IMF demands removal of subsidies for up to 200 electricity units

Please enable JavaScript for the best SAMAA TV experience.

Note: For enhanced search features, please enable JavaScript.

Fund raises concerns over Rs1,675bn circular debt, DISCO privatisation

Pakistan and the International Monetary Fund (IMF) have reached a critical stage in policy-level negotiations for the next loan tranche of more than $1 billion, with the lender raising concerns over power-sector circular debt and the proposed privatisation mechanism for electricity distribution companies.

The IMF has flagged Rs1,675 billion in power-sector circular debt and demanded the elimination of cross-subsidies for consumers using up to 200 units of electricity per month.

The IMF has asked Pakistan to remove the existing cross-subsidy for consumers using up to 200 units of electricity.

In response, the government has proposed shifting towards targeted assistance through the Benazir Income Support Programme (BISP), with subsidies for eligible consumers using up to 200 units expected to begin from January 2027.

The government has also allocated Rs830 billion in power-sector subsidies for the 2026-27 fiscal year, while the IMF mission has been informed that the annual financial burden of the DISCOs stands at around Rs850 billion.

The IMF has also expressed reservations about the proposed mechanism for privatising electricity distribution companies, as Pakistan’s economic team shared its privatisation plan and timeline during the fourth economic review talks.

The government has set a target to complete the privatisation of nine DISCOs by December 2027, while Quetta Electric Supply Company (QESCO) has been excluded from the plan.

The government’s broader DISCO reform programme is also consistent with its ongoing efforts to bring private-sector participation into distribution companies. Official plans have identified FESCO, GEPCO and IESCO as the first batch for privatisation.

According to the government team, FESCO is expected to be privatised in January 2027, followed by GEPCO in February and IESCO in March 2027.

The privatisation of Hyderabad Electric Supply Company (HESCO) and Sukkur Electric Power Company (SEPCO) is planned between April and June 2027.

The Peshawar, Hazara, Lahore and Multan electricity distribution companies are scheduled for privatisation by December 2027.

The IMF has previously supported private-sector participation in DISCOs as part of efforts to improve efficiency, governance and address the drivers of power-sector circular debt.

Despite the planned privatisation, additional charges on general electricity consumers will not end because the government intends to maintain a uniform electricity tariff across the country.

As a result, consumers served by more efficient DISCOs would continue to share the financial burden associated with losses incurred by weaker distribution companies.

The government has also devised a plan to segregate billions of rupees in outstanding DISCO liabilities and transfer them to a Special Purpose Vehicle (SPV) as part of the restructuring process.

The IMF delegation is reviewing Pakistan’s overall economic situation, agreed targets and tax reforms during the ongoing policy-level talks. The economic team, led by Finance Minister Muhammad Aurangzeb, will brief the mission on the latest developments.

Consultations are continuing between the government and the IMF to reach consensus on the draft Memorandum of Financial and Economic Policies (MEFP), which will form the basis for a potential staff-level agreement.

The IMF mission is expected to leave Pakistan in the coming days. If the two sides fail to reach consensus on the draft before its departure, negotiations will continue virtually to finalise the staff-level agreement.

Officials say the IMF delegation is satisfied with several measures taken so far. Pakistan has met its first-quarter tax collection target, while the privatisation programme is progressing according to schedule.

However, amendments to laws governing certain state institutions are still awaiting approval from the National Assembly. The government has also not met its target for deregulating the sugar sector, while the IMF has raised objections over the auto policy.

The latest talks are therefore focused on resolving outstanding differences, particularly on the power sector, before the two sides move towards a staff-level agreement and the release of the next tranche of more than $1 billion.

Government shares DISCO privatisation timeline with IMF

Fund proposes raising sales tax on plug-in hybrid, range-extended vehicles, prompting govt to review auto policy