ISLAMABAD, FEB 24: The federal government is pushing to slash electricity prices by Rs6-8 per unit within the next two months in a bid to provide much-needed relief to consumers, Power Division officials said on Monday.
To tackle the growing circular debt in the power sector — currently estimated at around Rs2.3 trillion — the government is in talks with banks to secure a Rs1.24 trillion loan at a fixed rate for a specific period, officials revealed.
According to top officials privy to the development, the central bank’s policy rate has retreated to 12% from a whopping 22 % in line with expectations, as inflation eased and growth is set to pick up after 1,000 basis points (bps) of rate cuts over the last six months.
State Bank of Pakistan (SBP) has slashed rates from an all-time high of 22% last June, one of the most aggressive moves among central banks in emerging markets and exceeding its 625bps of rate cuts in 2020 during the COVID-19 pandemic.
“The discount rate may drop further, and authorities aim to capitalise by borrowing Rs1.242 trillion,” an official said, adding that talks with banks were ongoing to finalise the term sheet before the International Monetary Fund (IMF) mission’s arrival.
The development comes as one of the two IMF missions has already arrived in Pakistan for climate finance discussions, while the second mission is set to visit next month for the first review of the country’s progress under the $7 billion Extended Fund Facility (EFF).
Earlier, Finance Minister Muhammad Aurangzeb also confirmed that an IMF delegation would visit next month to discuss key matters related to the EFF.
Furthermore, as part of cost-cutting measures, negotiations with Independent Power Producers (IPPs) have resulted in savings of Rs700 billion for the government, including removing Rs300 billion in interest payments.
So far, agreements with six IPPs have been terminated, while discussions with 25 others on a “take-and-pay” model have been completed.
The government is also in talks with a task force overseeing state-owned power plants to streamline operations and further reduce costs.
Officials stressed that the ultimate goal is to bring the circular debt to zero as soon as possible.
Meanwhile, Federal Minister for Energy (Power Division) Sardar Awais Ahmad Khan Leghari on Monday told the Senate Standing Committee on Power that ongoing negotiations with IPPs were expected to create a fiscal space worth Rs1,400 billion.
He assured that discussions with IPPs were conducted without any discrimination.
During the meeting, Federal Secretary Energy (Power Division) Dr Muhammad Fakhre Alam Irfan said the government is working on reducing taxes on electricity bills but noted that any such move would require approval from the IMF.
Talks with the IMF on this matter are expected to take place in the first or second week of March, he added.
The high cost of electricity has become a contentious political issue, with opposition parties leveraging public dissatisfaction to criticise the incumbent government’s handling of the energy sector and agreements with independent power producers (IPPs).
The burden of high electricity tariffs falls disproportionately on the middle and lower-income segments of society, fueling public outrage and eroding trust in the government’s ability to manage the economy.
Analysts noted that a successful renegotiation with both local and international IPPs would drastically reduce tariffs, boost industrial competitiveness, and increase public trust in the government’s ability to effectively manage the economy.
