Government mulls 6% power tariff increase

Plans to phase out subsidies by June; rates to rise 2 per cent per month till June.

ISLAMABAD: The government is considering raising electricity tariffs by up to six per cent to cover the differential between the cost of generation and the consumer price.

The administration may announce the increase once the National Assembly goes into recess to avoid a parliamentary backlash against the decision, a senior finance ministry official told The Express Tribune.

Legislators from the opposition as well as the government’s coalition allies had walked out from the National Assembly in protest against the 10 per cent increase in petroleum prices. President Asif Ali Zardari may call an end to the 28th National Assembly session on March 8. If the government takes the decision, it will be effective retroactively from March 1.

A two per cent increase in the tariff will fetch in additional Rs1 billion per month. If the government implements the decision from March, it will save Rs12 billion in subsidies over the remaining four months of the current financial year, ending June 30, 2011.

The ministry of water and power, however, has issues with the proposed tariff increase. A power ministry official told The Express Tribune that without amending certain laws, the power tariff increase was not possible any more.

The finance ministry wants to take such measures to signal to the visiting International Monetary Fund delegation that the government is serious about pursuing fiscal reform and deregulating energy prices. The Fund on Wednesday continued lower staff level talks with Islamabad. The policy level discussion will start from Sunday. The IMF had suspended the latest tranche of its $11.3 billion assistance package for Pakistan after the government failed to enact several fiscal and energy policy reforms.

In October 2010 the government had started minimising the differential between the cost of electricity generation and end consumer prices in an attempt to phase out subsidies. It had worked out to raise tariffs two per cent every month – a total 18 per cent Increase till June to reduce the difference to zero. However, after a four per cent increase for October and November, the government dropped the policy after running into complications.

The power ministry, in an internal document, states that “the increases in applicable tariff are not possible unless the policy of notifying the lowest determined tariff on all [power] distribution companies is revisited or differential tariffs are introduced (for each company) or a tariff equalisation pool is created.”

However, sources say that the government has decided not to have separate tariff regimes for each power distribution company, which it had earlier contemplated in order to ensure that regions with less electricity theft would not be penalised because of theft in other parts of the country.

The sources said the planned six per cent increase was due for last three months (December-February). They added that after a six per cent increase, the government would restart increasing power tariffs by two per cent per month till June.

Power ministry official say they have improved the national grid’s efficiency through various means, including shutting down most inefficient power generation plants, a decision which some officials blame for continued power outages.

The move will likely save the government Rs116 billion in subsidy costs but is causing problems for consumers by reducing total power production.

“Due to improvement in the system the average determined tariff of National Electric Power Regulatory Authority has come down to Rs 9.56 per unit from Rs 10.45 per unit”, he added.

The official said the difference between the determined tariff and the notified tariff was 21 per cent but half  of it was due to theft and line losses.

Published in The Express Tribune, March 3^rd, 2011.