Consumers can expect another utility crisis as the government plans to increase Pakistan’s circular debt by Rs. 952 billion while simultaneously offering Rs. 675 billion in additional subsidies and raising electricity prices to offset the increase.
The government has proposed three different quarterly tariff modifications varying from 69 paisas per unit to Rs. 3.21 per unit from Feb to May this year as part of its revised Circular Debt Management Plan (CDMP) in an effort to recover Rs. 73 billion.
The government has decided to implement the pending fuel cost adjustments (FCA) as well as impose a debt surcharge of Rs. 2.93 per unit in an effort to win over the International Monetary Fund (IMF).
The plan initially seems implausible because it relies on an untrue rupee-dollar exchange rate of Rs. 232 (real: 268) and a negative yield KIBOR rate of 16.84 percent (real: 18 percent).
In any case, excluding the effects of the pending FCAs, the price of electricity may increase at any time between February and June by an additional Rs. 3.62 per unit to Rs. 6.14 per unit. If Pakistan and the IMF are unable to come to an agreement on the size of the additional subsidies worth Rs. 675 billion that the Ministry of Energy plans to provide to close the Rs. 952 billion circular gaps anticipated in the latest fiscal year, things could get worse.
Despite IMF pressure, the government decided to postpone the circular debt reduction plan for another two years. The Power Division defended itself by claiming that the delay was caused by a number of uncertain assumptions, including changes in fuel prices, shifting economic parameters, resource availability, and shifting commercial operation dates (COD) for new power plants. The use of unrealistic parameters has made it somewhat challenging, but the government has decided to give it another shot under the updated CDMP. The government set the KIBOR rate at 16.84 percent and the price of a US dollar at Rs. 232 this time. They appear better than the rates that were set almost a month ago, despite being somewhat unrealistic
