Pakistan’s power sector has undergone first tariff restructuring in March 2021. The same would be visible in the upcoming electricity bills for the last month. But it is unfortunate that it became public knowledge only through the IMF country report on Pakistan. Maybe it is apt that a significant change in tariff structure was only communicated through the very architect of the “reform” plan, i.e. the Fund (and World Bank).
Mind you, this is not a trivial development as far as the impact on end consumer tariff goes. The first energy reform step has been termed as a “prior action” for the completion of IMF review. The subsidy reform is being planned in two stages, of which the second and more detailed step is marked as a structural benchmark to be completed by June 2021.
So why is it such a big deal one may ask. In absence of clear details - government and the regulator have shied away from clearly laying out the revised tariff structure of consumption slabs - one could arrive at a possible scenario, in light of information available.
As per the IMF document, the first energy subsidy reform is “aimed at reducing the regressive nature of the tariff structure, which include a more expanded definition of the lifeline tariff as a relief for the vulnerable and the determination of the subsidized tariff slab based on households’ maximum usage from the previous 12 months (rather than monthly consumption)”.
Given how carefully it is worded, it will just take one month’s electricity bills to unmask the inflationary consequences of the decision. There is no denying the fact that cross subsidy has long held back the power sector from getting closer to achieving tariff rationalization. Having said that, there should be no confusion that just like annual rebasing exercise, this too, is largely a revenue measure, and can only be termed as “reform by a long stretch of imagination.
The adjusted tariffs, after the first stage of subsidy reforms, now cover about 90 percent of the power cost, net of subsidies. That is the highest ever tariff to cost ratio Pakistan’s electricity system has achieved. Needless to say, paying consumers will face the brunt.
Now, the efforts to rationalize subsidies by “targeting subsidies” will mean more consumption slabs than the existing ones, come June 2021. The government has claimed it launched a public outreach campaign to explain the reform need and strategy to consumers. One recalls there has been a sharp surge in India, Bangladesh, Sri Lanka domestic power consumption slab comparison of late, and that could well be part of the outreach campaign.
One can now make more sense of the first annual rebasing exercise carried out in February 2021, which was accompanied with significantly different numbers for consumption across various slabs. Consumers up to 300 units that constituted 78 percent of total domestic consumption have been cross subsidized by those in the higher categories.
That may still remain the same, but the composition of each slab is likely to change significantly, as more consumers are now expected to land in the higher slabs, owing to the 12-monthly maximum usage clause, over the currently used monthly consumption. From what it appears, it could mean that a consumer billed for 200 units will not pay at the rate applied for the 101-200 slab but would be paying at the rate of the highest consumption in the trailing 12-month period, which in a lot of cases could be considerably higher.
One would hope the authorities operate with more clarity, as steps carrying such high impact must be detailed and informed in advance, to the consumer that pays. Watch out for your bills this month. And keep watching out for the next few months, if the government is to follow the timetable as laid out by the IMF.