Finance Ministry has earmarked Rs 50 billion for inter-Disco tariff differential on the assumption of 12 percent increase in power tariff in the budget for the forthcoming financial year. The government allocated Rs 30 billion for tariff differential in the budget for 2010-11 but boosted this amount to a whopping Rs 239 billion by the end of the year mainly due to political pressure that left the government unable to revise the power tariff upward for several months.
However, when the International Monetary Fund (IMF) pressurised the government to raise tariffs it agreed to raise tariff by 6 percent in three months of which a 4 percent tariff raise has been passed on to the consumers already. Two percent increase in tariff, despite a public announcement by the incumbent Minister for Water and Power, Naveed Qamar, has not yet been implemented.
The Ministry of Water and Power is claiming that the Finance Ministry had revised power sector subsidy upward by Rs 142 billion for the outgoing fiscal year of which Rs 139.5 billion has been consumed. This implies the government can avail of the remaining cushion of Rs 2.5 billion, thereby mitigating not raising tariffs by 2 percent. Power sector analysts argue that there is a 16 percent difference between the cost of recovery and revenue requirements. For instance, if Pepco assumes Rs 650 billion revenue target for next financial year, the gap between recovery and revenue, then as per the business plan, the shortfall will be around Rs 104 billion (Rs 96+8 billion).
"If the government increases power tariff by 12 per cent during the next financial year, inter-Disco tariff differential will be around Rs 50 billion," the analyst added. He, however, expressed doubts that things will move forward according to plan, saying that the amount of inter Disco tariff differential might be revised upward as in 2010-11.
According to the Finance Ministry power sector reforms have been underway encompassing structural reforms including dissolution of Pepco by June 30, 2011, which appears very difficult in the present circumstances. Minister for Water and Power, is free to pressurise top brass of Pepco for his ''personal assignments'' and in case of Pepco''s dissolution, this activity will cease. Sceptics maintain that this may be the reason why the government may seek more time to dissolve Pepco.
The Finance Ministry has claimed that overall reforms are based on improved governance, supportive legislative framework, financial measures, supply side intervention, demand side management and recovery measures. Under these heads a number of interventions have resulted in improving efficiency of Gencos and Discos. Reforms have resulted in reduction of tariff differential subsidy for Wapda envisaged at Rs 256 billion at the start of financial year 2010-11 to Rs 156 billion. The Board of Directors (BoDs) of seven Discos and NTDC has been reconstituted. The BoDs of Gencos and Central Power Purchase Agency (CPPA) are being reconstituted. Finance Ministry envisages that the reform process would deepen. Tariff rationalisation will be further strengthened with amendment in Nepra Act for direct tariff notification for full cost recovery tariff.
Pakistan''s development partners are providing support to the government in addressing the electricity issue through technical and financial assistance including the Asian Development Bank, World Bank and United States Agency for International Development (USAID). According to the Finance Ministry, the issue of inter-circular debt will improve with the expectation of picking up of 2010s unpaid subsidy after reconciliation. This may be placed in Power Holding Private Limited (PHPL) along with Rs 301 billion already served through the budget.