WASHINGTON: The government has assured the International Monetary Fund that it will levy another surcharge on electricity to recover Rs 240 billion of syndicated term credit finance from consumers.

According to an IMF report released on Monday, the government promised to impose the surcharge if the National Electric Power Regulatory Authority does not include financing of this syndicated loan in tariff determination.

A syndicated loan is provided by a group of lenders and is structured, arranged, and administered by them.

An IMF staff mission, in its third review report of a 3-year loan arrangement with Pakistan, notes that Pakistani authorities have promised to continue with their plans to bring electricity tariffs to cost recovery levels.

Nepra was working on an increase in electricity tariffs by on average 4 per cent, while eliminating subsidies on industrial, commercial, bulk, and residential consumers above 200kWh of monthly consumption. This tariff adjustment is expected to reduce the electricity subsidies to 0.5 pc of GDP in FY2014/15 from around 1pc in the previous year.

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Arrears: After the significant payments made by the government to reduce arrears in June 2013, a preliminary analysis suggests that the stock of arrears stands at around Rs 500 billion by end-March 2014. This is about 2 percent of GDP. Half of this is the stock of payables in the power sector and the other half is at Power Sector Holding Company Limited (PSHCL) as a debt instrument.

The authorities have identified steps designed to prevent the accumulation of new arrears in the system by the end of a 3-year programme with the IMF, while also dealing with the stock. The measures include the following components:

The stock of arrears at the PSHCL in the syndicated term credit finance (STCF), facility stood at around PRs 240 billion at end-March 2014. The corresponding accrued debt service continues to add to the payables.

Before the close of the current fiscal year, the government expects to recover around Rs 100 billion receivables in the power sector owed to DISCOs and to use these resources to reduce the stock of arrears to around Rs 200 billion at the end-June, 2014.

The IMF notes that Pakistanis authorities are continuing to reduce losses and improve collections through capital expenditures and revenue protection measures including revenue based load management.

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At end-March 2014 the los­ses stood at around 17pc (down by 0.5pc from last year) and revenue collections incre­ased from 86.5pc to 88pc.

The IMF hopes that continued efficiency improvements and higher collection rates will gradually eliminate the accumulation of new arrears and — together with appropriate pricing policies and load management — should allow the residual stock of arrears to be addressed.

The report points out that since the outset of the revenue-based load shedding, collections have increased by 1.5 pc. The authorities are committed to further accelerate the collections.

The majority of receivables from power distribution companies are due to non-collection from consumers.

An additional 700 MW of supply capacity was added to the system. Rehabilitation of generation plants and upgrading electricity transmission and distribution facilities are aimed at recovering an additional 1–1.5pc of technical losses.

Published in Dawn, July 8th, 2014