IMF Likely To Question Pakistan's Subsidized Power Tariffs For AJK

In AJK, domestic consumers pay between Rs3 to Rs6 per unit, whereas in other parts of Pakistan, rates start at Rs6.72 and can reach up to Rs35.26 per unit.

LAHORE: (UrduPoint/UrduPoint / Pakistan Point News-May 24^th, 2024) The IMF might raise concerns with Pakistan over the Prime Minister's recent announcement to provide relief to AJK residents by subsidizing their power tariffs, which are notably lower compared to the rest of the country.

In AJK, domestic consumers pay between Rs3 to Rs6 per unit, whereas in other parts of Pakistan, rates start at Rs6.72 and can reach up to Rs35.26 per unit.

Similarly, commercial users in AJK are charged Rs10 to Rs15 per unit, while elsewhere in Pakistan, the rates range from Rs40.8 to Rs46.56 per unit.

These significant disparities have raised concerns. Economists suggest that the Pakistani government should provide a thorough briefing to the IMF to mitigate potential issues. Dr. Naved Hamid, Director at the Center for Research in Economics and business (CREB), believes the IMF might accept these differences if Pakistan ensures that the power sector’s circular debt does not increase. Consequently, consumers in Punjab might face higher power tariffs to subsidize AJK, given that regions like KP and rural Sindh often default on power bills, and Karachi is not included in this system.

Dr. Nadia Tahir mentioned that the finance minister aims to reduce the fiscal deficit by 1.5 percent in the upcoming budget. This will be achieved through strategies like imposing a petroleum levy, expected to generate Rs1.1 trillion, and selling state-owned enterprises.

She noted that the Prime Minister’s relief package of Rs23 billion (about $8.2 million) for AJK is manageable for the Federal budget and represents overdue water usage payments dating back to 2018.

In September 2023, the government increased the average generation tariff from Rs4.96 per unit to Rs3.85 per unit. Residents of AJK demand their water use charges and refuse to pay for federal inefficiencies. The Neelum-Jhelum Hydropower Project, supplying 969 MW to the national grid since 2018, underscores AJK's claim to a share in net hydro profits. The regulator’s decision to increase AJK’s water usage charges to Rs5.44 billion from Rs712 million in FY22 supports this claim.

Dr. Qais Aslam highlighted that the IMF's main demands are meeting revenue targets and controlling circular debt. Although AJK is technically not part of Pakistan and Pakistan does not pay it for water usage that generates electricity, the country can justify the reduced tariffs for AJK. However, Dr. Qais argues that this situation is politically unfair to Punjab, which bears the highest taxes and power tariffs while experiencing higher rates of power theft in other provinces.

The IMF’s response to this issue remains uncertain, especially given their recent statement from Washington criticizing Pakistan for not meeting agreed conditions. Dr. Qais suggested implementing a uniform tariff across the country to ensure equitable treatment for all regions.