ISLAMABAD: The federal government has reportedly decided to increase base tariff of Discos approximately by Rs 1.90 per unit across the board except lifeline consumers on the demand of International Monetary Fund (IMF), well informed sources told Business Recorder.
Nepra has determined an increase of Rs 3.34 per unit or 22.3 percent to recover over Rs 300 billion from consumers, but the government has decided to pass on almost 60 percent of the proposed increase.
The impact of increase has been calculated at Rs 175 billion. However, the government will allocate additional subsidy of Rs 20 billion.
A team of minister’s comprising Minister for Planning, Development and Special Initiatives Asad Umar, Minister for Energy Omar Ayub, Information Minister Shibli Fazaz and SAPM on Power Tabish Gauhar were ready to announce the increase at a press conference which was postponed minutes before the announcement. The increase was approved at a meeting presided over by the prime minister on January 13.
Discos existing average tariff is Rs 14.94 per unit, of which Rs 13.35 per unit is base tariff whereas existing quarterly adjustment is Rs 1.59 per unit. The proposed average tariff was Rs 16.84 per unit, of which new base tariff will be Rs 15.25 per unit and existing quarterly adjustment is Rs 1.59 per unit.
“It is very difficult decision for the government due to current political scenario but we have no other option as IMF is not ready to proceed ahead on the program until tariff is increased,” said an official on condition of anonymity. The press conference has been postponed for a couple of days.
Background discussions with the officials indicate that the government is facing a very difficult situation on the proposed increase in tariff as on the one hand inflation has begun to bite the common man with spontaneous protests by several civil servant groups recently demanding a pay raise, and on the other IMF and other financial institutions are pressing for an increase in tariff immediately.
“If the government does not increase tariff as per the determinations, the circular debt which is now Rs 2.4 trillion will touch Rs 2.83 trillion mark. This will be in addition to payment of Rs 450 billion to the IPPs," said officials privy to the situation.
Prime Minister Imran Khan recently stated that he is spending sleepless nights due to power sector issues.
The regulator has approved tariffs of Discos as per adjustment / indexation of tariff for the FY 2019-20 under MYT.
The sources said, the government is planning to stagger proposed increase in tariff but no final decision has been taken so far. This is the same proposal made by former Secretary Irfan Ali to the government, but his plan was turned down.
The government is also reluctant to pass the impact of fuel price adjustments from November 2019 to June 2020 due to expected political backlash.
The sources said, Power Division will also send the determinations of Discos to the Ministry of Finance so that the latter could calculate subsidy amount for the low-income groups and agriculture sector.
According to a senior official of the Power Division, industrial and commercial consumers are cross subsidizing Rs 250 billion which is why prime minister says industrial tariff is 25 percent more expensive in Pakistan as compared to India and Bangladesh. In addition, cross subsidy of Rs 200 billion is being given by the federal government, which is financially unsustainable.
In Sep last year, Power Division had calculated an increase of Rs 6.06 per unit in power tariff to clear backlog of circular debt in financial year 2023.
According to Nepra major challenges are as follows: (i) operation of inefficient public sector Gencos;(ii) under-utilization of ‘take or pay’ based power plants; (iii) noncompliance of Economic Merit Order; (iv) Transmission & Distribution System Constraints; (v) load shedding on the basis of AT&C losses (not approved by NEPRA) and (vi) declining energy sales and recoveries due to pandemic.
Copyright Business Recorder, 2021