All set to resume two percent monthly raise in power tariff

The government is all set to resume 2 percent monthly increase in electricity tariff probably from next month to do away with subsidy in an effort to get the IMF Stand-Bay-Arrangement (SBA) restored, it is learnt. Sources in the finance ministry said the proposal for 2 percent monthly increase in power tariff for the remaining months of current fiscal year has been finalised and would be implemented after the approval of political leadership.
They said increase in power tariff was put on hold since December 2010 but now it has to be passed on to consumers to contain the fiscal deficit at a level acceptable to the IMF for revival of SBA programme to qualify for the budgetary support from bilateral and multilateral as well as to prepare Medium Term Budgetary Framework (MTBF) for next three years.
The power sector reforms was one of the benchmark under the IMF programme to reduce subsidy and consequently the fiscal deficit by plugging leakages, improving efficiency, minimising line losses and passing on to the consumers differential between tariff cost and recovery. Sources said annual subsidy of Rs 240 billion, around 1.5 percent of the GDP, to the power sector was being given from the budget which was widening the fiscal deficit, a major concern of donors.
However, an official involved in power sector reforms claimed that this huge subsidy has been brought down to Rs 140 billion through reforms in the power sector during the last one year. The differential between notified tariff and being recovered has been reduced from Rs 3.19 per-kilo-megawatt-hour (PKMH) in October 2010 to Rs 1.71 PRKM in 2011. This was possible through changing fuel mix, minimising generation cost by replacing inefficient production units and reducing commercial line losses.
The subsidy for power sector was budgeted at Rs 30 billion on account of tariff differential for FY11 but was subsequently increased to Rs 67 billion. Sources said the tariff differential ranged between 15 to 17 percent despite giving Rs 95 billion subsidy so far and now some portion of the tariff has to be passed on to consumers to minimise the burden on the budget.