Hike in power tariff

The government has increased power rates after jacking up petroleum prices twice in a month. These hikes in power and oil prices have followed soon after the imposition of new taxes worth billions of rupees in the national budget. The rise in oil and electricity prices will increase the cost of production of manufactured goods and those of basic agricultural commodities. Since petrol and diesel are used for transportation of goods, it will further push up prices, which are already going through the roof. This will further accelerate inflation, which currently stands at 10.9%. The increasing inflation will mean further erosion in the value of money.

The combined effect of the hike in petroleum and power prices amid the long-persisting shortages of these two sources of energy and the paucity of gas will likely push up the cost of production, shrink job opportunities in the midst of eroding incomes and declining purchasing power of  the majority of the people. The shrinking purchasing power will likely result in a fall in the demand for goods and services. The decrease in demand will reduce production which in turn will result in a decline in employment. The recent increase in taxes and energy prices amid their shortages will likely produce only cost-push inflation and nothing like the demand-pull variety of it which is beneficial for the overall economy. So the recent decisions relating to the economy cannot be called good economic management.

The government has increased power rates despite its repeated assertions that it will not give in to the IMF demand in this regard. The hike in power rates by Rs2.97 a unit apparently looks like not much of a burden. Nepra says the consumer-end price of electricity will increase by Rs0.08 KWh. The commercial consumers will have to pay Rs0.11 KWh from Sept 30. An important reason for high electricity prices is power theft and low recovery of power bills. The method of calculating and fixing power and gas rates has been made so complex that it has become one the most difficult things to understand.