Govt seeks hike in power tariff to salvage IMF package

Reneges from a four-month-old stance to not further raise rates by increasing Rs1.68 per unit


Shahbaz Rana October 15, 2021
International Monetary Fund logo is seen outside its headquarters during the IMF/World Bank spring meetings in Washington, U.S., April 20, 2018. PHOTO: REUTERS

ISLAMABAD:

In a bid to remain in the International Monetary Fund (IMF) programme, the government on Thursday sought the federal cabinet’s approval to increase electricity tariff by Rs1.68 per unit or nearly 14%, reneging from a four-month-old stance to not further raise the rates.

The development spending under the Public Sector Development Programme (PSDP) may also be curtailed around Rs200 billion or over one-fifth to meet another IMF condition, according to the government sources.

The government seemed not to have an option but to accept the IMF’s harsh conditions due to increasing external sector vulnerabilities.

The maximum per-unit electricity price is proposed at Rs24.33 per unit for domestic consumers – that is almost double the average per-unit cost of generation of Rs12.96 per unit.

The maximum hit has been given to the monthly consumers of over 700 units and the domestic consumers who were forced to use Time of Use metres.

The power tariff decision will result in the reduction of electricity subsidies by Rs72 billion during the remaining period of this fiscal year, according to the summary circulated among the cabinet members. The government has proposed to increase the electricity prices with effect from November.

Instead of putting the summary before a regular cabinet meeting, the government has circulated the summary among the ministers and many of them gave their consent during the same day, sources told The Express Tribune.

It is the second time in the past nine months that the Pakistan Tehreek-e-Insaf government has decided to increase the electricity prices. In February this year, the government had also increased the electricity prices by Rs1.95 per unit or 25% on account of annual tariff adjustment.

After assuming the responsibility of the finance minister, Shaukat Tarin had vowed that he would not further increase the electricity prices and would instead convince the IMF to accept Pakistan’s plan to reduce the circular debt through other means.

In July this year, the then Special Assistant to the Prime Minister, Tabish Gohar had revealed in Express News show – The Review – that the premier refused to increase electricity prices before January next year. The Rs1.68 per unit increase is over and above the monthly and quarterly increase in prices.

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Sources said that Energy Minister Hammad Azhar on Wednesday also told the World Bank vice president for South Asia that the government had decided to increase the average prices by Rs1.39 per unit. Azhar did not respond to a request for comments.

The decision to increase the prices was taken during the time when Tarin was in Washington to conclude the talks with the IMF under the 6th review that began in Islamabad on October 4. The successful culmination of the talks would pave the way for the release of the next loan tranche of $1 billion.

“We are still negotiating. Nothing is final”, said Tarin from Washington while responding to questions about the increase in prices and rationalisation of the PSDP.

For the current fiscal year, the Parliament had approved Rs900 billion PSDP. Sources said instead of formally slashing the PSDP size, the Ministry of Finance would slow down the release of funds.

During the first two months of this fiscal year, the actual PSDP spending was only Rs52 billion, according to a briefing to the cabinet.

The Express Tribune has already reported that the IMF demanded to levy over Rs525 billion additional taxes and the Pakistani authorities showed inclination to immediately withdraw over Rs300 billion sales tax exemptions.

The acceptance of three key demands – the increase in electricity prices, levy of additional taxes and reduction in the PSDP spending could pave the way for successful conclusion of the 6th review during the second attempt after the first attempt failed in June this year.

A delay in announcement of successful conclusion of talks by the IMF could create more uncertainty in Pakistan particularly at a time when the rupee is already hitting the historical low of Rs171.20 to a dollar.

Tariff increase

The Power Division has proposed to the federal cabinet that based on consolidated revenue requirements of DISCOs as well as the economic and financial policy of the federal government, the tariff differential subsidy is proposed to be modified and reduced.

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For the period of July-October 2021, the net subsidy amounts to Rs102 billion and for the period effective from November till June, subject to implementation of this proposal, the net subsidy for November 2021 to June 2022 amounts to Rs67 billion, it added.

In aggregate, the subsidy requirement will be reduced from Rs240 billion to Rs168 billion – a net reduction of Rs72 billion for the remaining eight months of this fiscal year.

On an annualised basis, the government has decided to withdraw Rs108 billion subsidies at current year’s revenue requirements.

“This would effectively pass on average Rs1.39 per unit to the consumers, remaining within the revenue requirements of the DISCOs as per NEPRA determination,” according to the Power Division.

The summary showed that for electricity consumers of up to 200 units there would not be any increase in prices. But with the applicable tariffs for consumers of up to 300 monthly units, the prices would go up from Rs12.15 to Rs13.83 per unit – a surge of Rs1.68 or 13.8%. For consumers of 301 to 700 units, the prices are proposed to be increased by Rs1.68 per unit to Rs21.23 – an increase of 8.6%.

For consumers of over 700 monthly units, the prices are proposed to be increased to Rs24.33 per unit – an increase of Rs1.68 per unit.

For domestic time of use metre consumers, the prices will go up from Rs22.65 per unit to Rs24.33 per unit – also an increase of Rs1.68 or 7.4%. The off-peak rates are set at Rs18.01 per unit from the existing applicable rates of Rs16.33 – an increase of 10.2%.

For the commercial consumers, the prices are proposed at Rs21.23 per unit and Rs23.02 per unit – depending upon the load factors. The rates for the industrial consumers have also been recommended to increase further.

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