The power regulator has issued the determination on the government’s submission on Phase-II of the power sector subsidy reform. Recall that Phase-I was approved and implemented late last year, aimed at streamlining the regressive tariff structure through introduction of a more expanded definition of lifeline tariff and creating distinctions between protected and unprotected categories.
As things stand, the removal of incremental block tariff, is first in line of a two-part approach to implement second phase of the subsidy reform. Nepra has approved the government’s submission and the same will be notified within a month. The total financial impact is estimated at Rs20 billion, with the per unit increase ranging from 8 paisas to 95 paisas for various consumption slabs.
On a cumulative basis, the impact on residential tariff would be an increase of 58 paisas per unit, which is largely considered a non-event. It remains to be seen when does the second part of Phase-II is introduced, which revolves around gradual reduction in cross subsidy. The bigger adjustment in tariffs continues to be around monthly fuel cost variations, which continue to be on the higher side.
The January 2022 FCA to be charged in March 2022 bills, has been allowed at Rs5.9 per unit. This is comfortably the highest-ever monthly adjustment in lieu of FCA as the fuel cost, crossed double digits at Rs12.6 per unit, for the first time ever. The hydel generation had dropped to a record low in January, whereas RLNG imports were difficult to get hold of. That put massive pressure on base load plants to be run on HSFO and HSD. To make matters worse, the energy commodity prices had only started to rise.
Water levels in the dams is expected to improve as Pakistan moves out of winter months. That said, uncertain RLNG availability will mean the base load pressures will continue to remain high. Coal has been the biggest contributor of late, but coal prices too have skyrocketed in the last two months. All thermal generation will be dearer as the consumption picks up. Economic merit order will likely go for a walk, as ensuring fuel supply does not seem a likely proposition.
The “relief” package on electricity tariffs starts from this month as communicated by the ministry, although the same has not been notified by the regulator yet. Recall that the government has announced Rs5/unit relief on domestic electricity consumption. It remains to be seen if it applies on all consumption slabs, but the massive monthly FPA of Rs5.9/unit for March means, the actual relief will be limited to Rs2/unit for the ongoing month – adjusting for previous FCA.
There are concerns being raised from all quarters on the space for the government to run the subsidy till June – as Apr-Jun are high consumption months from the domestic sector. Implementing further tariff reforms or revising base tariffs as earlier agreed with the IMF may be sitting very low on the government’s agenda right now, as it battles to hold office in Islamabad.
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