Pakistan Bulletin
An up-to-date and informed analyses of key issues of Pakistan.
How will the Federal Budget Tackle the “Bleeding” Energy Sector?
June 2024
The federal budget for 2023-24 aims to neutralize the effects of Pakistan’s energy sector’s drain on the economy.
The federal budget for the next financial year is “highly ambitious”. It seeks to generate more tax and non-tax revenues to plug the fiscal leakages, which have been eating up the national resources for the last many decades.
Among the many sectors which have been draining the country’s fiscal balance, the ill-developed energy sector stands out.
Pakistan’s energy sector is a double-edged sword, causing damage to both the government and the public by wasting national resources and charging high utility bills.
Presently, the energy sector is fraught with rising circular debt which swelled over Rs. 5 trillion at the beginning of this year and continues to balloon. On the other hand, people are paying the cost of this circular debt in the form of the exorbitant electricity and gas prices, while also suffering outages due to poor systems and practices of the electricity and gas utility companies.
Critics dub the federal budget for the next financial year as the budget of the International Monetary Fund (IMF), which has been constantly pressing the country to reform the energy sector.
According to experts, the budget will continue the fiscal consolidation as most of the targets are in line with the IMF guidelines, which will help get long-term financing facilities. Among other taxes, the government has also included the Petroleum Development Levy (PDL) in tax revenue targets.
With no major reforms undertaken in the energy sector in the last many years, the entire value chain of the power sector from electricity generation to its distribution and transmission, and recovery of dues is fraught with weaknesses and problems.
The country's energy sector is a double-edged sword, causing damage to both the government and the public by wasting national resources and charging high utility bills.
In the budget plan, the government announced reforms to improve the working and efficiency of the energy sector. Some of the reforms announced include: up gradation of the transmission and distribution network of the power sector, restructuring of the National Transmission and Dispatch Company, inclusion of private sector professionals on the board of management in public sector companies, expediting the privatization of distribution companies (DISCOs) and generation companies (GENCOs,) and institutionalizing the campaign against power theft as well as replacing the imported fuel of power generation with cheaper sources of fuel.
The implementation of these reforms may prove to be a daunting task given the current state of the economy as well as the internal political stability situation of the country and the growing public discontent against rising energy tariffs and non-availability of electricity and gas.
Surprisingly, the Finance Minister termed the circular debt a “big challenge” in the energy sector. However, the resolution of this crisis or an answer as to how the government plans to deal with the stock of over Rs. 5 trillion circular debt in the energy sector is hardly in sight. Analysts point out that the government would ensure the circular debt would not increase by raising the tariffs of power and gas sectors in the next financial year. However, this would end up crushing the already burdened consumers of the energy sectors of the country.
Under the new tax measures, the oil sector, a key component of the energy sector is already set to burden the consumers in the next financial year with the announcement of PDL. Petroleum prices have been on the higher side for the last two years, going up from Rs. 150 per litre to over Rs. 300 per litre, impacting food prices, public transport fares and energy prices for the low income segment. The federal government has now proposed to jack up the PDL on petrol and high speed diesel up to Rs. 80 per litre, from the present level of Rs.60 per litre.
Critics dub the federal budget 2024 as the budget of the International Monetary Fund (IMF), which has been constantly pressing for energy reforms.
The federal budgets are always promised to be ushering in an era of structural reforms, relief to the poor and economic stability. However, in common citizens’ experience these are hollow claims and no government, whether political or non-political, ever prepares a financial plan that could genuinely address the issues of the public.
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