Pakistan has secured provisional approval from the International Monetary Fund (IMF) for a reduction in electricity tariffs by Rs. 1.5 to Rs. 2 per unit. This decision follows extensive negotiations aimed at obtaining the next $1 billion tranche under the $7 billion loan program.

IMF’s Stipulations on Power Sector Reforms

The IMF has expressed concerns over the inefficiencies and financial losses of state-owned power distribution companies (DISCOs). To address these issues, the IMF has conditioned the tariff reduction on Pakistan’s submission of a comprehensive privatization plan for DISCOs. The proposed plan includes a two-phase approach:

  1. First Phase: Privatization of Islamabad, Faisalabad, and Gujranwala Electric Supply Companies.
  2. Second Phase: Subsequent privatization of Multan, Lahore, and Hyderabad Electric Supply Companies.

The IMF is seeking a concrete timeline for these privatizations to ensure effective implementation.

Additional Energy Sector Reforms and Financial Measures

In addition to the privatization efforts, Pakistan’s economic team is negotiating further reforms in the energy and taxation sectors. The IMF has proposed measures such as a Rs 2.80 per unit surcharge on electricity bills and a carbon tax on petrol and diesel. An alternative proposal suggests increasing the petroleum levy from Rs 60 to Rs 70 per liter. Despite government efforts to reduce the tax burden on consumers, the IMF previously rejected a proposal to abolish GST on electricity bills. To manage the circular debt in the power sector, Pakistan has agreed to secure a Rs 1,250 billion loan from commercial banks at a 10.8% interest rate.