Govt eyes Rs110bn cut from provincial NFC shares

ISLAMABAD: The federal government has informed the International Monetary Fund (IMF) about a plan to recover more than Rs110 billion in power-sector arrears from the provinces.

The amount would be recovered from provincial shares under the National Finance Commission (NFC) award.

The proposal was discussed during recent talks with the IMF. The lender raised concerns about the financial impact of the plan on provincial governments.

The government told the IMF that more than Rs110 billion in provincial electricity dues had been reconciled. It also said that nearly Rs50 billion could be recovered soon.

The federal government has previously tried to adjust power-sector dues against provincial NFC shares. However, provincial governments have opposed the move.

The deduction also requires proper authorisation from the provinces. Without the necessary authority, the State Bank of Pakistan cannot make the deductions from provincial accounts.

The IMF is concerned that the recovery could further strain provincial finances. Provinces are already facing pressure to generate a combined cash surplus of Rs1.7 trillion.

They are also required to provide Rs1.036 trillion in cash grants to the federal government. Provincial governments have reduced or adjusted development spending to meet these financial requirements.

The Power Division is also installing smart meters to address disputes over electricity billing between the federal government and provinces.

The IMF also sought clarification on the future of uniform electricity tariffs. The question has become important because Pakistan is moving towards the privatisation of several power distribution companies.

Under the uniform tariff system, consumers of different distribution companies are charged according to a common tariff structure. This means customers of more efficient companies can pay the same basic tariff as those served by less efficient companies.

The government has not yet provided a clear position on whether the uniform tariff system will continue after privatisation.

The issue is important for reducing the subsidy burden on the national budget. The experience of K-Electric has also raised questions about how tariffs and subsidies will be handled after privatisation.

The financial dispute between K-Electric and the federal government was also discussed during the IMF talks.

K-Electric has outstanding payment issues related to electricity purchases, tariffs and subsidy claims. The federal government is reportedly prepared to settle more than Rs100 billion in claims if the related tariff issues are resolved.

The National Electric Power Regulatory Authority and its tribunal have rejected K-Electric’s request for a Rs40-per-unit tariff. They approved a tariff of Rs32.37 per unit. The company is expected to challenge the decision in court.

The IMF also questioned the delay in reviewing the industrial incremental support package.

A hearing on the matter has been scheduled for October 5. The review could result in changes to the special electricity rates offered to selected industries.

The package was introduced in December 2025. It offered a special tariff of Rs22.96 per unit to eligible industries.

The government had committed to reviewing the package after six months. However, the review has been delayed, and the package has remained unchanged for several months.

Meanwhile, industrial electricity costs have increased by around 10% following tariff rebasing. Any further increase in incremental tariffs could add to the financial pressure on the industrial sector.