Tariff adjustment: Donors insist on cutting power subsidies in one go

Demand unlikely to be accepted as govt agrees to raise tariffs gradually.

ISLAMABAD:

Although the government has no concrete plan for eliminating the Rs138 billion power sector subsidies necessitated by the circular debt issue, multilateral donors are learnt to have demanded the government to pass on full required power tariff to consumers in one direct move, ending the subvention from the next financial year.

Donors are also learnt to have pressed the government to empower the National Electric Power Regulatory Authority (Nepra), allowing it to make automatic tariff adjustments without federal government intervention, ending the difference between the cost of power generation and the cost of providing the service.

Sources in the ministry of water and power told The Express Tribune that the government believed that it would not be possible for it to raise the power tariff for all sectors in one go.

A power ministry official said that the government had reduced power sector subsidy from Rs252 billion to Rs138 billion in just one year because of various measures.

The government will require over 16 per cent increase in power tariffs to end the subsidy. Sources said that it would hit the economy hard if the government tried to pass on the full impact of power tariffs to the consumers. The demand was made by the International Monetary Fund (IMF) team during the recent talks held in Dubai.

“Pakistan, however, agreed to gradually increase the power tariff,” sources maintained.

Joint Secretary Water and Power Muhammad Zargham Eshaq Khan denied that IMF had made any such demands. However, he said that the government had briefed the IMF team about the current situation of the power tariff subsidy.

Khan said that during the talks, the government had informed the IMF team that the power sector subsidy had been reduced from Rs252 billion to Rs138 billion, adding that the IMF had appreciated the move. He said that the government had not given any plan to the IMF regarding the subsidy for the next financial year.

“However, we have informed the IMF that the subsidy would be lower than the existing Rs138 billion for the next year,” he added.

Another official said that the lenders’ demand for empowering Nepra was unlikely to be implemented after the provinces sought ending Nepra’s role in determining the power tariff after the 18th Amendment.

“Therefore, the government is unlikely to meet this demand of the multilateral donors,” said the official.

Published in The Express Tribune, May 30^th, 2011.