IMF assured of 7.6pc hike in power tariff from July

Electricity prices are set to rise a third time in nine months as the government has assured the International Monetary Fund (IMF) that it will hike tariffs by 7.6 per cent in July in a bid recover the full cost of electricity generation, says a senior finance ministry official.

The expected decision would put additional burden on the inflation-stricken masses who have already witnessed 60 per cent hike in electricity tariff in the period between September 2008 and January 2010.

The assurance was given to the visiting regional IMF head, Masood Ahmed, who on Tuesday held meetings with Prime Minister Yousaf Raza Gilani and Finance Minister Dr Abdul Hafeez Shaikh.

A senior official of the finance ministry told The Express Tribune that the government conveyed to Massod Ahmed, the IMF Director for Middle East and Central Asia, that the decision would be made public anytime soon. It would take effect retrospectively from April 1. The government would recover the arrears through monthly bills.

In addition to 7.6 per cent increase, Wapda has also sought 34 paisa per unit increase in hydel tariff which would amount to about 2 per cent increase in average tariff depending upon the existing one-third contribution of the hydel power in the total energy mix. Wapda’s application is pending with the National Electric Power Regulatory Authority (Nepra) and the decision is expected before June 30.

“The government has no other option because it has no room to provide subsidies,” said the official, who also attended the meeting. For the outgoing fiscal year, the government did not allocate any amount for power subsidies but spent over Rs107 billion by cutting the development expenditure.

For the fiscal year starting on July 1, the government has allocated Rs32 billion subsidy for lifeline consumers of Wapda and KESC. The coming year’s development budget is not even sufficient to meet the needs of ongoing projects, leaving no room for any adverse cuts.

The IMF recently said that the electricity tariff increases have been slower than expected.

According to an agreement with the World Bank and the Asian Development Bank, 6 per cent hike in the electricity prices was originally scheduled from April 1.

However, the government, on political considerations, delayed the move that would now result in an additional burden of 1.6 per cent on the burdened consumers to recover the arrears.

Independent experts differ with the government policy of recovering the generation cost by only increasing the tariff. They say that the government ought to enhance the efficiency of power distribution companies and reduce their line losses, which are as high as 40 per cent in case of KESC, Pesco and Hesco.

The official said that the finance minister also briefed Masood Ahmed on progress in reforming the Sales Tax regime, and assured the visiting delegate that the process would be completed before October 1.

To the disappointment of the government, the IMF regional head remained non-committal, saying the IMF would respond to the reformed GST package only after looking at the draft of reforms.

The government had scrapped the idea to levy the Value Added Tax from July 1 and instead announced to withdraw the tax exemptions in the existing Sales Tax law and implement the new version from October 1.

The official quoted Massod Ahmed as saying, “if the government is really interested in the completion of IMF programme it should withdraw all exemptions and encourage economy’s documentation through enabling laws”.

The IMF, according to the sources, has shown concern that the government may not withdraw all tax exemptions.

Published in The Express Tribune, June 23^rd, 2010.