Quarterly adjustment tariff scenarios

Nepra has worked out an average Rs1.62 per unit in lieu of quarterly tariff adjustments for 2QFY20 and 3QFY20 combined. The aim is to make room for Rs165 billion accumulated on account of tariff adjustments, bulk of which pertains to capacity charges, during the two quarters. The distribution of tariff adjustments is not known yet, except for the domestic consumers consuming up to 200 units.

A jog down the recent history would not be entirely out of place to attempt to know what is in store for domestic, commercial, industrial and other consumers. Considering the press release issued by the Ministry of Finance, the domestic consumers using up to 300 units are surely in for a first. The lifeline consumers using up to 50 monthly units will be exempted as always but it appears the next three slabs are all set to face varying degrees of tariff increase.

The press release clearly indicates the consumers using up to 200 units will be subsidized to the tune of Rs1.3 per unit, leaving them to face an increase of Rs0.32/unit. What becomes of the consumers falling in the next category remains unclear, but it will be a massive surprise if domestic consumers in 201-300 units category are subject to Rs1.62/unit increase. That said, the adjustment will still likely be north of Rs0.32/unit stipulated for up to 200-unit category.

Combined, these three categories constitute 78 percent of domestic and 40 percent of overall consumption. Assuming that, even in a highly unlikely scenario of domestic consumers in the 201-300unit category being subject to the national uniform tariff adjustment of Rs1.62/unit – the first two categories have created a gap of Rs35 billion. This will need to be adjusted upwards for the other categories, and the axe will most likely fall on commercial and industrial consumers.

For domestic consumers above 300-unit category, Rs1.58/unit adjustment has lapsed on September 30, 2019. The tariff increase would be a minimal Rs0.04/unit in case the uniform tariff applies. This will create a dichotomy in terms of price increase and impact on inflation for lower consumption categories. Another possible scenario is to equate the price increase for all domestic consumer categories at Rs0.32/unit – which will lead to an adjustment of Rs1.9/unit for all consumer categories beyond 300 units.

This could fetch Rs152 billion in adjustments, which is very close to the amount allowed to be collected by the regulator. All eyes are now on the government gazette notification, which should tell if the government intends to deal with the adjustments within the consolidated requirements, or will there be subsidy, as there was for 1HFY19 adjustments.