Timely adjustments in electricity tariff are critical to restore energy sector viability while maintaining a progressive structure to protect the most vulnerable households.
This was highlighted in the International Monetary Fund (IMF) document titled “First Review under Stand By Arrangement (SBA), request for waiver on nonobservance of a performance criterion, modification of performance criteria and for rephasing of access” and reiterated the need for swift movement on broader reforms to reduce operational inefficiencies, improve performance, and reduce distortions that combine to continue to add pressure on Circular Debt flows.
The Fund appreciated caretaker government on electricity and natural gas tariff increases, saying that it demonstrated the caretaker government’s willingness to take bold steps to shore-up energy sector viability.
Need stressed for reducing cost of power production, ending uniform tariff policy
The government pledged that it would strive to reduce capacity payments as government pays arrears, either by renegotiating PPAs with a new strategy or by lengthening the duration of bank loans, depending on adequate budget space and CDMP implementation progress. And that the Circular Debt Management Plan (CDMP) would contain the CD stock to its end-FY23 level of Rs 2,310 billion (2.2 percent of GDP).
The plan includes the budgeted FY24 subsidy to the power sector of Rs 976 billion (0.9 percent of GDP), including direct support of Rs 584 billion (0.6 percent of GDP) and CD stock payments of Rs 392 billion (0.4 percent of GDP).
Key measures include: (i) continued timely alignment of tariffs with cost recovery levels to prevent further annual CD accumulation (a temporary intra-year CD stock increase is expected due to subsidy disbursement and tariff patterns) and avoid further fiscal pressures while ensuring electricity generation.
