The electricity base tariffs for 91 percent of domestic power consumers have been revised from a minimum of 26 percent to a maximum of 51 percent. In a parallel universe, the Energy Minister reiterated his government’s “commitment to safeguard lower-income electricity users”. The Sardar from Dera Ghazi Khan believes the media portrayal of electricity price hike is “increasingly misleading”. Maybe the honorable Minister hopes to see the media focused on the lowest price increase of 14 percent for the highest consumption slabs of 700 plus monthly units.
Here is how massive the hike is. For 91 percent of all domestic electricity consumers including the two slabs in the so-called protected category and the first three slabs in the unprotected category – of maximum consumption of up to 300 monthly units – the weighted average increase is 40 percent. Only 5 percent of 29 million domestic consumers falling in the lifeline category have been shielded from any price hike.
Over 10 million or 60 percent of protected consumers and one-third of all consumers, face the highest relative increase of 51 percent. The next 11 million face a hike in excess of 40 percent. The first four consumption quintiles all fall within the first 100 units of unprotected and up to 200 units of protected category. Only 5 of this 80 percent faces no increase – whereas the minimum increase for the fourth quintile is that of 41 percent.
Still not convinced of the unprecedented nature of price adjustment for the domestic sector? Consider this. For the first time in at least 15 years (and possibly ever), the average domestic tariff outside of the protected category is higher than average industrial tariffs. (More on the price reform on industrial and agriculture tariffs later).
All said, base tariff in the recent past has only said that much about the effective tariffs, as a plethora of monthly and quarterly adjustments, taxes, duties, and surcharges have been the real problem. This is where FY25 may offer a breather, all else constant, largely due to the rebasing of PPP exercise carried much closer to ground realities unlike FY24. If the fuel prices do not go haywire, there is a good chance the effective change in tariffs year-on-year, may be much lesser than the base tariff for most categories (read: Power tariffs: There is some respite! Published June 24, 2024)
Even with the quarterly adjustment going down from Rs4.6/unit for June 2024 to Rs0.93/unit for July 2024 – the base tariff increase means a substantial increase in effective tariffs, on both year-on-year and sequential basis If only the periodic adjustments go down to zero and monthly fuel costs closes down on reference fuel cost – the effective tariff will show no increase from 4QFY24. It is a tall ask right now, but a much better PPP rebasing should offer a breather in terms of adjustments. That said, tariffs at the rates where there are will only put more pressure on demand, and that cascades later into higher periodic adjustments.
In terms of impact on CPI inflation, the hammering will be heaviest on the bottom three quintiles, should the PBS do it right.
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