Power tariffs went up by one-third of what the regulator had proposed. In percentage terms, the increase averages out at around 10 percent. The bulk of domestic category consumers and all of agriculture tube well consumers either face no change or are better off. The commercial category, that constitutes 12 percent of the total consumption, seems to be the worst hit with a double digit increase.
No one likes paying more ever. The criticism from the opposition, public, and sections of media is natural. Only that, it could have been worse, as this is the lowest average tariff increase, for quite some time, especially considering that it came after five years. The idea was simple, i.e. not to irk the masses. Domestic sector accounts for 85 percent of total consumers, with nearly 49 percent of consumption share in the pie. For most part of the year, more than two-third of domestic consumers fall in the unchanged category of up to 300 units per month.
The reduction in tariffs by half for tube well use, which has a significant 10 percent share in total consumption, came as a surprise. The farmers are expected to be better off to the tune of Rs55-60 billion annually. Continuation of subsidized farm inputs on the other hand, should ideally mean better farm economics. The industries too, have by and large been subject to single digit tariff increase, with the export oriented ones least affected. Should this translate into improved numbers, and making up for lost competitiveness ground, it is worth a shot.
Who is to say there would not be another round of tariff increase? The gap has to be filled by someone, somehow. Going for one-third of the proposed Rs3.79 per unit increase, the estimated shortfall is around Rs300 billion per annum. Subsidy allocated in the budget amounts to half that amount at Rs150 billion. While, the minister has stressed strict enforcement of performance targets on account of recovery and distribution losses, the combined 2 percent reduction target every year, would not save more than Rs25-30 billion.
There is no denying the significance of improved recovery and reduced losses – but this alone would not cut the deal – and the revenue and cost differential would remain north of Rs100 billion. In absence of any apparent mechanism of clearing the circular debt – that is another feather in the circular debt cap. It is increasingly clear that passing on the full impact in the exercise of tariff rationalization is not really an easy deal – has political compulsions, and will happen rarely.
Business as usual would not do. There is a need to revise the performance benchmarks for generation and distribution companies. The constant underperformance must now stop being an incentive for discos. Power sector reforms must happen – with or without privatization. Merely chopping and changing the boards did not work in the past – it would not work now.
It is early days for reforms, but it would not forever be early days. It is high time a concrete reform agenda, with definitive timelines and quantitative targets is presented.
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