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Business Recorder
2 days ago
- Business
- Business Recorder
Power tariff hike: Govt reaches ‘understanding' with IMF
ISLAMABAD: The government and the International Monetary Fund (IMF) have reportedly reached an understanding that electricity tariffs will be increased through annual rebasing from July 2025 if the power sector's revenue requirements exceed the allocated subsidy envelope of Rs 1.036 trillion for fiscal year 2025–26, well-informed sources in the Finance Ministry told Business Recorder. This understanding was reached during discussions between Pakistani authorities and the visiting IMF mission held from May 14 to 24, 2025. 'Within the Rs 1.036 trillion envelope, sufficient subsidy will be allocated to ensure zero circular debt flow in FY26. The Petroleum Development Levy (PDL)-financed Prime Minister's package—amounting to Rs 182 billion—will be counted toward the FY26 subsidy,' the sources added. Reduced hydropower, costly fuels: Govt warns of potential hike in power bills Both sides also agreed that any additional financial needs will be met through tariff adjustments during the July rebasing exercise while maintaining a progressive power tariff structure, the sources maintained. According to sources, the IMF emphasized the importance of fiscal discipline, with subsidy levels expected to remain within 0.8% of GDP. These subsidies will be linked to credible targets for stock clearance and loss reduction. The Power Division has been directed to take all necessary steps to implement the measures agreed upon with the IMF. The government had earmarked Rs 1.190 trillion for the power sector for FY2024–26. However, the Power Division has also secured approval for additional subsidies to keep the circular debt flow within the limit agreed with the Fund. The Finance Division has revised and communicated provisional Indicative Budget Ceilings (IBCs), allocating Rs 636.136 billion for sector subsidies under the recurrent budget for FY2025–26, up from the earlier allocation of Rs 400 billion. As the detailed breakdown of the revised subsidy for FY2024–25 is not available, it remains unclear whether the full allocation has been utilized by the Power Division or if deviations occurred. Sources within the Power Division believe that subsidies for FY2025 may exceed Rs 1.2 trillion, driven by growing support for residential consumers and persistent circular debt obligations. 'A sharp increase in protected consumer categories—those consuming less than 200 units per month—is driving higher subsidy needs, as more consumers adjust their consumption or install solar panels to stay within the protected threshold,' the sources said. Cross-subsidy pressures are also rising, as declining industrial and commercial consumption reduces the contribution of higher-paying users to the overall system. The government also plans to clear up to Rs 541 billion in circular debt stock during FY2025, as part of a broader six-year debt reduction strategy. 'Subsidy allocations remain a contentious issue, particularly concerning the treatment of PDL proceeds and their role in budget financing,' the sources continued. Tariff rebasing and further adjustments remain under government consideration to close the subsidy gap. However, political sensitivities and lobbying from industrial stakeholders are limiting policy flexibility. The successful implementation of the Circular Debt Workout and Action Plan (CDWAP) and the ongoing restructuring of Pakistan Holding Limited's (PHL) debt are seen as critical to reducing future interest costs and stabilizing circular debt flows. Additionally, the Finance Division has directed the Power Division to strictly follow mandatory instructions issued to all Principal Accounting Officers (PAOs), heads of departments, and related entities when preparing budget estimates for each cost center and account head. Copyright Business Recorder, 2025
Business Recorder
4 days ago
- Business
- Business Recorder
Fuel market gains momentum
In May 2025, Pakistan's Oil Marketing Companies (OMCs) recorded a robust performance, continuing their recovery trend for the third consecutive month. Total industry sales rose to 1.53 million tons, marking a 10 percent year-on-year and 5 percent month-on-month increase — the highest monthly sales figure since November 2024. This brought the cumulative sales for the first eleven months of FY25 (11MFY25) to 14.76 million tons, reflecting a 7 percent year-on-year growth. The uptick was primarily driven by increased demand for motor spirit (MS) and high-speed diesel (HSD), supported by a combination of favourable seasonal, economic, and policy-related factors as well as decreased smuggling. A key contributor to the growth was the