Pakistan and the International Monetary Fund (IMF) have resumed policy-level discussions with the government pressing for relief on electricity tariffs as part of efforts to secure the next $1 billion tranche under the $7 billion loan programme.

According to sources within the Ministry of Energy, the IMF has agreed in principle to reduce the basic electricity tariff by Rs 1.5 to Rs 2 per unit after prolonged deliberations.

However, the final decision on the tariff cut is expected next month, pending Pakistan’s submission of a comprehensive privatization plan for electricity distribution companies (DISCOs).

IMF's concerns over power sector losses

During the talks, the IMF delegation expressed dissatisfaction with the performance of DISCOs, citing their inefficiency as the biggest hurdle in the sector's reforms.

The Fund raised concerns over the mounting financial losses of state-owned power distribution companies, urging the government to accelerate their privatization to address revenue leakages.

To appease the IMF’s concerns, Pakistan has presented a two-phase privatization plan:

First Phase: Islamabad, Faisalabad, and Gujranwala Electric Supply Companies will be privatized.
Second Phase: Multan, Lahore, and Hyderabad Electric Supply Companies will follow suit.

Sources also said that the IMF is pushing for a concrete timeline for these privatizations, making it a key condition for tariff reduction.

The government hopes that by moving forward with privatization, it can improve the efficiency of the power sector while securing relief for consumers.

Energy reforms, loan negotiations

Pakistan’s economic team, led by the Ministry of Finance, is also negotiating other critical reforms in the energy and taxation sectors. In earlier discussions, the IMF had proposed a Rs 2.80 per unit surcharge on electricity bills, along with a carbon tax on petrol and diesel.

An alternative proposal suggested raising the petroleum levy from Rs 60 to Rs 70 per liter.

Additionally, the IMF had previously rejected a proposal to abolish GST on electricity bills, despite government efforts to reduce the tax burden on consumers.

Meanwhile, Pakistan has already agreed to secure a Rs 1,250 billion loan from commercial banks at a 10.8% interest rate to manage circular debt in the power sector.