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Thursday, May 23, 2024

Pakistan Commits to Electricity Price Hikes Amid IMF Talks

During negotiations with the IMF, Pakistan commits to raising electricity prices and privatizing power distribution companies to address financial issues and circular debt.

Pakistan has assured the International Monetary Fund (IMF) of timely increases in electricity prices, aiming to recover pending generation costs exceeding Rs. 210 billion. Additionally, Islamabad pledges to transfer power distribution companies to the private sector, marking a significant policy shift.

During negotiations for a $1.1 billion loan tranche release, Pakistan emphasized commitments to ensure the power sector’s financial sustainability. The government aims to finalize annual base tariff adjustments by June, with implementation scheduled for July, marking the third consecutive year of electricity price hikes.

Challenges and Concerns

Despite successive price increases, the electricity sector’s circular debt remains substantial, standing at approximately Rs. 2.7 trillion. The IMF has expressed concerns about continuous escalations, urging Pakistan to mitigate generation costs and recover outstanding dues.

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While Pakistan commits to private sector involvement in managing distribution companies, concerns arise over the efficacy of transferring control to provincial governments. The IMF emphasizes the need for data transparency regarding the expiry of existing Power Purchase Agreements and policy reviews regarding subsidized gas for fertilizer plants.

Negotiations between Pakistan and the IMF proceed smoothly, with both parties working towards a staff-level agreement expected in the coming week. As discussions continue, Pakistan navigates the complex challenges of ensuring financial viability in the power sector while addressing concerns over tariff increases and privatization strategies.