The ISP ‘benefits’

Fails to provide relief to industrial consumers and promote growth


Letter March 14, 2019

ISLAMABAD: All over the world, there is a push to reduce power tariffs for the industry to facilitate industrial growth; and in some cases, industrial consumers are even offered rates significantly lower than those the residential consumers are charged with. In Pakistan though, that is not the case. Industrial power tariffs are higher and in some categories even equal to the residential tariff. This is mainly due to the fact that the consumer is not charged with the actual tariff that the government determines. Instead, the government has the option to subsidise or add surcharge to different consumer categories.

Our government has not subsidised the industrial sector directly, and a surcharge is instead imposed on industrial consumers to cross-subsidise residential and other consumers. The government has then introduced an Industrial Support Package (ISP) which is a Rs3/kWh rebate in the notified electricity tariff (after imposing surcharge of almost the same amount). However, such rebate has failed to provide relief to industrial consumers and promote industrial growth because there has been no budgetary allocation to cover the complete ISP cost, and the provision of discount after imposing a surcharge serves as a disincentive.

This process works in steps. Firstly, a tariff is determined by the National Electric Power Regulatory Authority (Nepra) and the government notifies the tariff and imposes surcharge. The government then announces an ISP, with a result that no proper relief reaches the industry.

As discussed above the amount of ISP is not budgeted, and the government which is already dealing with a limited fiscal space has tried several things. It has tried to adjust the ISP against the dip in fuel prices in the recent years by not passing on the benefit of the negative fuel price adjustment to the industrial consumer; adjust the ISP against the efficiency gains of the distribution companies. It has even considered limiting the ISP to only export-oriented sectors while fearing that some issues may arise with the World Trade Organisation (WTO).

Moving forward, now Nepra has determined Uniform Tariffs for all distribution companies and the surcharge will not be shown separately. It will, therefore, be hard to determine the amount of surcharge imposed on an average.

Aman Ullah Mangrio

Published in The Express Tribune, March 13th, 2019.

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