ISLAMABAD: To ensure a belated compliance with the targets of International Monetary Fund (IMF), the government is set to recover additional cost of losses from consumers by imposing new surcharges aimed at financing power sector loans and generate more than Rs250 billion in annual revenue.
As a first step, a meeting of the Economic Coordination Committee (ECC) of the Cabinet has been convened on Monday (today) to seek approval for introduction in parliament amendments to the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 to address about Rs1.72 trillion worth of circular debt as of end-December 2019. The IMF estimates put the increase in circular debt for FY2019 at Rs465bn.
The ECC meeting will take up five agenda items, including release of funds for payment of outstanding bills to the Sui Southern Gas Company Ltd of the Pakistan Steel Mills, a Rs5bn loan for the Utility Stores Corporation and a couple of technical supplementary grants.
The government is also in the final stages of raising Rs200bn worth of loans from banks and shift major part of the circular debt to its public debt.
Under the recently concluded first review of the IMF programme, Prime Minister’s Adviser on Finance and Revenue Dr Abdul Hafeez Shaikh and State Bank of Pakistan’s Governor Dr Reza Baqir have committed to a revised structural benchmark to allow a fresh power tariff increase to cover the cost of capacity payments within the current month.
The two senior functionaries have committed in writing to eliminating delays in tariff adjustments and reintroducing the government’s powers to impose tariff surcharges through amendments to the National Electric Power Regulatory Authority (Nepra) act so that the regulator could determine and automatically notify quarterly tariffs under fresh benchmarks.
The amendments to Nepra act would also be ensuring timely submission of quarterly and annual petitions by the distribution companies, eliminating the gap between regular annual tariff determination and notification by the government and reinstating the authorities’ powers to levy new surcharges over and above the system’s revenue requirements under the act to ensure that the circular debt reduction targets were met.
The amendments to the act should have reached the parliament by end of December under the commitment. However, the government has given an undertaking that until the process of adjusting quarterly tariffs becomes fully automatic, it will continue to timely notify tariffs on a quarterly basis.
“In this regard, on November 29 we announced the increase in tariffs for capacity payments by around 2 per cent effective for first quarter of FY2020 (as prior action) and we will adjust second quarter FY2020 tariffs for capacity payments by end-January 2020 (new benchmark).”
In addition, the government would ensure recovery of arrears of Net Hydel Profits and the “tariff update of January 2020 will incorporate the recovery from consumers of half the outstanding stock of remaining NHP arrears, equivalent to Rs73bn”, the government wrote to the IMF.
The government has also assured IMF of ensuring timely disbursement of power sector-related subsidies by streamlining the system and putting in place required auditing procedures. In addition, this month the government would sign performance-based management contracts with all the distribution companies to improve efficiencies and collections.
The contracts will contain key performance indicators for improvements in collection, reduction in losses, and meeting the regulatory timelines for petitions’ submission, with mechanisms to reward good performance or compensate for shortfalls. The distribution companies will submit quarterly performance reports to Nepra that will be published on the regulator’s website.
Under the plan of action agreed to with the IMF for performance review, the government will also start the legal process against defaulters as required under the consumer service manual. “We will immediately start abolishing running defaulters’ categories and disconnect non-paying consumers, with reconnections made with higher security deposits and/or prepaid meters”, while the law ministry will ensure that all legal aspects are adequately followed.
The government will also build into consumer tariff the late payment charges for recovery. “In connection to Rs110.6bn of late payment charges accumulated prior to FY2016, Nepra will allow this cost in the tariff by end-June 2020 so that it can be incorporated in the tariff from FY2021”.
Moreover, before end-March 2020, the government has promised to revisit all government-provided power sector subsidies with a view to their streamlining and rationalisation.
On top of that, the energy ministry will engage with all stakeholders on possible options to adequately address this aspect of the system and will seek revisions in benchmarks and standards through the Council of Common Interests.