IMF Flags Concerns over Backdating Gas Tariff for Captive Power Stations
The International Monetary Fund (IMF) has raised alarm over the delay by the government to issue the new gas tariffs for captive power stations. The government intends to notify the revised tariffs retroactively effective from January 1 and collect the arrears from that date. The IMF, however, has cautioned that backdating notifications may invite litigation.
The IMF is calling on the government to promptly announce the new gas tariffs and introduce a grid transition levy for these power plants at the earliest. The IMF also stressed that regasified liquefied Natural Gas (RLNG) must be sold to captive power plants at the import price of its cost, and subsidies given to these plants must be eliminated.
The IMF team also commended the government for the work done in minimizing circular debt in the power sector. Circular debt refers to the amount of debt that the power sector owes different companies. The sources reported that the circular debt was set to increase by Rs. 350 billion this fiscal year. Nonetheless, in the last six months, the debt was lowered by Rs. 10 billion, leaving the overall circular debt at Rs. 2.38 trillion.
Despite these measures, government officials told the IMF that the circular debt may rise in the next six months because of increased electricity demand. The circular debt is projected to increase by Rs. 40 billion by the end of the fiscal year to Rs. 2.43 trillion. The IMF has asked for a detailed report on circular debt projections in the future.
At the close of the fiscal year 2022, circular debt stood at Rs. 2.253 trillion and reached Rs. 2.393 trillion at the close of the previous fiscal year. In the last two years, the circular debt rose by Rs. 140 billion. Authorities estimate that during the current fiscal year, the circular debt may rise by over Rs. 410 billion.
The government is contemplating borrowing Rs to deal with the increasing circular debt. 1.2 trillion from banks. Approximately Rs. 300 billion will be utilized for settlements, and about Rs. 600 billion in loans will be waived off to settle the debt. The strategy also involves charging a surcharge of Rs. 2.8 per unit on electricity bills to repay the borrowed money within five years.
Yet, this is still on the cards and will be discussed at a later date with the IMF. The government will remain in talks with the IMF in the following days to iron out its plan for addressing the circular debt issue.
