If the Pakistan Bureau of Statistics (PBS) does it right, the March electricity CPI reading should be down 20-25 percent year-on-year. While many observers have warned of the low base coming into play in 4QFY25 – electricity tariff settings could well keep the non-core inflation lower than current market consensus. Multiple favorable factors have combined to arrest what once felt like a never-ending spree of electricity tariff increase.
The most vital element in the last two months has been the absence of Quarterly Tariff Adjustment (QTA) for two months and counting, as the previous QTA levied in December 2024 was so small that the authorities decided to recover it in a month, as against the usual practice of spreading over three months. Two consecutive months without an element of QTA is a very rare occurrence, and it is only going to get rarer for at least the coming quarter.
The upcoming QTA pertaining to 2QFY25 will be a negative entry – for the first time ever. This means the base tariff will effectively be slashed by Rs2-2.5/unit if the authorities decide to spread the negative adjustment of Rs52 billion over three months. It may not sound huge, but in the context of a 5-year average QTA close to Rs60 billion, this is lined up to be a substantial reprieve.
And then there is the respite from monthly Fuel Charges Adjustment (FCA) – with January 2025 FCA (to be levied in March 2025) okayed at negative Rs2.1/unit. This is the sharpest downward monthly adjustment in over three years and also marks the first instance of seven consecutive months returning negative FCAs. Seven months prior to the run, the average monthly FCA stood at Rs4/unit, going as high as Rs7/unit for March 2024.
In another first, the authorities have decided to extend the benefit of negative FCA to all unprotected consumers. This is a departure from the stated practice of limiting the FCA in case of negative adjustments, to consumers only above the 300-unit consumption category. The decision means that negative FCA will now be applied to 72 percent of all domestic consumption – up from 28 percent previously. The addition of unprotected consumers up to 300-unit monthly consumption means the bloc comprising of 43 percent of all domestic consumption will now be eligible to benefit from negative FCA, for the first time.
Even if negative QTA does not apply in March 2025 bills – the monthly FCA reprieve alone stands at Rs9/unit and the QTA respite at Rs5/unit. Non-lifeline protected consumers stand to gain the most as even after incorporating Rs4/unit base tariff increase from March 2024 over March 2025 –the effective tariffs will be lower by Rs10/unit for nearly 30 percent of all domestic consumption. For non-protected consumers, the benefit runs in double digits for all consumption categories, with the first two categories saving close to 20 percent year-on-year.
This is by no means a gas-lighting attempt and has no intention of belittling the immense pain electricity consumers have been through for the most part of the last three years. For the record, Pakistan’s electricity tariffs still rate one of the highest in comparable economies. The ills of the power sector are still present with all their might, as evident from continuous bleeding in the distribution sector, where high losses and low recoveries remain far from ideal and barely improved from a year or five ago. The insanely high tariffs have dealt a killer blow to the consumption which has fallen to levels seen six years ago, while the capacity has gone up manifolds. The effective tariffs today are lower than a year ago and this is merely a statement of fact. This piece should not be used for chest-thumping by the ruling class, as the road is still less traveled.
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