The unnoticed power tariff hike

Gas tariffs were not the only ones that have gone up with effect from July 1, 2019. Only that the power tariffs were not much of a mention, apart from a press conference. The regulator, Nepra, is usually the one making it public. Respective distribution companies have not updated the tariff sheets either. So what is one to assume? Did the power tariffs go up or not?

Here is hoping the relevant minister knows the best of the lot. Going by his press announcement, the tariffs on average will be raised by Rs1.5 per unit, on an average, for the next 15 months, to recover Rs190 billion. There is a high possibility that this increase will not be treated as part of base tariff; instead, it will be treated as an “adjustment” – much on the lines of the monthly fuel price adjustments.

So how does the government intend to go about it? The minister has stated that domestic users with consumption of up to 300 units will not have to share the burden. This takes out 39 billion power units out of the equation, making up to 38 percent of the total power consumption. As per some reports, bulk of the commercial sector will be exempted, too – there go another 7 billion units!

The fate of industrial consumers is uncertain, though. The government, on occasions, has maintained that it will continue with the industrial support package. Recall that in January 2019, the government had extended support to the general industry to the tune of Rs3 per unit, and for the zero-rated export sector, power was priced at 7 cents per unit.

With nearly 45 percent power consumption clearly exempt from the price hike, and this excludes agriculture consumption which is another 11 percent, the burden on the consumers sharing the price increase would be much more than just Rs1.5 per unit. Assuming that the price for half the consumption remains unchanged, the price increase for the rest would be to the tune of Rs3 per unit.

In the case of zero-rated sectors, there is some room, as the currency has significantly lost its value since January 2019. That can allow the government to easily increase the rate, while keeping it close to 7 cents per unit.

It will be interesting to see the impact this increase on the PBS inflation computation. With the price hike likely to either go unnoticed or be treated as a surcharge or adjustment, expect the PBS to pay no heed to it, just as it pays no attention to the monthly fuel price adjustments.

The PBS has been guilty of overestimating inflation using simple averages. In this case, it will be underreporting it, due to methodological constraints.