Rs20b subsidy withdrawal likely to jack up power tariff

The power consumers faced another increase in electricity tariff up to Rs0.95 per unit following the government’s decision to withdraw an Rs20 billion subsidy.

The federal government has filed a petition before National Electric Power Regulatory Authority (Nepra) to approve policy guidelines to withdraw Rs20 billion subsidy in the second phase of the subsidy reduction plan.

In the first phase, the government had split different slabs by creating new ones to reduce subsidies for power consumers. In that phase, the government had withdrawn an Rs42 billion subsidy per annum.

The government removed around 8 million power consumers from the subsidy net by reducing volume from 22 million to 13.9 million consumers. Now, in the second phase, the government is going to remove more consumers from the power subsidy network by withdrawing Rs20 billion per annum subsidy.

The power regulator on Monday held a public hearing relating to the approval of the Policy Guidelines under Section 31 of the Regulation, Generation, Transmission and Distribution of Electric Power Act, 1997 for Retargeting of Power Sector Subsidies Phase-II.

Nepra had pointed out that the provision of subsidy was the mandate of the government. It said that the Energy Ministry (Power Division) had devised the subsidy reform programme, approved by the Economic Coordination Committee (ECC) of the Cabinet, which would be applied in three phases after approval from Nepra.

The power regulator had approved the first phase and notified it with effect from October 1, 2021. Under this programme, the power regulator expanded the definition of lifeline consumers. It approved new category of protected consumers having consumption up to 200 units consistently for six months.

The regulator also approved breakup of the 301-700 slab into four slabs — 301-400, 401-500, 501-600 and 601-700. Each of these slabs continued to get the previous slab benefit of less than 300 kWh slab.

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Now, the Energy Ministry, in the category of Phase-II, requested for reduction in the total net subsidy and removal of previous slab benefit, wherein increase had been proposed in unprotected tariff categories while no increase had been proposed for the protected consumers.

It proposed increase in tariff by Rs0.95 per unit in the category of “a” under phase-11. The ministry would bring a separate case of category “b” before Nepra for approval.

Under pressure from the international lenders, the government plans to increase power tariff up to Rs0.95 per unit, taking the base power tariff to Rs18.75 per unit for some residential consumers.

Under the Re-Targeting of Power Sector Subsidies Phase-II, the federal government plans to withdraw Rs20bn annual subsidy from unprotected residential consumers. The decision would result in hike in the base tariff by up to Rs 0.95/unit from February 1. However, the average increase in base tariff would be of Rs0.53 per unit.

In its petition submitted to Nepra, the Energy Ministry had sought the regulator’s nod for removal of one slab benefit – Incremental Block Tariff. It also sought incorporation of revised subsidy and inter-distribution companies tariff rationalisation/cross subsidies through modification/adjustments in the Discos SoT as well as uniform SoT as determined by the regulator.

The Phase-I provided expanded definition of lifeline consumers, creation of new categories of consumers – protected and unprotected – and restructuring of 301-700 units slab without changing effective tariff.

As per the petition for phase-II, for the protected residential consumers using up to 200 units per month there would be no change in base tariff. However, for the unprotected consumers, using 1 to 700 units per month, the tariff would go up from Rs0.08 per unit to Rs0.95 per unit.

For the unprotected consumers, using 1-100 units, the increase would be Rs0.08/unit, for 101-200 Rs0.18 per unit, for 201-300 Rs0.48 per unit and for the categories using 301 to 700 units the per unit increase would be Rs0.95 per unit.

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The decision will take the base tariff for the consumers using up to 100 units from the existing Rs9.42 to Rs9.50 per unit, for 101-200 units from Rs10.18 to Rs 10.36 per unit, 201-300 from Rs12.14 to Rs12.62 per unit, 301 to 400 units from Rs14.78 to Rs15.75 per unit, 401 to 500 units from Rs16.24 to Rs17.19 per unit, 501 to 600 units from Rs17.16 to Rs 18.11 per unit, and 601 to 700 units it would increase from the existing Rs17.80 to Rs18.75 per unit.

For the consumers using above 700 units there would be no change and the base tariff would remain at Rs 22.22 per unit.

It is worth mentioning here that the ECC had last month approved the Re-Targeting of Power Sector Subsidies Phase-II along with dividing agriculture tube-wells slab into two categories and reforming/gradually decreasing subsidies to Qesco tube-wells by subsidising solarisation/ modernisation of tube-wells for agricultural consumers.

As per the petition, the Phase-II of the subsidy reforms entailed gradual reduction in total net subsidy for unprotected residential consumers, reduction in cross-subsidy and removal of previous slab benefit.