In a bid to ease the escalating financial strain on consumers, particularly in the face of rising inflation, the federal government is intensifying efforts to lower electricity tariffs by Rs6-8 per unit. This move, announced on Monday by officials from the Power Division, is designed to alleviate the heavy burden on cash-strapped Pakistani households who are struggling with high utility costs.
The issue of expensive electricity tariffs has become a major point of contention in Pakistan’s political landscape. Opposition parties are capitalizing on widespread dissatisfaction, using it as a platform to criticize the government’s handling of the energy sector, particularly its agreements with independent power producers (IPPs). The high cost of electricity has sparked frustration, particularly among the middle and lower-income groups, further eroding public trust in the government’s ability to effectively manage the economy.
Federal Secretary for Energy (Power Division), Dr. Muhammad Fakhr-e-Alam Irfan, revealed in a session with the Senate Standing Committee on Power that the government is working on reducing taxes on electricity bills. However, any such reduction is contingent on approval from the International Monetary Fund (IMF). Talks with the IMF regarding this matter are expected to take place in early March.
Power Division officials also outlined a series of cost-cutting measures being implemented to address the issue. Notably, negotiations with IPPs have resulted in savings of approximately Rs700 billion, including the removal of Rs300 billion in interest payments. So far, the government has terminated agreements with six IPPs, while discussions with 25 others have been completed under a “take-and-pay” model, which allows for more flexible payment terms.
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The government’s broader goal is to eliminate the circular debt, which currently stands at around Rs2.3 trillion. As part of this effort, discussions are ongoing with a task force overseeing state-owned power plants to streamline operations and reduce costs. Additionally, the government is negotiating with banks to secure a Rs1.24 trillion loan at a fixed rate for a specific period.
Recent monetary policy developments have also contributed to the government’s strategy. The State Bank of Pakistan (SBP) has significantly reduced its policy rate from a high of 22% to 12%, in line with expectations that inflation will ease and economic growth will resume. This aggressive reduction in interest rates, one of the largest among emerging market central banks, is seen as an attempt to stimulate growth and support the government’s efforts to manage the energy sector more effectively.
With the government’s goal of securing the Rs1.24 trillion loan, officials are optimistic that further reductions in the discount rate may be possible. Discussions with banks are ongoing, and a final term sheet is expected to be finalized before the IMF mission arrives in Pakistan. The mission is set to evaluate Pakistan’s progress under the $7 billion Extended Fund Facility (EFF), with a second IMF delegation already in the country to discuss climate finance.
Finance Minister Muhammad Aurangzeb confirmed that an IMF team will visit next month to review critical matters related to the EFF, which is crucial to Pakistan’s financial stability and its ability to address the energy crisis. Analysts believe that a successful renegotiation with both local and international IPPs would significantly reduce tariffs, improve the competitiveness of Pakistani industries, and restore public confidence in the government’s economic management.
In conclusion, the government’s efforts to reduce electricity tariffs and address the growing circular debt reflect a broader strategy to improve economic stability and address the challenges facing Pakistan’s energy sector. While the road ahead remains challenging, the success of these initiatives could pave the way for a more sustainable and equitable energy future in Pakistan.
