Bid to control circular debt: Power tariff may rise 26% in current fiscal

Government facing a Rs23.5b liquidy shortage every month.

Zafar Bhutta August 21, 2011


Consumers are likely to face a 26% increase in electricity rates during the ongoing financial year if government implements power tariff plans A and B to eliminate circular debt and existing subsidy.

According to documents available with The Express Tribune, the government has proposed 14 per cent surcharge under plan A to partly resolve the chronic circular debt issue. Under Plan B, a proposal is being mulled over raising the tariff by 12 per cent to end existing subsidy in power sector.

Under plan A, government plans levying four per cent surcharge on power consumers immediately whereas another  four per cent surcharge in October, two per cent in December and the remaining four per cent in February 2012. According to financial outlook 2011-12 relating to power sector, the government has estimated power generation of 92,138 units and sale of 74,908 units electricity has been projected.

The line losses have been estimated at 18.7 per cent which means that  electricity worth Rs150 billion will be lost. The total power purchase price has been projected at Rs9.4 per unit which includes Rs0.8 per unit distribution margin and Rs8.61 per unit power price. According to financial outlook 2011-12 the total purchase cost of electricity will stand at Rs704.6 billion out of which the government will recover Rs586.8 billion by charging consumers Rs7.83 per unit. The government will still face a shortfall of Rs117.8 billion because of a subsidy of Rs1.57 per unit.

Under plan B the government plans to recover Rs64 billion of this shortfall further increasing the power tariff by 12 per cent and the remaining Rs53.8 billion will be subsidised by the government during ongoing financial year 2011-12.

The government is facing a liquidity crunch of Rs23.5 billion per month which is adding to the circular debt. Pakistan Electric Power Company (Pepco) is facing shortfall of Rs5 to Rs6 billion per month due to non-increase in power tariff during last month of July that will mount to Rs67 billion this year. The government is facing a subsidy difference of Rs3.5 billion per month in case of KESC.

The government is also bearing monthly financial burden of Rs7 billion on account of non-recovery of dues, Rs2 billion due to gap between transmission and distribution loss of 19.6 per cent and 16.5 per cent, Rs1 billion General Sales Tax (GST), Rs2 billion Late Payment Surcharge (LPS) and Rs2 billion fuel adjustments due to line losses.

The government also paid out Rs151 billion as cost of inefficiency in power sector in the last financial year. Apart from this the government faced a burden of Rs25 billion due to gap between actual line losses of 19.6 per cent and 16.5 per cent permitted losses, Rs26 billion on account of late payment surcharge (LPS) to fuel and power suppliers, Rs10 billion GST lost due to non collection that was paid to Federal Board of Revenue (FBR) and Rs25 billion fuel adjustment lost due to line losses. A loss of Rs65 billion was caused by the non recovery at Discos level as out of actual billing, only 88 per cent recovery ratio was achieved in the last financial year 2010-11.

Published in The Express Tribune, August 22nd,  2011.