The Chief Minister Punjab announced 12 months of free electricity for the consumer using up to 100 units a month. His father, the Prime Minister, welcomed the step. Hours before himself presiding a meeting that okayed a hike of Rs7.9/unit in powder tariffs across the country. The reactions have bordered on extremes, much like everything else in Pakistan these days, depending on one’s political affiliation. First and foremost, comes the practicality of the announced decision itself. Given how the IMF has reportedly been (micro)managing affairs related to energy, and the broader stance on unfunded subsidies, one fails to see how this will sail through.
For reference, the budget banks on provincial surplus, especially from the biggest province. Funding this subsidy for 12 months, would be an affair that costs close to Rs50-70 billion. The Punjab budget has Rs45 billion for subsidies for FY23 – earmarked for agriculture and transport.
Of course, you could argue making room for Rs100 billion via cuts in development spending, but then it appears an afterthought close to the by-elections. Had it been a well-thought-out plan, the budget announced weeks ago would have a mention. Instead, the fiscal risk statement of the Punjab budget clearly states provision for subsidies not included, carries great fiscal risk to the statement. Then there is an argument in favor of a targeted subsidy such as this, which is by all means well-directed at the lowest income quintile. Considering the difficulties, the under privileged are set to face for the next 12 months in terms of general inflation trend, free electricity would not hurt them. By crude estimates, the total yearly electricity consumption for users in the protected category up to 100 units a month, is around 5.5 billion units, for four discos, excluding Islamabad.
At existing rate of Rs7.74/unit for protected category, the toll amounts to Rs43 billion annually. But the rates are going to be revised upwards effective this month, which could possibly take the final tariff for protected category up to Rs12/unit. The subsidy requirement of Rs50-70 billion is based on the assumption that the federal government will keep footing the bill for the protected segment – which is a strong likelihood, as the Circular Debt Management Plan makes clear distinction between protected and unprotected categories.
Mind you, 100-unit monthly consumption is based on 12-month consumption, where monthly consumption does not exceed 100 units even for a single month. This surely only keeps the neediest and takes out the seasonality factor, for winter consumption, for otherwise better-off consumers. All in all, should the provincial government be able to find room, it is worth a go, in what are very testing times for everyone, and the poorest segment clearly deserves more support.
There is a concern that other provincial governments will do the same, if Punjab goes ahead. This could mean additional Rs40-50 billion for other three provinces, Islamabad and tribal areas. A grand sum of Rs100-120 billion is what it will take for the plan to be fully funded. Political gimmick or otherwise, if the IMF can be convinced and the provinces can make room, there is no harm going the targeted subsidy route.