seasonal rise in diesel demand due to the ongoing Kharif sowing season. Additionally, lower fuel prices—down approximately 10 percent year-on-year for MS and 8 percent for HSD—enhanced affordability, while continued anti-smuggling efforts shifted volumes from the informal to the formal sector. A low base effect from May 2024 also helped magnify the growth in reported figures. Improved macroeconomic stability and stable fuel prices since September 2024 further anchored consumer behaviour, leading to sustained demand. Product-wise, MS sales grew by 15 percent year-on-year and 6 percent month-on-month, while HSD sales increased by 5 percent year-on-year and 8 percent month-on-month during May-25. Although furnace oil (FO) sales rose 16 percent year-on-year, they declined 5 percent month-on-month, reflecting reduced reliance on FO-based power generation. Meanwhile, high-octane blending component (HOBC) volumes surged by 134 percent year-on-year, though they were slightly down month-on-month due to an increase in petroleum development levy (PDL) rates. Going forward, the OMC sales are expected to maintain their upward trajectory into FY26, driven by stable domestic fuel prices, and continued clampdowns on smuggling. However, the analysts caution that volumetric sales may face pressure in the immediate coming months as the seasonal demand from the Kharif season diminishes and summer school holidays reduce overall mobility. Additionally, the government's reported plan to increase the petroleum in the upcoming budget could lead to higher fuel prices, potentially suppressing demand.
Express Tribune
30-05-2025
- Business
- Express Tribune
Power companies violating agreement: minister
Federal Minister for Energy Ali Pervaiz Malik has stated that power-generating companies are not utilizing imported gas as per agreements and resultantly expensive gas is being sold to domestic consumers at subsidized rates, leading to a rise in circular debt. "The power companies are violating their agreements, which is increasing the liabilities of the national gas importing companies," said Malik, while speaking to the media at the head office of the Sui Southern Gas Company (SSGC) on Friday. The minister revealed that smuggled fuel is spreading like a "cancer," and to curb it, petrol pumps are being registered and digital nozzles installed. "The Oil and Gas Regulatory Authority (Ogra) will become fully digital in two to three months, enabling complete monitoring of fuel supply and sales from refineries to petrol pumps," he said, adding that 85% of moving stock digital tracking has already been completed. The energy minister said no final decision has been made yet to increase the Petroleum Development Levy (PDL), and its enforcement on prices has not taken place for now. He emphasized the need for a coherent and unified energy policy, suggesting that all energy sources must be evaluated on equal standards. Malik highlighted that the government's success in reducing electricity prices and maintaining current petrol and diesel prices is a significant achievement. However, relief in the electricity sector has become a burden on the petroleum sector.
Business Recorder
21-05-2025
- Business
- Business Recorder
Energy reforms: Familiar tools, new promises
The IMF's First Review under the SBA and approval of Pakistan's Climate Resilient Sustainability Facility (RSF) both place the country's energy sector squarely in focus. From petroleum and electricity to gas, the reform roadmap is extensive — but deeply familiar in approach. Some reforms are front-loaded with structural benchmarks; others are deferred to the distant end of the program. In the near term, the emphasis remains on revenue extraction, circular debt containment, and tariff rationalizationon — all of which rest heavily on consumer shoulders. Consider the Circular Debt Management Plan. The plan seeks to convert up to 80 percent of the circular debt stock — currently CPPA payment arrears — into new CPPA debt via a sukuk. This financial engineering is expected to significantly lower the interest burden, given sukuk's lower yields. The IMF points out that nearly half of recent circular debt flows have come from interest charges on arrears — and this conversion would ostensibly free up fiscal space, reduce the need for subsidies (a third of which are used for debt clearance), and stabilize the system. But the real story is that consumers are being asked to foot the bill through a fixed debt service surcharge (DSS) of Rs3.23/unit over six years, expected to yield close to Rs2 trillion. For this to succeed, the government must also remove the existing DSS cap by June 2025 — a structural benchmark under the RSF. One might call this reform, but it's more accurately a transfer of inefficiency