The visiting IMF pre-budget team is taking a deep interest in the energy sector because this is the area of government finance which can explode in the government’s face if neglected, and thus end its chances of repaying the loan the government has taken from it. That is the reason the IMF, while issuing its latest EFF package, set so many conditions. While the visiting team is only looking to ensure that the conditions are being met, there is one new condition, which is because Pakistan has also had a loan approved from the Resilience and Sustainability Facility, which includes a separate set of conditionalities, of which a carbon levy is to start in the coming financial year, with the target for FY 2025 being Rs 337 billion The biggest issue is that of circular debt, and it is now planned to bring it down to zero by 2031-32, which should indicate how intractable the problem is, which needs another six years to solve, In this period, a debt service surcharge will be charged, which will increase the cost of electricity. The cap of 10 percent on the DSS will also be removed.
Also likely to increase tariffs will be the carbon levy, which is likely to be imposed on gas as well. The commitments by the government under the RSDF programme include expanding the infrastructure of electric vehicles by giving the private sector incentives to develop it. There is to be a reiteration of the need for an ending of electricity and energy subsidies, unless targeted at Benazir Support Programme beneficiaries. The IMF did not consider other factors impinging on the power sector, such as ECNEC ‘s approval for the cost of the Dasu Hydropower project to go up from Rs 479 billion to Rs 1.74 trillion for 2160 MW, which should allow for some IPPs to be retired, and thus the cost of generation brought down. Perhaps, more importantly, the effect of solarization was not explored, neither of its effects on official revenues, or of the energy sector as a whole.
A major cataclysm has already hit the energy industry, and as soon as the storage of excess electricity generated becomes technically and economically feasible, that revolution will intensify. The IMF is not helping with it, which indicates that it too has as little idea as the government how to handle the situation.
