May 18, 2025 (MLN): The International Monetary Fund (IMF) has approved the government’s detailed plan to tackle the long -term issue of circular debt in the energy sector.
The government intends to convert the existing shares of circular debt of RS2.4 trillion, equal to 2.1% of GDP, into the debts of the Central Power Purchasing Agency (CPPA), with a clear route map to eliminate it by FY31, according to the land report issued yesterday.
According to the plan, by the end of FY25 RS348, the government will erase billion in circular debts due to again negotiations on arrears with independent power producers (IPPs).
RS127BN will be deleted of this amount with the help of already budgeted subsidies, while RS221BN is paid via the cash flow of CPPA. An additional RS387BN will be resolved by the exemption from interest costs and RS254BN will be arranged through further budgeted subsidies.
Another RS224 billion in non-interest-bearing obligations will remain unpaid and are not planned for approval under the current plan.
The remaining RS1.25TR will be borrowed from commercial banks to fully repay all loans by Power Holding (PHL), which amount to RS683BN, and to establish RS569BN from remaining interest -sized back stable backgrounds.
The government has assured that the loan will be protected on favorable conditions than the current service costs of the shares of circular debt, which have been a primary engine for the continuous accumulation.
These loans are reimbursed for six years by income generated by a surk targe (DSS) of a debt service, set at 10% of Nepra’s income requirement.
To guarantee sufficient recovery, the legislation is assumed to remove the existing 10% hood on the DSS by the end of 2025.
The authorities have further clarified that there will be no taxization of any input deficiency, because adjustments to the DSS are made annually to guarantee full cost repair.
In addition to this structural shift, the government has also committed itself to the rationalization of power subsidies in the coming tax year.
With reforms of the energy sector that already show initial results in lowering the electricity costs, the FY26 -Federal budget will include lower subsidies than FY25.
In order to offer temporary lighting and to load the benefits of reforms, the government will introduce a time -bound electricity subsidy with effect from 17 March 2025.
This will be financed by an RS10 per liter increase in the Petroleum Development Levy (PDL), which generates RS182BN annually.
The funds will be used to reduce rates for non-lifeline consumers by BIRS1.7/kWh.
In addition, the government has started receiving income from the transition tax of the Captive Power Plant (CPP), which is expected to contribute an extra RS0.90/kWh rate reduction in the first phase, with more savings anticipated as the tax increases in the future.
The total size of the subsidy will be strictly covered at 0.8% of GDP and will also cover outstanding obligations of K-Electric and the former FATA region, the support of the agricultural tube and the sharing payments of the circular debts.
With the nod from the IMF to this extensive conversion strategy for circular debts, Pakistan has taken a decisive step in the direction of the viability of the long-term power sector and macro-economic stability.
The removal of interest costs on delayed IPP payments, historically an important source of circular debt building, will greatly reduce the flow of new debt, which means that a gradual but fixed decrease in the shares of circular debt can be fallen to zero.
The fund is of the opinion that the circular debt flow of RS154 billion was strongly better than the Mars Indicative Test Ceiling of RS554 billion, driven by continuous restoration of strong distribution companies, timely monthly and quarterly tariff operations and lower rentions.
Copyright Mettis Link News
Posted on: 2025-05-18T10: 17: 34+05: 00
#IMF #agrees #circular #debts #Pakistan #Mettis #Global #Link