ISLAMABAD, Nov 3: The International Monetary Fund (IMF) has agreed that any further increase in electricity tariff was no more viable in Pakistan and the managements of the power utilities should be held responsible for their operations.
A finance ministry official told Dawn on Sunday that for the first time in a decade the IMF did not place any conditionality for power tariff increase when its executive board approved $114 million tranche under the three-year Poverty Reduction and Growth Facility (PRGF) in Washington last Friday.
The review mission of the IMF would visit Islamabad later this month once the new government is in place to assess the outcome of July-September quarter of the current fiscal year. The mission would also hold talks with the authorities for some minor policy adjustments if required by the new political setup, the official said.
The IMF has reckoned that repeated tariff increases have resulted in economic imbalances in Pakistan over the years and further revenue requirements of the two utilities should be met strictly through efficiency and governance improvement in the Wapda and KESC.
The IMF has, however, asserted that any variation in the international furnace oil prices should be treated as a total pass-through item and result in increase or decrease in consumer tariff in real terms and should have no link whatsoever with the overall base tariff.
A similar understanding has also been reached with the World Bank under the financial improvement plan (FIP) of the Wapda, the official said.
The Executive Board of the Fund has granted three waivers to complete the review for end-June 2002 performance criteria. The review paves the way for the release of a further SDR 86 million (about $114 million) to Pakistan, bringing total disbursements under the IMF-supported programme to SDR 345.64 million (about $456 million).
The three waivers that the IMF board granted to Pakistan include non-observance of the quarterly CBR revenue target for the period ended June 30, 2002; the requirement of bringing the Karachi Electric Supply Corporation to the point of sale by end-July, 2002; and for granting new tax exemptions in the review period.
The IMF has commended gains made towards macro-economic stability and progress with structural reforms in a difficult economic and political environment. The IMF review noted that economic activity was picking up, inflation remained low, and strong private capital inflows and remittances contributed to a strong building up of official reserves.
It said that the fiscal deficit for end-June 2002 was lower than programmed, even though tax revenue collected by the Central Board of Revenue (CBR) regrettably fell again short of target. Encouragingly, the pace of social sector spending is reported to have accelerated and is in line with the programme target for the year.
The IMF also warned that in view of the risks to the economic outlook, the authorities need to stand ready to undertake appropriate corrective fiscal measures if needed to achieve the budgetary targets.
These risks, mainly related to the regional security and geo-political situation, both in the context of India-Pakistan tensions on the eastern borders and Afghan situation on the west, and fears of a global economic slowdown.
The IMF believed that forceful implementation of the restructuring strategy for the two power utilities was essential for putting an end to their persistent drain on budgetary resources and providing Pakistan’s economy with reliable power at competitive prices.
“The focus of the reforms needs to be on reducing leakage, fraud, and administrative costs, and better enforcing bill collections as set out in each utility’s financial improvement plan,” the IMF said.
The IMF also observed that the privatization of KESC and of certain components of Wapda would be critical to achieve the targeted efficiency gains.
