As Pakistan goes back to the drawing board with the IMF, the rumor mill churns news around another round of increases in base tariffs of electricity. The figure goes from Rs3-4 per unit to be increased in the annual base tariff. The relevant ministry has stated there are no plans underway to revise the electricity base tariffs, but the rumor mongers are not having any of it.
The dust clearly will only settle once the IMF review is finalized and structural benchmarks are made public. But it makes little economic sense to revise the base tariffs so soon after the recent increase, the last phase of which got implemented in October 2022. On top of it, there are no pending tariff petitions by distribution companies that need to be addressed.
Power tariff announcements have been rather smooth for quite a while, and delay in tariff adjustment is no more the reason d'être of the power sector circular debt flow. The tariff structure is up to date, with the latest quarterly adjustments approved, notified, and to go into effect from next month. Monthly fuel adjustments have not been delayed either, apart from one that got stretched over six months, being on the higher side. With revised reference fuel tariffs in place after the previous annual rebasing, monthly FPAs should stay well within manageable limits for the rest of FY23.
There is of course the element of significant rupee depreciation that will alter some settings, but that will likely get taken care of in the upcoming quarterly and monthly tariff adjustments. There are reports from the ground that discos’ collection has gone down even from last year – which alone can cost more than Rs250 billion – to add to the circular debt flow. Mind you, the consumer tariff assumes 100 percent billing collection from discos. That, along with the breach of the T&D losses target remains the burning problem, which keeps going unaddressed.
What must also be kept in view is that there is a limit to which tariff increase will yield the desired results. Any increase beyond the actual cost-plus distribution margins and surcharges that are already in place – can be counterproductive. Not only a further increase in tariffs runs the risk of higher T&D losses and lower recovery, but it also stands to challenge electricity demand. Enough has been said on how Pakistan’s way out of the mess is finding a way to increase demand and not the other way around. Here is hoping that the IMF for once, does not stress on squeezing more revenue in the form of additional surcharges on power consumption, because it is sure to backfire.
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