logo
MoF tells PD: Power sector subsidies tied to fiscal space

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.
Energy sector reforms: Govt makes new commitments to IMF
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

Orange background

Try Our AI Features

Explore what Daily8 AI can do for you:

Comments

No comments yet...

Related Articles

KE consumers to get Rs4.69/unit relief in April
KE consumers to get Rs4.69/unit relief in April

Express Tribune

timean hour ago

  • Express Tribune

KE consumers to get Rs4.69/unit relief in April

Listen to article K-Electric (KE) consumers are set to receive a relief of Rs4.69 per unit under the fuel cost adjustment (FCA) for April 2025. This will translate into a total benefit of Rs7.13 billion for KE consumers, driven by a reduction in fuel prices used for power generation during the month. The relief will be granted as a provisional monthly FCA. Initially, KE had requested a provisional FCA of negative Rs4.55/kWh for April 2025. Later, it revised the claim to negative Rs4.69/kWh, calculated based on the interim reference tariff of March 2023. The National Electric Power Regulatory Authority (Nepra) will conduct a public hearing on June 19 to decide on KE's petition to reduce the power tariff. According to Note-2 of Annex-A (calculation sheet), KE submitted that following the determination of generation tariffs for its power plants for the post-June 2023 period, it had provided the required data on partial load, open cycle, degradation curves, and startup costs for approval. An amount of Rs16 billion, covering the period from July 2023 to April 2025, is still pending adjustment. In addition, heat rate adjustments related to the previous Multi-Year Tariff (MYT) for BQPS-III and KCCP plants — amounting to Rs0.6 billion and Rs0.2 billion respectively — are also pending. Of the total Rs16 billion, Rs15.2 billion has already been set aside by Nepra in KE's FCA decisions for November 2024 to March 2025. KE has requested the Authority to also consider these pending adjustments of actual fuel costs, so recovery may be made from the negative fuel cost variations of March and April 2025. The aim is to ensure consumers are not burdened in future billing cycles. During the hearing, Nepra will deliberate on whether the requested FCA is justified and whether KE has followed the merit order while dispatching power from its own plants and while purchasing from external sources.

K-Electric's EPIC 2025 event brings a different kind of ‘energy' to Habib University
K-Electric's EPIC 2025 event brings a different kind of ‘energy' to Habib University

Business Recorder

time5 hours ago

  • Business Recorder

K-Electric's EPIC 2025 event brings a different kind of ‘energy' to Habib University

The grand finale of K-Electric's (KE) Energy Progress and Innovation Challenge (EPIC) 2025 was held at Habib University on Wednesday. A team from National University of Science and Technology (NUST) that presented a project on tamper-proof PMT-based loadshedding and transformer control was declared the winner, walking away with prize money of Rs1.5 million. EPIC 2025 provided a platform for entrepreneurs, startups, researchers, and academia to develop localised, home-grown solutions that addressed ten 'challenge statements', including 'Real-time fleet tracking and visibility for power utilities', 'Smart monitoring of transmission lines: enhancing grid reliability' and 'Open innovation: driving transformation in the power sector'. Launched in March 2025, the initiative attracted over 250 applications from all over the country. After an internal jury assessment comprising functional heads, 10 projects were shortlisted to compete at the grand finale, featuring solutions ranging from AI-driven demand forecasting to IoT-based fleet management and smart theft detection to an esteemed external panel of jury members, according to a press release issued by the company. The winning NUST team claimed their plug-and-play solution allows them to switch off a PMT remotely, which could greatly reduce the impact of loadshedding to a lower number of customers. The second winner's project, presented by a group from Govt College University Faisalabad, was on demand forecasting automation using an artificial neural network, crucial for grid stability and plant efficiency perspectives. The third winner, from NED University, presented a project called optimized AI model for accurate electricity demand forecast. The runner-up was awarded Rs1 million while the second runner-up was awarded Rs750,000. But it was the solutions and spirit with which they were presented that was invaluable. Other presentations dealt with a variety of themes: curbing electricity theft, improving recovery rates, battery energy storage utilization, pre-emptive transformer level failure detection, and photovoltaic impact analysis. Imagine if a transformer breakdown is detected beforehand. Now imagine loadshedding based on PMTs – technologically not possible at the moment. These are practical questions Pakistan's power sector is asking and their answers were the core discussion points at EPIC 2025. Moonis Alvi, CEO at KE, said he was excited about the potential prospect of utilising the solutions. 'Law-breakers are sometimes smarter than lawmakers. It is my hope that these ideas can help Pakistan's power sector and are scalable. I am looking forward to engaging with the finalists. But this is a continuous process. The engagement needs to continue.' During her address to the audience, Sadia Dada, Chief Distributions and Marcomms Officer, made it clear that any solution would not go through a process of limiting it to KE. 'These solutions will be for the entire power sector in the country.' Speaking to Business Recorder on the sidelines of the event, Dada said the challenges facing Pakistan's power sector, especially on the distribution side, are very unique to our geography. 'It is difficult to find solutions off the shelf. So we want those that are localised and homegrown. This ties in with our localisation agenda. 'Because the people developing these solutions understand the context, most of the finalists are from Karachi. Some of them are from Faisalabad, Islamabad, and Lahore. Having this intellectual capital in the country and not utilise is also a wasted opportunity. I am excited at taking these solutions and implementing them in the KE business model. Talking about loadshedding, Dada said KE cannot provide free electricity to customers who do not pay. 'But there are pockets where there are paying customers. If we can bring down the circumference of the impact of loadshed to a PMT level, that would be a win-win, and one of our finalists has worked on this solution.'

