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ISLAMABAD: The federal government is reportedly formulating a two-phase subsidy retargeting plan, meant to introduce new tariff slabs for domestic consumers and expand definition of lifeline consumers from 50 units per month to 100 units per month, well informed sources in Finance Ministry told Business Recorder.

The new tariff subsidy policy is likely to be implemented from June 1, 2021, reportedly as part of an understanding with the International Monetary Fund (IMF).

Last week, National Assembly Standing Committee on Power empowered Power Division to impose surcharge up to 10 percent of aggregate revenue requirement of all electric suppliers.

The current level of subsidy, sources said, has been calculated at Rs421 billion, of which Rs26 billion is given to 3,936 zero rated industrial consumers, Rs38 billion to Azad Jammu and Kashmir, Rs18 billion to 402,000 ex-FATA residential consumers, Rs36 billion to 337,000 industrial consumers as Industrial Support Package (ISP).

The subsidy to one million lifeline consumers who use up to 50 units per month is zero, however, Rs65 billion subsidy is being extended to 18 million consumers, using 1-100 units monthly.

The amount of subsidy for 5 million domestic consumers using 101-200 units in a month is Rs78 billion, and Rs59 billion for those who use 201-300 units.

The number of consumers using 301-700 units is one million, who cross subsidise other domestic consumers with Rs5 billion whereas consumers using above 700 units months contribute Rs6 billion as cross subsidy.

According to sources, total subsidy amount of Rs191 billion is being extended to 26 million domestic consumers. The federal government is also extending Rs26 billion subsidy to 2 million consumers of Karachi Electric.

In agriculture sector, Rs23 billion subsidy is being given to 29,000 agriculture consumers of Balochistan whereas a subsidy of Rs63 billion is being given to agriculture consumers in other Discos.

Power Division has also asked to revise subsidy allocations in the budget as per actual, but Finance Division will resist this move like in the past. Previous Secretaries of Power Division also made similar efforts but they did not receive required subsidy from Finance Division.

This issue has been discussed at a recent meeting of Economic Coordination Committee (ECC) of the Cabinet, in which the Power Division submitted the following recommendations: (i) expanded definition of the lifeline consumers to include residential Non-Time of Use (ToU) consumers having maximum of last twelve months’ and current month’s consumption of 100 units; (ii) residential non-ToU consumers having maximum of last twelve months consumption of 100, 200 and 300 units would be eligible for the subsidised rates of the relevant slab; and (iii) residential non-ToU consumers having maximum of last twelve months consumption of 200 or 300 units (subject to analysis), currently being billed at subsidised rates in low consumption months, would be billed as per a mechanism designed to ensure that a) ineligible consumers don’t receive high subsidy amounts and b) the price shock to such consumers is minimised.

According to sources the ECC has also been informed that the tariff slab 301-700 units per month will be broken into two or more slabs, with the lower of these slabs charged at a lower rate (to be determined on the principle of progressive elimination of subsidy). The ECC has directed Power Division to complete its analysis and resubmit its proposal on thresholds and rates by March 31, 2021.

Copyright Business Recorder, 2021

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