Energy prices: complacency setting in

“The adjustment of tariffs in July and the upcoming adjustment by end-December 2019, based on the regulator's mid-year decision on tariffs, are key measures to stop the flow of arrears in the sector,” read the IMF’s country report on Pakistan after the first review last month. The context is gas tariffs. Recall that the regulator had worked out and moved the summary for prices to be revised come January 2020.

January 2020 has come and gone. The government is yet to decide on Ogra’s summary. The IMF had (rightly) labeled the delayed notification and buildup of arrears as one of the chief reasons why the gas sector is in such a royal mess. Granted the government has bitten the bitter bill more than once when it comes to gas price. But such is the backlog of last five years of static prices, that rationalization has to be done.

Not that any government wants to do it. Being under the IMF just makes it a bit easier. But it appears the ground realities have hit the government hard. Inflation has stayed in double-digits and looks in no hurry to recede. The food inflation has made it even tougher to even think about raising utility prices, that too in peak demand season.

Granted that the government could still work around the formula and largely insulate the domestic consumers, who are already facing the inflation brunt. But that would essentially mean cross subsidizing. Making room for a price increase to the industrial sector at this point could backfire. The government has just recently decided to withdraw the GIDC on fertilizer in a bid to improve farm economics. Any reversal to that effect would not sit well with the farmers, politicians, or even with common sense.

And the inaction may not be restricted to just gas prices. Electricity tariffs may soon follow suit, if they haven’t already. Mind you, most of the electricity related revenue measures are part of revised structural benchmarks under the IMF programme.  The 2QFY20 capacity payment related adjustments are supposed to be notified today. A delay is likely.

Another area of concern is the circular debt reduction plan, which was also supposed to be at advances stages moving towards implementation. But that too, seems to have gone back in the pecking order. The amendments to Nepra Act have reportedly been okayed by the ECC but are ye tot be tabled to the Parliament for approval, which will tick another target missed by January end.

Islamabad may well have earned the IMF’s nod of appreciation for the tough measures taken since entering the programme. But leaving any measure half-baked would only add to the woes. Not that revenue-only measures in the energy sector are the complete solution, but they surely are an integral part. It only takes one delayed notification, to become five, six, and counting – as complacency sets in. One hopes that is not the case.