Govt may increase power tariff to revive IMF programme

• Maximum tariff can go up by  Rs31.6/kWh.
• Proposal aims to slap surcharge on commercial, bulk, industrial, general services.
• Ishaq Dar says there was no consideration for hiking power tariff at the moment.

ISLAMABAD: In a last-ditch effort to revive the stalled the International Monetary Fund (IMF) programme, the government has made a plan with four options under consideration for slashing circular debt whereby the maximum electricity tariff can go up by Rs31.6/kWh through the imposition of a new surcharge.

The proposal aims to slap a surcharge on five categories including commercial, bulk, industrial, others, and general services while protecting domestic and agriculture sectors. Top official sources confirmed to The News on Monday that the cash-bleeding power sector was heading towards a totally unsustainable level as the requirement of the power sector might escalate to a whopping Rs1.73 trillion for the current fiscal year against an initial budgetary allocation of Rs0.57 trillion mainly because of inadequate budgetary allocations.

Under the plan, there are four major proposals out of which three comprise hiking the electricity tariff in the range of Rs2.27/kWh and Rs12.59/kWh and a maximum of Rs31.6/kWh through the imposition of a surcharge on all five categories of consumers. 

For slapping the surcharge, the government will have to amend the National Electric Power Regulatory Authority (NEPRA) Act 1997. Under option one for imposing a surcharge of Rs31.6 per unit, the rate of commercial consumers might go up to Rs94 per unit from the existing rate of Rs49 per unit. 

The bulk consumer rate may increase to Rs77.9 per unit from the existing tariff of Rs40 per unit, industrial consumer up to Rs80 per unit from the existing price of Rs40 per unit, others Rs77 per unit against the existing tariff of Rs40 per unit and general services tariff Rs77 per unit from existing Rs40 per unit. Under option two with an increase of Rs12.50/kWh, the tariff for the commercial consumers will go up to Rs67 per unit, bulk Rs55 per unit, industrial Rs56 per unit, others Rs54 per unit, and general services Rs54 per unit.

With the imposition of a surcharge of Rs2.59 per unit, the commercial consumer tariff will go up to Rs52 per unit, bulk Rs43.37 per unit, industrial Rs43 per unit, others Rs42.4 per unit and general services Rs42.8 per unit.

In case of the status quo and no hike in the power tariff under the fourth option, the subsidy requirement stands at a whopping Rs700 billion during the current fiscal year. The Kissan package and zero rating for export-oriented industries will add a financial burden of Rs146 billion and the IMF is asking to find out resources to finance the subsidy otherwise it would add to the monster of circular debt.

According to the plan for reducing the circular debt, four options are under consideration which envisage hiking the electricity tariff by Rs31.6/kwh under option one, Rs12.59/kWh under option two, Rs2.27/kWh with a subsidy of Rs580 billion under option three and subsidy requirements will go up to over Rs700 billion with no increase in power tariff.

When asked about the possibility of an increase in the power tariff, Finance Minister Ishaq Dar told The News on Monday that there was no consideration for hiking the power tariff at the moment and promised to discuss it in details when the plan was finalised for reducing the circular debt.

However, official sources said that the power sector faced a very grim situation in the wake of its inability to implement all agreed actions with the IMF and World Bank as the baseline tariff of Rs7.91 per unit got partially implemented, not fully passing on Fuel Price Adjustment and Quarterly Tariff Adjustment, recovery of bills less than 90% against the target of 93%, failure to curtail transmission and distribution losses around 17% against the target of 15.8 %, demand of electricity in quarter first stood less than 44 billion units against target of 45 billion units, additional subsidy requirements with regard to Zero Rating Regime Industry, Kissan Package and staggering of Fuel Cost Adjustments and Karachi Interbank Offered Rates standing at 15% against envisaged target of 10.5% on eve of the budget for 2022-23.

The prevailing difficult situation of power sector can be analysed with this reality that the power sector losses peaked to over Rs390 billion in the first quarter of the current fiscal year so caused ballooning of the circular debt.

The bill collection dropped significantly in the first quarter as it stood at 83% against the target of 93%, having financial implication of over Rs100 billion. The power theft on account of Transmission and Distribution (T&D) losses touched 17.4 percent against the fixed target of 15.8%, resulting into increased financial losses of Rs13 billion, rebasing of 7.91 per unit hike in tariff was passed on partially quarterly tariff adjustment of over Rs45 billion recoverable in third quarter of ongoing fiscal year, Rs 6 billion recovered in FCA in November while Fuel Cost Adjustment of Rs14 and Rs13 billion were deferred.

It was envisaged that the government would release subsidy amount of Rs46 billion but not a penny was released in the first quarter of the current fiscal year. The markup for Power Holding Company and IPPs increased from Rs39 to Rs40 billion so there was impact of Rs1 billion on this account. The quarter one demand decreased from 45 billion units to 40 billion units, causing financial loss of Rs55 billion. The non-recovered GST to the Federal Board of Revenue of Pakistan (FBR) stood at Rs31 billion in the first quarter of the current fiscal year. The bill deferment caused loss of Rs34 billion in the first quarter of the current financial year.

According to the revised plan for reducing the circular debt known as Circular Debt Management Plan (CDMP) which was under discussion with the IMF and World Bank, the target of bill recovery was revised from 93.5 percent to 92% which will have negative impact of Rs55 billion, losses of T&D will accumulate burden of Rs31 billion, inability to generation cost recovery will add into losses of Rs63 billion, increase in mark-up on Power Holding Company and IPPs will add in financial loss by Rs64 billion, non allocation of K-Electric subsidy will add by Rs136 billion, un-budgeted subsidy for export oriented industry Rs118 billion and Kissan Package Rs28 billion, Fuel Price Adjustment (FPA) and bill deferment Rs65 billion additional burden, less demand of electricity will cause loss of Rs55 billion and variation of GST collection Rs91 billion. The revised estimates of CDMP shows that total additional requirement of loss-making power sector stood at Rs780 billion against initial allocation of around Rs75 to 80 billion.

However, official sources said that the real loses might go up to additional requirement of Rs800 billion instead of Rs700 billion.

According to official statement issued by Ministry of Finance, stating that Dar chaired a follow-up meeting on reforms in Energy Sector at Finance Division on Monday.

Federal Minister for Power Khurram Dastgir Khan, Minister of State for Finance and Revenue Dr Ayesha Ghous Pasha, Minister of State for Petroleum Musadik Masood Malik, SAPM on Finance Tariq Bajwa, Secretary Power and senior officers attended the meeting.

Meeting discussed in detail viable proposals presented by the relevant Ministries for introducing reforms in power and gas sectors aiming to bring efficiency in the system, minimise wastage of the energy and provide relief to the masses. The proposals focused on bringing sustainability to the energy sector and thereby achieve economic growth in the country, the official statement concluded.

Originally published in The News