Power Tariff subsidy to continue till June: fuel differential to be passed on to consumers

The federal government has reportedly decided to extend Rs 30 billion subsidy every two months to keep power tariff frozen at least till June, 2011, sources told Business Recorder. "We will continue to extend Rs 30 billion subsidy every two months to Pakistan Electric Power Company (Pepco) as tariff differential. However, impact of fuel differential will be passed on to the consumers as per monthly fuel adjustment formula," they said.
The Finance Minister, in his budget speech in June 2010, had announced that the government had earmarked Rs 30 billion as power tariff subsidy during the entire current financial year 2010-11.
However, the Ministry of Water and Power claims that the amount for power sector subsidy was Rs 140 billion for Pepco and Rs 40 billion for Karachi Electric Supply Company.
Another official told this scribe that the government had earmarked Rs 84 billion in the federal budget 2010-11, of which Rs 10 billion was for the Federally Administrated Tribal Areas (FATA), Rs 30 billion for tariff differential, Rs 4 billion as general sales tax (GST) refund and Rs 40 billion to pay interest on Term Finance Certificates (TFCs), issued by the Power Holding Company Limited (PHCL).
Last year, initially, Pepco had projected Rs 265 billion shortfall, which was reduced to Rs 239 billion. However, after two percent, increase in power tariff the projected shortfall declined to Rs 196 billion for the whole year.
"If we divide Rs 196 billion over 12 months, the government has to extend a subsidy of around Rs 16.3 billion per month to keep tariff unchanged," the official added.
When contacted, an official of Water and Power Ministry told Business Recorder that it assisted each disco to develop a credible and robust business plan and assessed managerial capacities and adequacy of processes in each of the discos and gencos and remedial measures initiated.
The Ministry also claims reduction in Nepra notification tariff from Rs 10.45 (2009-10) to Rs 9.56 (2010 -11).
The official also claimed that load shedding has been reduced by almost 50 percent as compared to last year, through the addition of 1975 mw capacity and more efficient management of the generation units. The shortfall last year was close to 4000-4500 mw while presently it is only 2000-2100 mw daily. However, this claim does not match the ground realities as duration of load shedding in villages is not less than 10 hours these days.
The official also claimed that reduction in tariff differential subsidy from Rs 256 billion to just over Rs 100 billion in one year is not credible as subsidy has crossed Rs 150 billion.
Last year, economic managers had agreed with the international financial institutions including the International Monetary Fund (IMF) that power tariff will be increased by 2 percent every month to take it to 24 percent by the end of the year.
The government increased tariff by 4 percent in two monthly instalments but after political pressure it was frozen.
In September last year, the IMF External Relations Director, Caroline Atkinson, had observed that the government of Pakistan was spending $2 billion a year on subsidising power, and urged reforms so that support is directed at the poor and the needy, and not untargeted.
"Now, over the longer term, it''s important to note that the government is spending a lot of money on subsidising power. I believe the figure is $2 billion a year," she added.