The media is abuzz again about how the government is planning to finance the circular debt from the consumers. Only that the plan is much more than only financing the circular debt, as it pertains to a near overhaul of the Nepra Act, in line with commitments made to IMF. National Assembly’s standing committee on Power had discussed the draft version of the Amendment Act a few weeks ago, and that is how it managed to create a stir.
Recall that the proposed amendments to Nepra Act were supposed to be done by November 2019, which was later delayed to January 2020. It still has not been done, but reports suggest it has bene tabled in the National Assembly and discussed at great length in the relevant Standing Committee. One would only know that much, since the National Assembly website continues to ignore Standing Committee’s progress as bills tabled are not regularly updated online.
The power to introduce surcharges in the electricity tariff is not an alien concept in Pakistan. It has been done before and a “reinstatement” is now under consideration. Rest assured, the idea is to make up for the delays in tariff notifications, cost and price recovery, high transmission and distribution losses, unfunded subsidies, and low collection.
The IMF has always been found stressing on the revenue measures, without giving due consideration to their possible consequences. While the idea to automate quarterly tariff adjustments - to eliminate or at least limit the role of federal government in tariff notifications - is the right one, the same cannot be said about the idea to levy fresh surcharges over and above the massive backlog that has already been created in the system. Recall that the unadjusted tariff already amounts to nearly Rs200 billion.
Another plan underway is to move towards more targeted subsidy through Ehsas program, but that would take some time to come into play. Not that targeted subsidy is not the right idea, it is just that the dynamics at play are too complicated to simply shift from a broad category subsidy to pinpointed subsidy, without having done adequate groundwork.
How much of “surcharges” can the government actually levy in times when it does not even find the will or muscle to simply notify base tariff revisions related to capacity and fuel charges? The idea of having a surcharge in addition to the tariff is a weak admission by the authorities that there is little to no likelihood of narrowing the gap between power cost and price, and the inefficiencies of the system are not going anywhere. Do not be surprised if the proposed amendment goes thorough the parliament in the guise of technical jargons. But putting the “surcharges” part of the amendment in play will be an even tougher ask.