sustain the performance for the remaining 10 months of the fiscal year, said the sources.
Data further showed that Rs67 billion in losses stemmed from inefficiencies during July-August, down by one-fourth year-on-year, while Rs86 billion resulted from low bill recovery during the same period, before floods hit Punjab. These were 45% lower than last year’s corresponding figures. The Power Division spokesperson did not confirm whether the sector indeed added Rs153 billion to circular debt in the first two months due to inefficiencies and weak recoveries.
