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EDITORIAL: Shehbaz Sharif, while on an official visit to Qatar, announced complete exemption from paying fuel adjustment charges in electricity bills to 57 percent of all consumers — 17.1 million in total terms out of a total of 30 million.

An address to the nation by the country’s Prime Minister while on a two-day foreign tour is unprecedented in the country’s history yet one would assume that the spontaneous public outcry in several parts of the country at the latest electricity bills received necessitated prompt action. What is concerning is that this largesse has to be matched by an increase in revenue from some other source as per a reported agreement under the seventh/eighth reviews with the International Monetary Fund (IMF) which may have implications on the general price level — reported because neither the actual agreement nor the Letter of Intent signed and delivered to the Fund by the Pakistan authorities has been shared with the public.

It is important to note that fuel adjustment charges represent the actual cost of fuel (imported) by the generating companies, which is a function of not only its international prices but also the rupee-dollar parity.

In the international marketplace the prices of fuel (oil, gas, coal) are on the decline due to a recession that accounts for a decline in demand for fuel (including in China due to its zero Covid-19 policy) and a significant rise in supply from Iran while the rupee has also strengthened in recent weeks (though it has again exhibited in recent days a weakening trend due to speculation that the US may raise rates). It is therefore possible that the Shehbaz Sharif-led government is projecting a decline in the cost of fuel in months to come.

However, electricity is also heavily taxed and on average amounts to at least half of the bill that comprises total units consumed plus the fuel adjustment charges/surcharges — money used to also pay off interest on massive loans procured by the sector players.

What has been ignored by successive administrations is the appallingly poor performance of the energy sector, a source of serious concern to multilaterals, epitomized by a circular debt close to 2.5 trillion rupees today. It is a complex problem and there is no overnight solution as there is heavier reliance on imported fuel for generation (rather than on domestic sources of fuel) together with contracts overwhelmingly in favour of the Independent Power Producers (IPPs) — take and pay rather than take or pay, and payment in dollars or their rupee equivalent.

The multilaterals have focused attention on full cost recovery to minimise and eventually end subsidies which the federal government can ill afford which in effect has implied allowing the consumers to be billed for inefficiencies and pilferage in the power sector, making electricity a very expensive item in Pakistan that is impacting negatively not only on the quality of life of households but also on the productive sectors.

The government’s announcement was made a day after an ordinance was promulgated that envisaged, among other things, additional taxes on tobacco industry (projected to generate 36 billion rupees), and withdrawal of the ban on luxury items with a significant rise in the taxes payable on these items — a decision that must be supported as a ban will simply fuel smuggling across our large porous borders but raising taxes would curtail demand and bring in the much-needed revenue.

There is speculation that the government has given with one hand in terms of withdrawal of the fuel adjustment charges and will take from the other in terms of higher indirect taxes.

However, what is extremely upsetting for the general public is this piecemeal increase in petrol/utility rates, which began on 27 May, continued, as expected and acceptable, in the budget announced on 10 June which should have taken account of all existing domestic and external factors/elements in play; and yet the country was subjected to a couple of additional rounds of tax measures — the most recent being the ordinance promulgated on 22 August. This does not provide a comfort level to either households or the productive sectors and one hopes, though with little faith, that this is the last round of taxes imposed by the coalition government for the current year.

Copyright Business Recorder, 2022

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Salim Habib Aug 26, 2022 07:51pm
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