Quarterly tariff adjustment: Non-event

Nepra okay-ed the government’s request to delay the quarterly tariff adjustments pertaining to 4QFY20 and 1HFY21. The revised arrangement now means the government gets its wish to delay the adjustments till the existing one lapses in September 2021. For domestic consumers, this is largely a non-event.

Here is why. Domestic consumers up to 300 monthly unit category are already exempt from quarterly tariff adjustment. The burden is shared by all other categories, especially commercial and industrial consumers. Domestic consumers falling in the category of 300+ units are subject to the uniform tariff adjustment.

So, in this case, the increase for domestic consumers for 300+ unit category from October 1, 2021 will be 9 paisas per unit. The total adjustment pertains to three quarters starting from 4QFY20 to 2QFY21, amounting to Rs1.72 per unit. This will replace the existing quarterly adjustment being charged at Rs1.63 per unit that lapses in September 2021.

The total quarterly adjustments amount to Rs174 billion. Since the adjustments exclude 78 percent of domestic consumption (39 percent of total), the balance has to be footed by consumers from all other categories. To make up for the loss from domestic category, Rs1.25 per unit surcharge has been proposed in addition to the uniform tariff adjustment of Rs1.72 per unit – totaling Rs2.97 per unit.

That is where a number of commentators have been confused. While the surcharge is surely a new column inserted in the quarterly adjustment, in all fairness, is just a change of nomenclature. The current mechanism simply adds all the cross-subsidy amount to users other than domestic. The cross subsidy per unit charged alongside uniform quarterly tariff currently is Rs1.26 per unit. The surcharge to be levied from October 1, is Rs1.25 per unit. For all consumers, the actual increase ranges from 8-10 paisas per unit starting from October 1, 2021, to be in place for 12 months.

Recall that Pakistan had agreed at the time of entering the IMF programme to amend the Nepra Act allowing to reintroduce surcharges over and above the revenue requirement, which will be considered part of the cost. Similarly, the rules now do not allow any adjustment to be charged for any consumer category, over and above the uniform determination.

Another debate whether industrial and commercial users should continue cross subsidizing the domestic consumer. That said, industries too have their fair share of relief in the recent past, and the government has decided to continue with the industrial support package for FY22. At the one hand, where quarterly adjustments to industry will cost Rs2.97per unit; at the other, the support package offers relief to the tune of Rs3.13 per unit.