The Prime Minister now has the backing of his cabinet endorsing the energy price freeze. Reports suggest prices won’t be tinkered with till at least the end of FY20. It appears that the idea is to let the headline inflation cool down - as efforts are underway to control food prices – and then go for the next round of energy price increase.
A lot will depend on how negotiations go with the IMF. But the market is reading a bit too much in IMF’s possible reaction in case the government intends to extend the energy price freeze beyond FY20. If history is any guide, the IMF does not always use “at-all-cost” mantra for energy pricing.
The energy reform process prescribed by the IMF, and the ongoing reform programs with the Asian Development Bank, are price centric. But historically, both agencies have not been too stringent whenever governments found it politically hard to implement the program actions in letter and spirit. For all those fearing what becomes of the IMF program, it won’t necessarily be in jeopardy based solely on government’s decision to not raise energy prices further.
Extensive research must be taking place in the corridors of power- and finance ministries, on how the decision will impact both the energy chain finances and supply. The government had earlier boasted of having done away with all unfunded subsidies in the power sector. Actions on ground suggest otherwise. The way power ministry has handled industrial power tariffs of late, suggests, research was not put into arriving at the subsidy amount in lieu of the relief package.
How else would one justify backtracking on an earlier price decision mid-way in the fiscal year? The finance ministry is believed to have asked the power ministry to up its game, as budgeted power subsidy was never going to prove sufficient. This was feared when industrial support package was announced back in 2019, in addition to providing relief to 78 percent of domestic consumers, and almost the entire agricultural consumer segment.
While the government decides on power pricing, it would not hurt to focus on some other reform measures in the meantime. It is two months past the deadline and the government is yet to have the Nepra Act approved by the parliament. The circular debt reduction plan has also not seen light of the day. IMF prescribed amendment may need tweaking, as it may prove difficult getting an amendment - which proposes increase in all kinds of surcharges on power - through, especially at a time when the government herself is all for price freeze.
After price freeze – the road only gets tougher. One hopes there is realization in the government ranks. If there is not, the ills of 2010-2013 and 2014-2016 are well-documented. Complacency is not an option. Authorities should push for all other reform agenda, including privatization and correcting the pricing mechanism – till the time there is room to increase prices.