In the event of moratorium on energy prices: Govt asked to spell out its circular debt alternate plans

ISLAMABAD: The International Monetary Fund (IMF) and World Bank (WB) are said to have sought alternate plans from the government to reduce "unbridled" energy sector circular debt of Rs 2.4 trillion in the event of a moratorium on prices or less than promised increase, well-informed sources told Business Recorder.

The government's team recently approached both the IMF and World Bank and reportedly presented a Shaukat Tarin-tailored case with the argument that during the ongoing Covid-19 third wave, an increase of Rs 4-5 per unit in electricity tariff would: (i) make industry economically unviable with a number of industrial units going off the national grid in favour of own generation; (ii) commercial sector will be hit badly; and (iii) domestic consumers - middle and lower middle income earners – would suffer enormously.

The sources said, the two international financial institutions have asked the authorities to formulate an alternate plan and a revised Circular Debt Management Plan (CDMP).

The government recently increased base tariff of electricity by Rs 1.95 per unit, of the total determined tariff of Rs 3.34 per unit. The remaining increase which is Rs 1.39 per unit is to be passed on to the consumers from June 1, 2021 as per the agreement with the IMF. In addition, adjustments in Quarterly Tariff Adjustments (QTAs) and Fuel Component Adjustments (FCA) are also on the cards. FCAs are passed on to consumers as per the notifications issued by Nepra, whereas recovery of QTAs is at the discretion of the federal government.

The Federal Cabinet recently approved CDMP aimed at reducing flow of circular debt, reduction in losses, and improvement in recovery, etc.

Earlier, the government intended to withdraw subsidy available to electricity consumers using 201 to 300 units monthly on the justification that provision of subsidy to this category is not possible due to power sector's financial woes. However, now this plan is likely to be shelved due to the current financial condition of those falling in this category of consumers.

If this concession continues, the government would have to arrange an additional Rs 19.4 billion.

Removal of Incremental Block Tariff (IBT) benefit, addition of more slabs for consumers using above 700 units in a month and review of the multi-meter policy is also part of the plan.

The current level of subsidy, sources said, has been calculated at Rs 421 billion, of which Rs 26 billion is given to 3,936 zero-rated industrial consumers, Rs 38 billion to Azad Jammu and Kashmir, Rs 18 billion to 402,000 ex- FATA-residential consumers, and Rs 36 billion to 337,000 industrial consumers as Industrial Support Package (ISP). The existing level of subsidy is Rs 150 billion. Finance Ministry has been requested to increase allocation for subsidy so that the flow of the increase in circular debt is contained.

The subsidy specific to one million lifeline consumers who use up to 50 units per month is zero however Rs 65 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 Rs 78 billion, and Rs 59 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 to the tune of Rs 5 billion whereas consumers using above 700 units per month contribute Rs 6 billion as cross subsidy.

According to sources, the total subsidy amount of Rs 191 billion is being extended to 26 million domestic consumers. The federal government is also extending Rs 26 billion subsidy to 2 million consumers of Karachi Electric.

In agriculture sector, Rs 23 billion subsidy is being given to 29,000 agriculture consumers of Balochistan whereas a subsidy of Rs 63 billion is being given to agriculture consumers in other Discos.

SAPM on Power and Petroleum Tabish Gauhar has confirmed that informal discussions have been held both with the IMF and World Bank and it was conveyed to them that the country's economy hit by third wave of Covid-19 is unable to bear any further increase in electricity prices.

"Industrial and commercial consumers are further burdened through increase in electricity prices, and it will have a negative impact on the economy," he added.

Tabish Gauhar said that discussions have also been held on alternative ways for recovery of taxes and surcharge from electricity consumers. If taxes are removed from bills, cost of recovery is automatically reduced by 35 to 40 percent.

Copyright Business Recorder, 2021