Anti-digital, pro-realty sector budget
Anti-digital, pro-realty sector budget

Express Tribune

time20 hours ago

  • Express Tribune

Anti-digital, pro-realty sector budget

Finance Minister Muhammad Aurangzeb on Tuesday unveiled a Rs17.6 trillion budget, which attempted to limit fiscal expansion but taxation measures were clearly self-contradictory that on one hand would promote cash economy and fossil fuels but discourage these too on the other. The government of Prime Minister Shehbaz Sharif also introduced new taxes on the digital economy, pensioners and clean energy. Some of these measures were contradictory to the stated policy to discourage the cash economy. However, the Finance Bill 2025-26, also gave incentives for clean energy by taxing the internal combustion engine cars and fossil fuels. Despite high poverty and high unemployment, the government proposed to drastically reduce import duties from raw materials to finished goods, which the industry feared would lead to de-industrialisation of Pakistan. The economy has been opened for the foreign competition by lowering protection available to local industries. The finance minister said that the maximum custom duty slab has been reduced to 15% while a five-year plan had been given to abolish additional and regulatory duties. The inaudible budget speech, which Aurangzeb, delivered in the midst of rowdy opposition, clearly lacked in giving any policy direction. While the Finance Division tried to meet the International Monetary Fund's (IMF) requirement to meet fiscal targets, the Federal Board of Revenue (FBR) was not able to come up with the clear taxation policy. The Finance Bill 2025-26 appeared to be the most confusing document that any government produced in years. It revolved around going after the economy of the youth and the 21st century business practices. The government has proposed 18% sales tax on import of solar panels but it imposed Rs2.5 per litre carbon levy on use of petrol, diesel and furnace oil, showing the lack of clarity on the part of the government. Likewise, it increased the tax on cash withdrawals from banks from 0.6% to 0.8% to discourage cash economy and generate more easy money but it also imposed a new tax on digital services platforms in the range of 0.25% to 5%. The government also increased sales tax on 850 cc cars of the middle class from 12.5% to 18%. A new tax has been introduced on pensioners where the monthly pension of Rs833,000 has been taxed at the rate of 5%. The FBR was once again lacking in determining the policy, whether the government wanted to promote digital economy or cash economy. FBR Chairman Rashid Langrial cancelled the media briefing on the Finance Bill 2025-26, which was tantamount to compromising transparency and the right of the people to know about the measures that impact their futures. In his budget speech, the finance minister surprisingly stated that the "rapid growth in the online business and digital market places was creating problems for traditional businesses, therefore, it is proposed that e-commerce platforms, couriers and logistic services should be taxed at the rate of 18%. A tax official told The Express Tribune that the FBR would earn Rs64 billion by taxing the digital economy. The Finance Bill 2025-26 showed that the economic managers preferred the 19th century economy by providing some relief on purchase of properties but taxed the digital platforms of the 21st century. It has also proposed to ban economic transactions of ineligible persons, which include ban on purchase of properties, cars and investment in securities by persons whose assets do not match these purchases. Through the Finance Bill, the government also amended a host of other non-tax laws besides introducing two new legislations, the Digital Presence Proceeds Act 2025 and the New Energy Vehicles Adoption Levy Act, 2025. There might be constitutional questions, whether the new laws can be introduced through the Finance Bill. The government has proposed a total of over Rs415 billion worth of tax measures in the budget, said the senior tax official. These include Rs292 billion worth of FBR-related measures, Rs111 billion additional earnings by imposing Rs2.5 per litre carbon levy on petrol, diesel and furnace oil and Rs9 billion worth levy on conventional cars. Finance Minister Aurangzeb said that the IMF had also accepted the Rs389 billion worth enforcement measures. But he admitted that the FBR's tax-to-GDP ratio would remain below the IMF target of 10.6% in this fiscal year. The government has proposed these measures to extract a minimum Rs2.2 trillion from the sluggish economy in a bid to achieve next fiscal year's Rs14.13 trillion tax target. The petroleum and carbon levy target has been set at Rs1.47 trillion for the next fiscal year on the back of Rs80 per litre levy. The