The announcement comes as Prime Minister Shehbaz Sharif disclosed that the outstanding dues of Chinese power plants have soared to Rs 450 billion.
The subsidy has been approved by the Ministry of Finance to resolve the claims of K-Electric (KE) and Azad Jammu and Kashmir. According to government sources, this Rs103 billion unbudgeted subsidy is the first installment of an additional Rs 335 billion in power subsidies that Islamabad agreed to pay under a February agreement with the International Monetary Fund (IMF).
The PM disclosed that the Chinese power plants now owe Rs 450 billion in unpaid debts as the Power Division worked to resolve additional subsidy claims. While speaking to a gathering of the parliamentary party, the prime minister made the declaration.
He continued by saying that despite his government paying Chinese producers Rs 150 billion over the previous year, the outstanding debt to China had grown to Rs 450 billion.
Pakistan has not been able to pay the cost of electricity in a timely manner, which has breached its commitments under various agreements signed with the Chinese power producers.
The country has trouble paying for the raw materials needed to run the plants because of the weak performance of the power sector and a lack of foreign currency.
In spite of this, the Chinese power plants have exercised restraint by refraining from initiating dispute resolution procedures.
Large unpaid balances on account of power purchases highlight the financial collapse of the sector, which is caused by a lack of budgeted subsidies, higher line losses, low bill recovery, and public sector inefficiency.
Power subsidies, which the government had budgeted for the current fiscal year at Rs570 billion, will now increase to at least Rs 905 billion thanks to an agreement with the IMF.
According to a representative of the finance ministry, the money will be given to the Central Power Purchase Agency-Guaranteed (CPPAG), which will also handle payment arrangements with the Independent Power Producers (IPPs).
The funds were provided as an advance subsidy, and they will be deducted from the claims the energy ministry has made for the current fiscal year.
However, the reconciliation of subsidies for the power sector is still a problem, according to officials from the finance ministry, who claimed that the Power Division is reluctant to provide year-by-year information on the unpaid subsidies despite repeated requests and an ECC decision.
Out of the Rs103 billion, about Rs 49 billion will be deducted for KE claims, and the remaining Rs 54 billion will be applied to AJK claims.
The PM established a taskforce to address KE-related issues, and it is currently negotiating a set of documents to come to a sale-purchase agreement, pay tariff differential subsidies, and settle other disputes.
Despite a significant rise in prices, losses in the power sector are rising. To recover an additional Rs237 billion in four months, the government approved raising electricity prices in February for residential customers, farmers, and exporters in the range of Rs 3.3 to Rs 15.52 per unit.
The revised circular debt management plan, however, indicated that by June of this year, the circular debt stock would increase to Rs2.37 trillion despite a significant increase in prices and an additional Rs 335 billion in subsidies.
The cabinet also agreed to postpone for two years the repayment of the Rs 283.3 billion borrowed for retiring the previous circular debt.
According to the agreement between Pakistan and the IMF, an additional subsidy worth Rs115 billion must be paid in April. The Finance Ministry only agreed to release Rs 103 billion, despite the Power Division’s request for more than Rs 200 billion.
Another KE subsidy worth Rs. 67 billion and Rs. 36 billion will be chosen with the second tranche of Rs. 115 billion, which will also be used to pay back any outstanding debts.
