ISLAMABAD: The government has made a commitment to the International Monetary Fund (IMF) to keep implementing higher electricity and gas tariffs in January and February 2015.

“By January 2015, authorities are committed to notifying new gas prices, which were postponed from August due to political protests,” said IMF in a report on disbursement of $1 billion tranche of the $6.8 billion bailout package.

The report also said that Pakistan “authorities are committed to make further adjustments in January and February to recover the remaining gap to reduce electricity subsidies to 0.7 per cent of the GDP for fiscal year 2014-15, and limit the accumulation of circular debt”.

It said the government had earlier promised to increase power tariff by seven per cent in October but could increase it by only 2.5pc through 30 paisa per unit surcharge and has now committed to make up for the remaining part in January and February.

The government has also made a commitment to fully pass-through of the cost of imported LNG to the end-user purchase price including Compressed Natural Gas as it comes online. On the production side, the government will also complete the conversion of existing domestic gas concessions to new ones to permit higher producer prices for additional production — by end of February, 2015, and award additional 10-15 blocks this year to increase exploration to help tackle the gas shortage.

In a written commitment, Finance Minister Ishaq Dar conceded that recent difficulties and oil-indexed decline in gas prices delayed the first gas price notification for this year due in August and promised to do it now.

“We will notify and implement the next adjustment in the beginning of 2015 and will make further adjustments as needed when the imported gas comes online,” Mr Dar wrote.

The minister also talked about the gas price increase through gas infrastructure development cess (GIDC) and its difficulties to get it through and promised to make further tariff increases directly if GIDC could not materialise.

To better allocate gas consumption, we adjusted the weighted average consumer prices at end-December 2013 through the application of the GIDC, which was further adjusted with this year budget to generate 0.55pc of GDP in revenues. However, due to pending court cases, the recovery of GIDC has been suspended despite the presidential ordinance which was issued following the previous Supreme Court decision.

“We will actively pursue the ongoing litigation for an early decision to ensure full recovery of the GIDC. In the meantime, we have prepared and reached an understanding with the IMF on contingency measures which we will implement to achieve a similar outcome, if the GIDC legal challenges are not resolved by January 2015,” Dar said.

The minister said the government had prepared the third round identified in the three-year plan for phasing out the Tariff Differential Subsidy (TDS) to continue to bring tariffs to cost recovery level. In this round, Nepra finalised the determination of tariffs for current year in June, but last-minute difficulties derailed the implementation of the new tariff by July 1, 2014, as was agreed at the time of the third review.

He promised that the full impact of reduction in oil prices would not be passed on to consumers in tariff. “As world oil prices continue to decline and will use this downward trend to make further adjustments in the surcharge to close any remaining gap to stay within the budgeted electricity subsidy of 0.7 per cent of the GDP while maintaining consumer prices constant”.

Subsequently, Nepra will determine the fiscal year 2014-15 tariffs by February 2015 and the government will finalise their notification at rates consistent with objective of reducing electricity subsidies further to 0.3 per cent of the GDP for next year.

The government reported to the IMF that payables in the power sector reached around Rs256 billion at end-September 2014 of which around Rs60 billion were current payables. The remainder comprises a residual leftover from payables clearance of May and July 2013.

Published in Dawn, December 24th, 2014