costs to end-users, while structural fixes to theft, line losses, and governance continue to get lip service, not benchmarks. On petroleum, the front-loaded benchmark is clearer: a Rs5/litre carbon levy on gasoline and diesel, to be legislated under the FY26 Finance Act. This levy is essential to unlock the September RSF tranche and will be gradually phased in. It extends the Petroleum Development Levy (PDL) scope to fuel oil as well — and future finance acts may hike it further. Given the rather aggressive climate financing needs outlined in the report, the IMF has not gone too hard in terms of carbon levies. The forecasted Rs1.3 trillion in lieu of Petroleum Levy revenues for FY26 would not require a substantial increase from existing rates. Part of the additional PDL — Rs10/litre — will finance a limited electricity subsidy of Rs1.7/unit for non-lifeline consumers, running through FY26. Another Rs0.90/unit relief will come from the captive power plant (CPP) transition levy. This brings much-needed clarity on the electricity tariff relief, particularly addressing recent questions around whether the Rs1.7/unit reduction — currently in effect this quarter — is a temporary or permanent measure. The bigger reform narrative — revamping the subsidy architecture — is deferred. The IMF rightly points out that Pakistan's current system is distortionary, often benefiting wealthier consumers and promoting overconsumption. The long-term plan is to eliminate cross-subsidies and replace them with targeted, cash-based subsidies via BISP, starting in FY27. Initial consumer verification is planned by January 2026, followed by eligibility criteria by July 2026, and rebates to be launched by January 2027. This is sound in theory — and if done well, could be transformative. But it is neither prioritized nor benchmarked for the current fiscal cycle. Efficiency, too, gets a nod — in the form of minimum energy performance standards (MEPS) for appliances. By end-June 2027, compliance targets have been set for fans, LEDs, refrigerators, air conditioners, and motors. But again, these goals are tied to the program's final stages and will likely be overshadowed by more immediate revenue-focused reforms. Meanwhile, critical areas like privatization of discos and gencos, resolution of transmission bottlenecks, and addressing systemic theft and losses continue to be acknowledged — but are not attached to performance criteria or disbursement conditions. They remain second-order priorities in the reform matrix. As has often been the case, the more straightforward measures — such as increasing levies and introducing surcharges — are being prioritized and framed as reform. While there has been some movement on addressing the deeper institutional, technical, and governance-related inefficiencies in Pakistan's energy sector, progress remains gradual. Consumers are once again being asked to shoulder more of the burden, even as core structural challenges persist. Whether this round of reforms will deliver more lasting results than previous efforts will ultimately depend, as always, on sustained political commitment.
Business Recorder
19-05-2025
- Business
- Business Recorder
IMF sees Rs215bn PDL shortfall in FY25
ISLAMABAD: The IMF has projected a shortfall of Rs 215 billion in petroleum development levy (PDL) on petroleum products for current fiscal year 2024-25 and projected collection of one percent of the GDP, with total collection depending on the GDP growth. This was revealed in the IMF report 'First Review Under the Extended Arrangement Under the Extended Fund Facility, Requests for Modification of Performance Criteria and Request for an Arrangement Under the Resilience and Sustainable Facility' released on Saturday. In current fiscal year, IMF projected Rs 1066 billion PDL collection against target set at Rs1281 billion despite the removal of PDL cap on petroleum products through a presidential ordinance. Till March 15, 2025, the government was charging a maximum levy of Rs60 per litre on petrol and high speed diesel (HSD), however, it was raised by Rs10 per litre from March 16 onwards to Rs70 per litre. On April 15, the federal government enhanced the PDL on petrol by Rs8.02 per litre and HSD Rs7.01 per litre, taking it to Rs 78.02 per litre and Rs 77.01 per litre on both the products. The federal government collected PDL of Rs833 billion during the first nine months (July to March) of the ongoing fiscal year. With the current pace of PDL collection, the IMF projected that collection would be approximately Rs1066 billion against the budget target of Rs1281 billion for the ongoing fiscal year 2024-25. The collection of PDL from previous fiscal year (July to March of 023-24) was Rs719.592 billion. Copyright Business Recorder, 2025
