Federal Govt okays additional subsides for power sector

ISLAMABAD: The federal government on Sunday decided to release a subsidy of over Rs50 billion for the power sector.

As per the media reports, Rs159 billion has already been released to the power sector in the current fiscal year, but now subsidies of over Rs50 billion are in the pipeline.

Report said that Rs128 billion were released for power sector subsidy in the first quarter, while Rs31 billion has been released so far in the second quarter. After the additional Rs50 billion, the total subsidy released will exceed Rs209 billion.

The flow of circular debt is much less than the target set by the IMF by December. According to the IMF’s target for December 2024, the flow of circular debt in the power sector is to be kept below Rs461 billion, while the target of circular debt has reached only Rs70 billion by December 19, 2024, which is much less than this. Target

Government sources have expressed hope that the IMF target for circular debt in the power sector will be easily achieved as a result of reducing losses and improving efficiency.

In October 2024, the World Bank revealed that power sector subsidies in Pakistan have increased by a staggering 400 percent in the last five years, putting a huge strain on the federal government’s finances.

According to the World Bank report, the growing number of protected consumers played a major role in the increase in the subsidy burden, with 94 percent of household consumers benefiting from budgetary subsidies in 2024.

Power sector subsidies increased from Rs. 236 billion in fiscal year 2020 to a staggering Rs. 1190 billion in the current fiscal year. 954 billion.

Failure to reduce losses and poor collection of electricity bills have contributed to the circular debt, which averages Rs. 1000. 400 billion rupees annually for the last four years despite reforms.

The World Bank has warned that rising electricity tariffs and poor revenue collection will continue to exacerbate the circular debt crisis, making it imperative for the government to address the underlying issues in the power sector to reduce the subsidy burden and circular debt.

Earlier, the World Bank (WB) had expressed concern over the increase in circular debt in Pakistan’s power sector despite a historic increase in electricity tariffs.

The World Bank said in its report that debt has increased by Rs 1241 billion over the past six years, including an increase of Rs 1128 billion between 2019 and 2021.

The World Bank reported that the power sector’s circular debt is increasing at an alarming rate, with a significant increase of Rs 113 billion between 2022 and 2024.

The total volume of circular debt in Pakistan’s power sector has reached Rs 2393 billion by 2024.

The World Bank stressed the need for reforms to address the problem of circular debt.