The government intends to hike electricity prices by Rs4.37 per unit, targeting an additional recovery of Rs122 billion from consumers within the next four months. This move will amplify the cumulative fiscal year burden to Rs721 billion. Notably, a substantial Rs392 billion would still augment the circular debt even with this increment. This debt growth, however, will be counterbalanced by budgetary subsidies.
Underlying Reasons and Circular Debt Dynamics
The price rise is driven by the need to stabilize the circular debt at Rs2.31 trillion amidst increased electricity losses and theft, which previously led to an added Rs236 billion loss. The revised Circular Debt Management Plan (CDMP) outlines that these charges will be retrieved from September to December 2023, a strategy shared with the International Monetary Fund (IMF). Alarmingly, the plan forecasts a colossal Rs1.37 trillion addition to the circular debt. To mitigate this, the government plans to uplift the electricity price (aiming for Rs721 billion) and provide roughly Rs600 billion in fiscal support. The electricity rates have risen by an average of Rs7 per unit, aiding in the recovery of an estimated Rs600 billion from users.
Challenges and Concerns in the Power Sector
Despite ambitious plans relying on assumptions of a Rs286 to dollar exchange rate and a 19.4% KIBOR rate, realities suggest different figures, with the rupee at Rs295 and KIBOR at 22%. Consumers are already grappling with soaring electricity rates, leading to payment delays. In Islamabad, bill recovery has plummeted to about 55%.
An earlier initiative to reduce the circular debt to Rs2.128 trillion was deemed unfeasible by the finance ministry, which instead recommended stabilizing it at the current Rs2.31 trillion. Even with the price surges, the power sector’s revenue estimates fall short at Rs2.5 trillion against liabilities of Rs3.48 trillion, leaving a gap of Rs976 billion, expected to be covered through subsidies. Notably, despite the hikes, there’s no sign of improved bill recovery or theft reduction in the plan. The Power Division’s future assumptions are uncertain due to factors like fuel price fluctuations, economic parameter changes, and other unpredictable determinants.
