Caretakers rule out relief in power bills

Published August 31, 2023
Traders set electricity bills on fire during a protest against the surge in electricity prices along a street in Karachi on August 30. — AFP
Traders set electricity bills on fire during a protest against the surge in electricity prices along a street in Karachi on August 30. — AFP

• Elected govt can review accords with IPPs, caretakers unable to withdraw free power quotas: finance minister
• SBP deputy chief says market-based exchange rate followed, refuses to intervene
• Senators express concerns over inflation, high policy rate, inflated bills; demand remedies

ISLAMABAD: In a reality check following almost week-long consultations, caretaker Finance Minister Dr Shamshad Akhtar on Wednesday told senators and the electricity consumers to “manage (their) expectations” raised by caretaker Prime Minister Anwaarul Haq Kakar for relief in excessive power bills, saying the country’s fiscal space did not permit any subsidy or relief.

“Please manage your expectations,” she said apparently after engagements with the International Monetary Fund (IMF) over the government’s desire for some programme relaxations to provide relief in power bills. “These are things that were approved long before we came and in order to examine things we need to really reflect on…these are there for decades. How can we change decades-old policies,” she said.

Appearing before the Senate Standing Committee on Finance and Revenue, Dr Akhtar said there had been staff-level discussions with the IMF and she assured the fund that it was the responsibility of the caretakers to fulfil the requirements of the agreements signed by the previous government.

The minister said she was not “worried about the IMF” but what bothered her the most was the country’s worst than anticipated economic situation and the pressure on fiscal account did not provide room for subsidies except to protect the most vulnerable through higher social safety nets, like BISP.

The Senate committee demanded that immediate steps be taken to reduce electricity theft, end free electricity, and charging fuel costs older than six months should be done away with. Dr Shamshad said the privilege of free electricity was a decades-old policy that could not be withdrawn immediately as it could create legal challenges.

AJK PM shares grievances

In a rare development, Azad Jammu and Kashmir PM Anwarul Haq also attended the meeting to record a protest on behalf of his government and the people of Azad Kashmir on what he called ‘serious discrimination’. He said AJK produced about 2600mw of cheaper hydropower and required only 350mw but the state government was neither being given due share in net hydel profit as permissible to provinces under Article 157 nor under the National Finance Commission (NFC) that entitled it to about 3.64pc share in federal resources.

He said the finance ministry deducted its finances by Rs61bn on account of electricity bills while no federal institution was taking responsibility for Rs400bn payables to AJK on account of Mangla dam water charges or hydel profit on Neelum-Jhelum Hydropower project that was operating for about five years without any agreement with the state government. He said his request for resources to increase in salaries in the recent budget in line with federal and provincial employees was not accepted and he had to divert Rs900 million in development funds to compensate 109,000 government employees.

The AJK premier said the ministry of finance extended Rs70-90bn to AJK as a “grant”. “This is not a grant but our right against resources we contribute,” he said and warned that this was the “last generation emotionally associated” with Pakistan as the social media was changing the landscape and the youth were comparing prices and rights with India and asking questions.

The committee directed the finance minister to personally lead engagements with the AJK government and federal entities as their issues were legitimate and needed redressal urgently.

Dr Shamshad hoped all the stakeholders would jointly be able to resolve the political and economic problems facing the country and promised to give a detailed briefing to the Senate panel next week. She said while foreign inflows faced disruptions, outflows were going on. “Right now we cannot do anything irresponsible that further aggravates the situation. We have to tread very carefully” within the IMF benchmarks because inflows from bilateral and multilateral were also dependent on the IMF.

‘Mobilisation of domestic resources’

She said the mobilisation of domestic resources through capital markets was currently in focus and proactive consultations were taking place with stockholders and the industry in harnessing these avenues. “If we are able to do it successfully, the coming government would be in a very comfortable position,” she said adding that the country was dependent on imported fuel-based electricity and a fixed rate of return to power plants which was ultimately passed on to the consumers.

She said the previous governments had instituted policies under which electricity and gas prices were required to be automatically passed on and because of fixed rates of returns, the consumers were under pressure. She said there was a need to wait for the elected government to come in to negotiate dollar-based fixed rates of returns with IPPs. “This has been a big mistake and nobody tried to fix it,” she added.

Exchange rate

The finance minister said a centralised department for SOEs was being established for stocktaking because the financial account was being managed with difficulty, as funds were being raised from the market at 22-23pc interest which was very inappropriate and the country was in a ‘chicken and egg’ situation.

SBP Deputy Governor Dr Inayat Hussain said the market-based exchange rate was being followed at present which could not be interfered with because of the IMF programme.

Senators said the high policy rate had further aggravated the rate of inflation and increased the debt burden. Dr Inayat conceded that the policy rate had been increased for demand suppression but supply-side constraints and supply-chain disruptions reduced its effectiveness owing to Covid-19 and the Russia-Ukraine war.

Interestingly, Senator Sherry Rehman, who remained a federal minister until August 9 in the PDM government, said the situation was very serious and added that various taxes in power bills should be urgently abolished. She said there were now reports that fresh surcharges were being imposed. “How would an average person pay these bills,” the PPP leader wondered.

The Senate panel expressed concerns over the growing dollar instability, unprecedented electricity costs, and a 22pc interest rate that are making it challenging for current businesses to survive and thrive.

Published in Dawn, August 31st, 2023

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