ISLAMABAD: The federal government has reportedly decided to trim the number of domestic electricity consumers enjoying a subsidy by 37 percent to 13.9 million from existing 22 million, sources close to Minister for Power told Business Recorder.
The National Power Policy, 2013, approved by the Council of Common Interest(CCI) stipulates that "the low-end consumers will be protected from any price escalation, and tariff rationalization will be done to eliminate subsidy within industrial, commercial, and bulk consumers as well as a level playing field will be created by providing power at comparable prices to all industrial users". The Economic Coordination Committee (ECC) of Cabinet approved the National Power Tariff and Subsidy Policy Guidelines, 2014 on January 28, 2014. National Electric Power Regulatory Authority (Nepra) has determined uniform tariff to be charged from the electricity consumers, including the impact of subsidy and inter-Disco tariff rationalization, in terms of section 31(4) of the Nepra Act, 1997, which was notified on February 12, 2021. The sources said ideally electricity subsidies for residential consumers should be restricted to the lowest socioeconomic class of consumers. After completion of an Ehsaas survey and linkage of residential electricity meters with CNICs, it would become possible to use Ehsaas socio-economic registry for provision of electricity subsidy. Until then electricity consumption itself can be used as a proxy for determining the socioeconomic status of the consumers and determining their eligibility for subsidy, because electricity consumption itself is a recognized measure of socio-economic status.
This model had been in vogue in Pakistan's power sector for a long time. Electricity has been provided at subsidised rates to the users consuming up to 300 units of electricity per month.
According to sources, current electricity subsidy and tariff structure, though intending to provide relief to the low end consumers, has various elements, which causes provision of untargeted subsidy. These include: (i) no exclusion criteria for the most subsidized slabs — resultantly consumers with a larger asset/ income base become eligible for subsidized rates of electricity during low usage months of winter; and (ii) Incremental Block Tariff (IBT) structure allows each user to take benefit of the rates of the previous slabs.
The sources maintained that it was decided in a meeting chaired by the Prime Minister on September 16, 2020 that "Power, Finance Divisions and Ehsaas to work out details of targeted subsidy for electricity consumers and then move a summary to the ECC for decision on revision of tariff."
Subsequently, in a meeting chaired by the Prime Minister on 10th February, 2021, a two-phased subsidy reform proposal was presented to the Prime Minister and was approved in principle. In order to make the residential subsidies more targeted it was essential that exclusion criteria were applied on the slabs below 300 units per month so that ineligible consumers may not take benefit of the significantly subsidized prices in these slabs. It was proposed that the condition of maximum usage in previous twelve months not exceeding the ceiling of each of these slabs may be applied. It was estimated that by application of this condition the number of consumers taking benefit of these rates would be limited to 13.9 million, compared to the current number of 22 million and a saving of approximately Rs 42 billion per annum in subsidy expenditure will accrue to the Discos as a whole. Currently, life line consumers are defined in Nepra's determination of tariff for Discos as consumers whose electricity consumption in a month does not exceed fifty units. These consumers not only are charged the lowest tariff (Rs 3.95/ unit) but fuel cost adjustment, financial cost surcharge and the Neelum Jhelum Surcharge are also not passed on to them. It was proposed that the definition of life line consumers may be expanded to include consumers whose monthly consumption does not exceed one hundred units. No reduction in the tariffs is proposed for the consumers in the expanded slab, but they would, in future, be protected from imposition of any surcharge.
Copyright Business Recorder, 2021