Govt, global donars to discuss power tariff hike on Monday

If IMF tranche not okayed by April 12, it could be delayed further

ISLAMABAD: Representatives of multilateral creditors and Pakistani authorities are scheduled to meet on Monday, Mar 29, to decide whether to increase electricity tariff by six per cent from April 1, or defer it to avoid popular backlash, a senior official of the finance ministry said on Saturday.

The meeting had been called after an unexpected delay in approval of the IMF’s fifth tranche worth $1.2 billion for Pakistan, the official said.

The representatives of the World Bank (WB), the Asian Development Bank (ADB) and Pakistani authorities would hold the final round of talks on Monday to resolve the lingering controversy on increasing electricity tariff by six per cent, he elaborated.

There was a growing feeling among officials that inflation had reached a point where any further increase would trigger riots like those seen in the federal capital after the recent increase in transport fares, he said.

Pakistan had agreed with the WB and the ADB to further increase electricity tariff by six per cent from April to curtail the power differential subsidy within the envisaged budgeted limits of Rs55 billion, which according to donors estimates, was all set to breach the desired limit. Islamabad has already implemented its commitment by raising power tariff six percent and 12 per cent respectively in October 2009 and January 2010.

Increasing power tariff is not part of the IMF conditionalities, but multilateral creditors, including the IMF, WB and ADB, worked in a more coherent manner, so it was basically the brainchild of the WB and the ADB, and under which Pakistan is bound to raise power tariff.

“Now there is a need to keep political economy in mind during the decision- making process and efforts should be made to convince the donors the need to avoid any further increase in power tariff,” said the official.

There was no rationale for any further increase in electricity tariff at a time when the IMF had developed cold feet on approving the next tranche for the struggling economy of Pakistan, a top official of the Gilani government said.

Pakistani authorities, sources said, expected that the IMF’s Executive Board would meet on April 12 in Washington for approval of the next tranche under the Standby Arrangement program of $11.3 billion bailout package. But it depended on Islamabad’s ability to accelerate the process of tabling the Value Added Tax (VAT)-related legislation draft bill in the four provincial assemblies and subsequently in informing the IMF in this regard, the sources added.

“We expect that all the provinces, including Punjab, will formally inform us about tabling the draft legislation on VAT for bringing the services sector under the tax net on coming Monday, enabling us to implement the measure desired by the IMF,” said the official, adding that if the process was also conveyed to the IMF on the same day, then the approval of the next tranche of $1.2 billion could be considered by the Fund’s executive board by April 12.

Any further delay, the sources said, could put immense pressure on Pakistan’s economy as the release of the tranche would be further delayed because the annual meeting of the Bretton Woods Institutions (IMF and WB) was scheduled to be held on April 24 and 25.