If you consume more than 300 units per month, your electricity bill for August will cost you 10% more as the government is set to increase prices by as much under the conditions it has agreed upon with International Monetary Fund.
Pakistan agreed to increase power tariffs by 10%, which will help the country generate Rs150 billion in additional revenue from the consumers, according to an IMF report released on Monday.
The exact impact on your bill will be determined after the power sector gives its input to the government, which will then revise electricity prices. However, people familiar with the working of power tariffs say it could translate to anywhere between Rs1 to 2 per unit of electricity.
The government met this condition ahead of IMF’s formal approval (dated July 3) of a $6 billion bailout package. The IMF dollars will help Islamabad do away with an immediate sovereign default on its foreign payment obligations and unlock other funding options, such as aid packages from the World Bank and Asian Development Bank.
The twin losses, trade and budget deficits, are the main reasons why Pakistan had to seek a bailout package from the Washington-based lender. When it comes to budget deficit, losses in the power sector are one of the major contributors.
In the fiscal year ending June 2018, the inter-corporate debt of power sector (circular debt) was Rs450 billion or nearly a quarter of the overall budget deficit for the year.
The IMF statement points towards three main sources of arrears in the power sector that include lower than required tariffs and delays in the approval process, government subsidies that are not part of the budget allocation, and technical and distribution losses.
“The authorities [Pakistan] aim to address the first two sources in the near term while preparing a plan to tackle the third source of arrears over the course of the programme,” the IMF said. Referring to the increase in power tariff, the IMF said, this adjustment will help in addressing the Rs200 billion circular debt accumulated over the first half of FY 2019. “A second quarterly adjustment will take place before the end the of August,” it said.
The IMF’s statement on energy sector reforms also says the government will prepare a comprehensive plan to reduce circular debt by end of September 2019 with quarterly targets for the reduction of arrears through improvements in the collection, efficiency gains, and enhanced governance. “The plan will also include options to tackle the outstanding stock of circular debt,” it said.