ISLAMABAD  -  Pakistan has assured the Inter­national Monetary Fund (IMF) that it will create a dedicated police force for all power dis­tribution companies (DISCOs) and recognize electricity theft as a cognizable offense which is necessary for improved DISCO governance and enforcement capability. Pakistan has also as­sured the IMF that the country will strive to reduce capacity payments as they pay arrears, ei­ther by renegotiating PPAs with a new strategy or by lengthen­ing the duration of bank loans, depending on adequate budget space and CDMP implementa­tion progress, IMF said in its country report on Pakistan .

The same principle applies to the assumption of PHPL amorti­zation by the federal budget. We will also continue to refrain from netting out cross-arrears (un­less they are independently au­dited); using “non-cash” settle­ments (e.g., payables against the reimbursement of on-lent loans to DISCOs); and issuing govern­ment guarantees (e.g., for PHPL-issued Sukuks to transfer CPPA-G payables to PHPL)

To improve distribution ef­ficiencies as the most criti­cal part of managing the CD flow, Pakistan is taking mea­sures toward improving DIS­COs’ performance, efficiency, and governance by bringing private sector participation in the form of long-term conces­sions arrangements as a step towards ultimate divestment or privatization, Pakistan has assured the IMF.

Towards this end, Pakistan plans initiation of work which includes engagement of a trans­action advisor by end-April 2024 and the development of a transaction structure, DIS­CO selection, and way forward thereafter, said the report. Over the time this reform is expected to facilitate a significant reduc­tion in the cost of distribution.

On institutionalize anti-theft procedures, IMF has been told that “Our enhanced and sus­tained anti-theft efforts, which have yielded Rs 46 billion from September 7 to October 31, are expected to improve collections while demonstrating our com­mitment to reforms in this area to potential concessionaires.

The sustainability of our an­ti-theft campaign requires the institutionalization of these recent initiatives. Formal ap­proval of an anti-theft law by the legislature, including the creation of a dedicated police force for all DISCOs and the recognition of electricity theft as a cognizable offense, is nec­essary for improved DISCO governance and improved en­forcement capability.

The country is also planning, that an independent monitor­ing system through officers outside the DISCOs for 2,500 high-loss feeders is required to be implemented through the Power Planning and Monitor­ing Company (PPMC).

Other reforms underway and communicated to the fund, in­clude accelerating the green energy transition as per the 2021 National Electricity Pol­icy, which mandates an in­creased share of variable and cheaper renewable energy in the generation mix. Progress toward this was recently made with the update of the IGCEP in 2022. As an annually updated plan, we are currently work­ing on Integrated System Plan­ning that includes a 2024 IG­CEP to be accompanied by the first ever Transmission Sys­tem Expansion Plan (TSEP). Both plans will be submitted to NEPRA for approval in April 2024; and seek NEPRA’s ap­proval of the Commercial Code to set the procedures, rights, and obligations that govern the trading in the new whole­sale market (expected to be launched in April 2024), and thus improve its efficiency.

Pakistan has also assured the IMF that the country will end the cross-subsidy to fertiliz­er sector in March 2024, while entirely end the subsidization of fertilizer products through gas price cross-subsidies, with any subsidies being provided by explicit on-budget subsidies from July 1, 2024.

According to the plan submit­ted by Pakistan to IMF for the reduction of price disparities between regions and indus­tries, and within industries, it is noted that the plan includes gradually seeking moving to­ward prices provided to the fertilizer sector that are closer to cost-recovery, gas provided to a section of the fertilizer sec­tor receives a large cross-sub­sidy from industry and upon expiry of the current fixed con­cession fee tariff agreement, the cross-subsidy will end in March 2024, said the IMF coun­try report on Pakistan.

Similarly, Pakistan is work­ing on equalizing rates be­tween export and non-export industries. Pakistan will also entirely end the subsidization of fertilizer products through gas price cross-subsidies, with any subsidies being provided by explicit on-budget subsidies from July 1, 2024.

Regarding better targeting subsidies, it was informed that after the residential subsidy re­form in 2022, Pakistan is tak­ing further steps in the multi-year subsidy rationalization plan that focuses on tube wells, subsidies which primarily ben­efit large agricultural users. In Punjab, Sindh, and Khyber-Pa­khtunkhwa provinces, the first phase of the reform will re­move the government subsidy only. For this reform, the plan to seek approval from the Fed­eral Cabinet and NEPRA on a concrete proposal by end-FY 2024, with implementation to begin in the first quarter of FY 2025. The second phase will eliminate one-third of the cross-subsidy for tube wells with implementation to begin in FY26. The country is also ex­ploring various options to re­place agriculture tube well sub­sidies in Baluchistan

On the reduction of incen­tives for captive power, the IMF was informed that the pric­ing structure for non-domes­tic consumers will continue to be refined via semi-annual no­tifications, including for the December 2023 determina­tion, with the goal of directing scarce resources to more effi­cient assets, phasing out cap­tive power in the near term, and transitioning captive pow­er users to the electricity grid, in line with the Cabinet Com­mittee on Energy decision of January 2021. 

Accordingly, the prices for captive power users will be in­creased where network distri­bution and reliability are pres­ent, whereas other captive power users should make the transition to the electricity grid within twelve months, at which point prices will be increased to the RLNG-equivalent. To bring the use of captive power gener­ation to a conclusive end by Jan­uary 2025, the government will announce a plan to make the use of this generation uneco­nomic by end-March 2024.