Could 18, 2025 (MLN): The Worldwide Financial Fund (IMF) has agreed to the federal government’s detailed plan to deal with the long-standing problem of round debt within the energy sector.

The federal government intends to transform the present round debt inventory of Rs2.4 trillion, equal to 2.1% of GDP, into Central Energy Buying Company (CPPA) debt, with a transparent roadmap to eradicate it by FY31, based on the Nation Report issued by the IMF yesterday. 

Underneath the plan, the federal government will clear Rs348 billion value of round debt by the top of FY25 by way of renegotiations of arrears with Unbiased Energy Producers (IPPs).

Of this quantity, Rs127bn can be cleared utilizing already-budgeted subsidies, whereas Rs221bn can be paid by way of CPPA’s money circulation. A further Rs387bn can be resolved by way of the waiver of curiosity charges, and Rs254bn can be settled through additional already-budgeted subsidies.

One other Rs224bn of non-interest-bearing liabilities will stay unpaid and aren’t scheduled for clearance underneath the present plan.

The remaining Rs1.25tr can be borrowed from business banks to completely repay all loans held by Energy Holding Restricted (PHL), which quantity to Rs683bn, and to settle Rs569bn of remaining interest-bearing arrears to energy producers.

The federal government has assured that the borrowing can be secured on extra beneficial phrases than the present servicing prices of the round debt inventory, which have been a main driver of its continued accumulation.

These loans can be repaid over six years by way of revenues generated by a debt service surcharge (DSS), set at 10% of NEPRA’s decided income requirement.

To make sure enough restoration, laws to take away the present 10% cap on the DSS can be adopted by end-June 2025.

The authorities have additional clarified that there can be no fiscalization of any income shortfall, as changes to the DSS can be made yearly to make sure full value restoration.

Alongside this structural shift, the federal government has additionally dedicated to rationalising energy subsidies within the upcoming fiscal 12 months.

With vitality sector reforms already displaying preliminary leads to decreasing electrical energy prices, the FY26 federal price range will embrace decrease subsidies than FY25.

Nonetheless, to offer non permanent aid and front-load the advantages of reforms, the federal government will introduce a time-bound electrical energy subsidy efficient March 17, 2025.

This can be financed by a Rs10 per liter improve within the Petroleum Growth Levy (PDL), producing Rs182bn yearly.

The funds can be used to cut back tariffs for non-lifeline shoppers byRs1.7/kWh.

Moreover, the federal government has began receiving revenues from the captive energy plant (CPP) transition levy, which is predicted to contribute an extra Rs0.90/kWh tariff discount on the preliminary stage, with extra financial savings anticipated because the levy will increase in future.

The whole measurement of the subsidy can be strictly capped at 0.8% of GDP and also will cowl excellent liabilities of Ok-Electrical and the previous FATA area, agricultural tubewell assist, and round debt stock-related funds the place required.

With the IMF’s nod to this complete round debt inventory conversion technique, Pakistan has taken a decisive step towards long-term energy sector viability and macroeconomic stability.

The elimination of curiosity prices on delayed IPP funds, traditionally a significant supply of round debt build-up, will sharply decrease the circulation of latest debt, enabling a gradual however agency decline in round debt inventory to zero by FY31.

The Fund is of the view that the round debt circulation of Rs154bn strongly outperformed the March indicative goal ceiling of Rs554bn, pushed by continued sturdy distribution firm recoveries, well timed month-to-month and quarterly tariff changes, and decrease than anticipated curiosity prices to energy producers.
 

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Posted on: 2025-05-18T10:17:34+05:00