The federal cabinet has deferred the tariff adjustments related to both electricity and gas, which were earlier approved by the Economic Coordination Committee (ECC). Or has it? There is no clarity on what transpired in the meeting.
The minutes are not communicated clearly enough, and different media outlets have reported the development differently. There are those who maintain the Prime Minster has directed to postpone the price increase in energy tariffs, while others maintain that the cabinet has okayed the increase as the PM directs the relevant ministries to work out a mechanism to bring prices down.
Recall that the price freeze has been in place since November 2020 in case of electricity and July 2020 in case of gas. The respective regulators had earlier decided to rationalized tariffs to varying degrees, which were going to result in price increase ranging from 5-20 percent, for various consumer categories.
If the reports of postponement in tariff increase are indeed true, they make very little sense, especially in case of electricity. Recall that the cumulative impact of quarterly tariff adjustment for power distribution companies was calculated at Rs1.62/unit by Nepra, and the ECC approved the same with an element of subsidy for consumers up to 200 units. The maximum impact would not have been more than Rs0.32/unit for any domestic consumer category.
If there was no cross subsidization, the actual increase for consumers above 300 unit categories would have been a mere Rs0.04/unit, as the previous adjustments lapsed with effect from October 1, 2020 (see: Quarterly adjustment tariff scenarios, published October 5, 2020). What could possibly be the rationale behind deferring an upward adjustment as minimal as this?
One could still fathom if the upward adjustment was a significant one, and the government intends to shield domestic consumers from higher prices, as part of the broader strategy. But surely, no one is looking for negative price adjustment, which will be the case, should quarterly adjustments get deferred.
Could there be a substantially disproportionate increase for consumers other than domestic sector? Either way, someone has to foot the bill. It is not as if Nepra approved tariffs would not be adjusted, if end consuemrs are not billed for the same. There will either be unfunded subsidy to pug the hole, or further delay in payments to deepen the hole. Not a smart move, whichever way you decide to look at it.