Budget 2015-16: Subsidies on energy, commodities slashed by 32%

Doubts remain about government’s ability to keep itself within Rs137.6b target.

ISLAMABAD:

The government has announced a further reduction of 32% in consumer subsidies, particularly on energy supplies, in the budget for next fiscal year.

The subsidy account will shrink to Rs137.6 billion in the year 2015-16, which will begin in July, compared to the subsidy of Rs203.24 billion earmarked for energy consumption and purchase of essential commodities in the outgoing fiscal year.

However, it remains unclear whether the government will be able to confine itself within the ceiling or grossly overshoot the target as seen in the outgoing year.

In 2014-15, subsidy payments are estimated to have jumped up 20% from the target and stood at Rs243.2 billion, courtesy the support extended to inefficient power companies.



In terms of percentage share in the national economy, the subsidy for next fiscal year has dropped to 0.5% of gross domestic product against 0.7% this year. With this amount, the government expects to provide some cushion to consumers of electricity, wheat, sugar and salt.

In 2015-16, the subsidy for the Pakistan Water and Power Development Authority (Wapda) and Pakistan Electric Power Company (Pepco) constitutes a major chunk, standing at 71.2% of the total against 76.8% this year. They are followed by K-Electric that will receive 14.5% of the total.

According to budget documents, Rs98 billion has been set aside for subsidising the overall power industry excluding K-Electric consumers. Of this, Rs60 billion will cover tariff differential claims of power distribution companies and Rs6 billion will be used to pick up receivables of Federally Administered Tribal Areas (Fata) against Rs10 billion this year.



An amount of Rs9 billion has been allocated for subsidising agricultural tube wells in Balochistan against Rs1 billion this year.

For K-Electric consumers, the government has cut the subsidy to Rs20 billion against Rs29 billion in the outgoing year. However, actual subsidy rose to Rs36 billion this year, show revised estimates.

In the outgoing year, Rs156.1 billion was earmarked for power-sector subsidies, but the government could not keep itself within the limit and the amount swelled to Rs185 billion.

In order to bridge the gap between the cost of power generation and the rate charged from consumers, Rs150 billion was earmarked this year, but it went up to Rs174 billion because of inefficiency and bad governance in power companies as well as unchecked electricity theft.

Essential goods

The government has not made any change in the subsidy on sale of sugar and Ramazan package for the next fiscal year and the Utility Stores Corporation will receive Rs7 billion.



Of this, Rs4 billion will be spent on subsidising sugar sale and Rs3 billion will go to cover the Ramazan package. In the outgoing year too, Rs7 billion was allocated under these heads, but the amount swelled to Rs10.25 billion because of a support of Rs3.25 billion for sugar export.

The cushion for the Pakistan Agriculture Storage and Services Corporation (Passco) has been increased to Rs11.3 billion against Rs8 billion this year, which will be spent on wheat purchase and keeping its reserves to stabilise market prices.

This year, Passco consumed Rs10.8 billion in subsidy, which was higher than the allocation due to support provided to wheat farmers and release of freight subsidy on sugar export.

Oil refineries and marketing companies will get a cushion of Rs1 billion but subsidy on sale of wheat and salt in Gilgit-Baltistan has been abolished. This year, the government had earmarked Rs850 million on the sale of these commodities in the autonomous region.

Published in The Express Tribune, June 6^th,  2015.

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