EDITORIAL: The government is considering abolishing cross-subsidies and peak rates for industrial users under the new industrial policy currently in the works. This is the right approach and should be implemented, but it is easier said than done as there is many a slip between the cup and the lip. This proposal originates from industrial policymakers, while the power ministry is not on board, and those at the helm believe it is very difficult to implement.
The cross-subsidy amounts to around Rs200–250 billion, and fiscal space would need to be created for that. Even if the government managed to create the space, the IMF would likely insist that the amount be transferred through BISP (Benazir Income Support Programme), which would open up a new Pandora’s box.
Under BISP or any other transfer programme, subsidy recipients must qualify on the basis of household income up to a certain level. However, many consumers who fall into the protected segment may not be eligible for BISP at all. They would end up paying higher tariffs.
The mechanism would essentially involve tariffs moving up for everyone, while deserving consumers would receive funding under BISP to cover their incremental bills. In this way, tariffs would rise significantly for many consumers. They should indeed be paying the full amount, as many are likely abusing the system to benefit from subsidies. However, implementing this would be a very difficult political decision, and the government may develop cold feet even before taking the plunge.
The ultimate objective is to provide energy to industry at competitive rates so that exporters and local manufacturers have a level-playing field with regional and global competitors. This objective, however, can be achieved in a less politically complex way.
One option is to provide gas to industrial players at cost for their captive generation. The industry is ready to pay the RLNG price. However, to lure them onto the grid, an exorbitant levy has been applied; this should be reversed. Industry is not eager to rely on the grid, and pricing alone cannot address the issue.
Reliability concerns and the costs of installing the requisite infrastructure are key barriers. Many industry players are instead investing in alternate options. Earlier, many shifted to furnace oil (FO), as they already had in-house tri-gen facilities. But after heavy levies on FO, they are now exploring other alternatives. Some are importing biofuels, and almost everyone is investing in solar, with battery storage solutions becoming increasingly attractive as prices continue to fall.
As a result, the grid risks becoming stranded, leaving the government with fewer options to recover the high costs caused by theft and inefficiencies. Discos would essentially absorb the night load, while solar and batteries cover the daytime demand. The point is that removing cross-subsidies alone may not solve the problem.
However, despite its heavy political cost, it should still be initiated. At the same time, the government should do away with the uniform tariff and move toward implementing CTBCM (Competitive Trading Bilateral Contracts Market). The first step would be to set fair wheeling charges and address the issue of gas prices for captive plants.
Copyright Business Recorder, 2025