MoF tells PD: Power sector subsidies tied to fiscal space
ISLAMABAD: The Ministry of Finance (MoF) has reportedly informed the Power Division (PD) that the allocation of power sector subsidies for the fiscal year 2025-26 will depend on the availability of fiscal space, well-informed sources in the Finance Division told Business Recorder.
In a letter titled 'MEFP for EFF 2024-27 – Circular Debt (CD) Target for FY 2025-26,' the Power Division had sought indicative allocations for the upcoming fiscal year to bridge the circular debt gap.
According to the Corporate Finance (CF) Wing of the Finance Division, budgetary allocations for the power sector in FY 2025-26 will be finalized through the standard budgetary process in consultation with the Budget and CF Wings of the Finance Division, keeping in view the prevailing fiscal constraints.
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Regarding the issue of advance subsidy, the Finance Division has already shared its stance with the Power Division to clarify its position.
Sources revealed that the Finance Ministry did not endorse the Power Division's proposal to release an advance subsidy of Rs224 billion to address power sector cash flow and liquidity concerns, arguing that adequate funds have already been provided.
On March 25, 2025, the Power Division shared a draft summary with the Finance Ministry for submission to the Economic Coordination Committee (ECC), requesting the release of the advance subsidy. However, the Finance Division responded that sufficient funds—amounting to Rs633 billion—had already been allocated under various budgetary heads in line with the Power Division's requirements.
According to the Finance Ministry, a sum of Rs509 billion has also been allocated under Finance Division's Demand No 45 of CFY 2024-25 as per the requirement shared by Power Division during the budgetary process, as per the following break-up; (i) TDS-KE (arrears) Rs88 billion; (ii) Fata (arrears) Rs86 billion; (iii) additional subsidy Rs120 billion; and (iv) GPPs/IPPs (equity) Rs215 billion.
The Finance Ministry further stated that as is clear, ample funds are available in the budget for the liquidity requirements of the power sector. The Finance Ministry, however, has recommended that the funds be utilised in the same manner as allocated in the budget. Therefore, the Finance Ministry has not supported release of funds of Rs171 billion in the form of either advance subsidy or equity as proposed in the summary.
Alternatively, the sum of Rs174 billion could be released on account of 'arrears of subsidy in respect of TDS-KE (Rs88 billion) and Fata (Rs86 billion)' against verified claims.
The sources said, the Finance Ministry's recommendation is based on the following factors: an amount of Rs264 billion, released as advance subsidy for TDS-Discos in the previous years, still remains to be adjusted against actual claims, as per the following details;(i) stimulus package Covid-19/TDS Discos: advance Rs106.890 billion - claims Rs91.107 billion- balance Rs15.783 billion;(ii) PM Relief Package/TDS-Discos: advance Rs69.225 billion- claims Rs60.437 billion- balance Rs8.788 billion;(iii) future claims FY 2021-22/TDS Discos- Rs100 billion – claims Rs o - balance Rs100 billion;(iv) future claims FY 2021-22/TDS Discos: advance Rs50 billion - claims 0- balance Rs50 billion;(v) flood relief package/TDS Discos: advance Rs24 billion- claims 0- balance Rs24 billion;(vi) flood relief package/TDS Discos: Rs10.340 billion- claims Rs 0 – balance Rs10.340 billion; and (v) revised claims for the period of November 2020 to October 2023/TDS Discos: Rs55.487 billion - claims Rs 0 – balance Rs55.487 billion.
This shows that the amount of total advances were Rs415.942 billion, of which, claims were of Rs151.544 billion and balance of Rs264.398 billion.
The Finance Ministry has further stated that advance subsidy amount to Rs170 billion, released on account of TDS-KE till December 2024, also remained to be adjusted.
ECC in its decisions of October 15, 2020 and July 16, 2021 had directed that reconciliation of subsidy claims be carried out, which is still pending.
During the audit of FY2023-24 the AGP has raised observations that the previous advances provided against KE-TDS have not been adjusted before authorizing new/fresh advances.
The sources said, Finance Ministry has recently suggested to Power Division to consider reconciliation through third party to establish the exact payables/receivables position, which is also important in the context of the upcoming privatisation of certain entities.
'The relief extended to the protected categories for first three months of FY 2024-25 was required to be funded through savings of PSDP 2024-25 as per the Cabinet's decision, 'Finance Ministry said supporting Technical Supplementary Grant (TSG) for subsidy for subsidy from PSDP to Power Division.
The Finance Ministry was also of the view that funds may be utilized against actual verified claims of Discos and K-Electric after completion of all codal formalities as provision of advance subsidy on that account is not required.
Copyright Business Recorder, 2025
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