finance minister also announced some respite for the lower to middle income group salaried persons. He said that on the annual income of Rs1.2 million, the tax rate will be 2.5%, down from 5%. In the cabinet meeting earlier, there was an exchange of words between the finance minister and the Communication Minister Abdul Alaeem Khan, who had asked the prime minister to further increase the salaries for the government employees. On that the finance minister stated that this would require additional resources, prompting Khan to say that he was not a street vendor, who did not know that this required additional money, said a member of the cabinet on condition of anonymity. The prime minister decided that in order to give a 10% increase in the salaries, the tax rate for the lower middle income group should be increased from the proposed 1% to 2.5%, said the sources. On annual income of up to Rs2.2 million, the government has proposed to reduce the rate from 15% to 11%, on annual income of Rs3.2 million, the rate is reduced from 25% to 23%. There is no relief for the annual salaried income earners of over Rs4.1 million. However, the fine on highest income earners has been reduced from 10% to just 9%, which the finance minister called was necessary to stop "brain drain". Advance tax on sale or transfer of immovable property has been increased from 3% to 4.5% on the value of Rs50 million property. The rate is jacked up to 5% from 3% on Rs100 million property while it is further increased to 5.5% from 4%, if the value exceeds Rs100 million. However, on the purchase of the property the rate is reduced from 3% to 1.5%, from 3.5% to 2% and from 4% to 2.5%, depending upon the value of the property. The economic transactions by the ineligible persons have been banned, if the value of the new purchases is more than 130% of the value of the total assets. Tight fiscal path In order to stay in the IMF programme, the government has proposed a fiscally tight budget, although it created room for political spending too. The government has proposed a budget deficit of Rs6.5 trillion or 5% of the size of the economy. The total size of the budget is Rs17.6 trillion, which is 7.3% less than this year's original budget due to relatively lower allocations for the interest payments in fiscal year 2025-26. The proposed budget deficit is 1.8% of the GDP or Rs2.4 trillion less than the original estimates of this fiscal year. The deficit may still be appearing large in absolute terms. But it is, for the first time, lower than this year's gap, both in terms of size of the economy and in absolute numbers. The defence budget has been proposed at Rs2.55 trillion, which is 21% or Rs436 billion higher than this fiscal year due to war with India. The armed forces development programme has been marginally increased to Rs300 billion, which is far lower than what the military had demanded. The government is projecting gross federal revenues at record Rs19.3 trillion for next fiscal year, higher by Rs1.5 trillion. The gross revenues are based on the FBR's tax target of Rs14.13 trillion and Rs5.2 trillion non-tax revenues. The non-tax income will mainly come from the Petroleum Levy where the government wants to collect nearly Rs1.5 trillion and the Rs2.4 trillion profit by the State Bank of Pakistan. Out of the Rs14.1 trillion FBR tax collections, the provinces will get Rs8.2 trillion as their shares in the federal taxes under the National Finance Commission (NFC) Award. This leaves the federal government with Rs11 trillion net revenues for next fiscal year, which will not be sufficient to meet the interest payments and inclusive of all defence spending. The government will borrow Rs6.5 trillion in the next fiscal year to finance the Rs17.6 trillion total federal budget. Under the IMF programme, the four provinces are also required to save Rs1.46 trillion from their revenues as cash surplus to bring down the national budget deficit to Rs5 trillion or 3.9% of GDP. This is steeper fiscal consolidation and would require all the five governments to meet all their revenue and expenditures related targets. The interest payments will eat 47% of the budget and the federal government's net income —after paying the provincial shares — will be Rs2.8 trillion more than interest payments. The next year's interest payments are estimated at Rs8.2 trillion, which is lower than this fiscal year due to substantial reduction in the interest rates. The finance minister announced a Rs716 billion BISP programme aimed at expanding the net to over 10 million beneficiaries and adding more children in the conditional cash transfer programmes.

DOWNLOAD THE APP

Get Started Now: Download the App

Ready to dive into the world of global news and events? Download our app today from your preferred app store and start exploring.
app-storeplay-store