Govt signs agreement with WB and ADB to raise power tariff by 22-26%

[Naveed Yaseen]

ISLAMABAD (July 16 2009): Pakistan on Wednesday reached an initial agreement with the World Bank and Asian Development Bank to raise power tariff by 22-26 percent in a phased manner during the current financial year 2009-10. Sources told Business Recorder that the government would increase power tariff in three phases.

Subsidies would be entirely eliminated by April 2010 implying a deferment of nine months as the government had initially committed to eliminating subsidies by end June 2009. Sources said that Pakistan agreed to raise power tariff up to 7 percent on October 1, 10 percent on January 1 and 5 percent from April 1, 2010.

Under the agreement, volume of subsidy would be kept at Rs 55 billion during the current financial year, sources said. The International Monetary Fund (IMF) has reportedly agreed to Rs 55 billion subsidy to consumers. Sources said the government would provide 100 mmcfd gas to power plants to reduce the consumption of furnace oil in an effort to produce cheaper electricity to minimise the power tariff impact on consumers.

It was further agreed that the saving of Rs 12 billion on account of additional gas to be pumped into the power system would be used for the benefit of the consumers. It was also noticed during the talks that against a revenue shortfall of Rs 122 billion, Pepco would only be recovering Rs 55 billion from consumers in financial year 2009-10. The recovery would be made in tranches linking it with improvement in electricity generation in the country.

The talks between Pakistan, ADB and the World Bank concluded on Wednesday. State Minister for Finance Hina Rabbani Khar led the Pakistan side. The World Bank wanted the government of Pakistan to abolish subsidies on power within next six months, but the Pakistani side insisted on a phased reduction in subsidies and raise in power tariff from the second quarter starting October 1, of the current fiscal year.

The process of complete subsidy withdrawal will be over by the last quarter of the ongoing financial year. The ADB and the World Bank agreed during the talks to raise 6-7 percent power tariff from the second quarter. According to estimates, the government is offering power subsidies worth Rs 11 billion every month and increase in power tariff would help the government to curtail its subsidy spending within the limits defined by the IMF. Initial agreement with the ADB and the World Bank would help Pakistan receive the third tranche of $840 million from IMF under standby arrangement.

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