Tariff travails

The federal government will be the ultimate beneficiary of the recent cut in power tariffs for K-Electric

We are told that it is the federal government that will be the ultimate beneficiary of the recent cut in power tariffs for K-Electric, and not end-consumers. The power utility it is believed will suffer a financial hit and a possible setback with long-term consequences as a result of this decision. It may be recalled that the National Electric Power Regulatory Authority (Nepra)  recently reduced K-Electric’s multi-year tariff by Rs3.5 per unit to an average of Rs12.07 for the next seven years.

Nepra claims that a uniform power tariff was imposed on end-consumers across the country and different tariffs set for power companies were not actually charged from the end-users. This reduction will bring down the subsidy cost for the government, if it is paying any. In case the tariff is lower than the uniform rate, then the government will impose a surcharge on end-consumers. In both these cases – either subsidy payment or surcharge collection – the government will be the beneficiary. There will be no relief for the consumers.

Another consequence would be that the income of K-Electric will shrink following the tariff reduction as earlier it was earning more from the end-consumers because of the higher tariff. K-Electric argues that Nepra’s recent move will impact its working capital, bring down investment and cause uncertainty. It is in this backdrop that K-Electric’s new buyer, Shanghai Electric Power, has approached prime minister, asking him to take notice of the development, which it says has reduced the incentive for acquisition of the company. The prime minister has constituted a high-level committee to review the determination. Investors fear that the deal with Shanghai Electric may not go through if the Nepra decision is upheld. One cannot ignore the fact that this deal would pave the way for more investment in Pakistan.

Published in The Express Tribune, March 27^th, 2017.

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