ECC okays power tariff increase
Design: Ibrahim Yahya
The government on Friday approved a significant increase in electricity prices in the range of Rs3.3 to Rs15.52 per unit for residential consumers, farmers and exporters to recover an additional Rs237 billion in four months but still circular debt will jump to Rs2.37 trillion.
It also approved an increase in prices of 18 drugs but reduced rates for 20 other medicines. The decision to increase the power tariff marks the first important step towards implementing the power sector-related prior actions set by the International Monetary Fund (IMF) for a much-delayed staff-level agreement.
The government has approved the passing of Rs237 billion additional burden on consumers through a direct tariff increase and an indirect increase through the withdrawal of subsidies given to exporters and farmers.
It has still shown Rs335 billion in additional subsidies in the revised Circular Debt Management Plan (CDMP), taking them to Rs2.34 trillion.
Headed by Finance Minister Ishaq Dar, the Economic Coordination Committee (ECC) of the cabinet endorsed the above decisions besides approving the revised CDMP.
The revised plan showed that the circular debt, which was earlier projected to decrease to Rs2.1 trillion, would now grow to Rs2.374 trillion, an addition of Rs261 billion despite a massive hike in electricity prices.
The revised plan is different from what was presented to the IMF last week, incorporating the lender’s observations, which include the withdrawal of electricity subsidies offered to exporters and farmers.
“The ECC considered a summary of the Power Division and approved the revised Circular Debt Management Plan,” said the Ministry of Finance in a statement.
The revised plan showed that the government had passed on the additional impact of Rs237 billion to end-consumers in almost all categories from March to June 2023.
The ECC deferred the repayment of Rs283.3 billion debt obtained for retiring the old circular debt for two years. But the move will put an additional burden of Rs3.39 per unit on the electricity consumers on account of debt servicing due to the delayed payment.
The ECC approved the imposition of three separate quarterly surcharges in the range of Rs0.69 to Rs3.21 per unit.
In any given time till June, there will be an additional increase of Rs3.62 per unit in the cost of electricity on account of quarterly surcharge to collect Rs73 billion, excluding the impact of the pending fuel cost adjustments (FCAs).
The government has also imposed a debt servicing surcharge of Rs3.39 per unit, taking the net additional increase to Rs7 per unit for the domestic consumers. These consumers are already paying a cost of up to Rs32.7 per unit, excluding taxes. The government approved the withdrawal of electricity subsidy of Rs12.13 per unit, given to the exporters, with effect from March 2023 to pass on another burden of Rs51 billion.
Industrial consumers will also be impacted by the debt surcharge of Rs3.39 per unit, which pushes the total increase for them to Rs15.52 per unit. The industrial tariff will now go up to Rs36 per unit.
The ECC also approved the withdrawal of electricity subsidies for farmers to save Rs14 billion in four months. The effective increase for the farmers will be around Rs3.30 per unit but they will still be paying subsidised rates.
The ECC gave the go-ahead to the recovery of pending fuel cost adjustment from consumers of less than 300 units per month at an average rate of Rs2.17 per unit to collect Rs68 billion.
It deferred the payment of electricity bills for September 2022 for commercial consumers in the flood-hit areas till the next billing cycle and waived electricity bills for August and September 2022 for the non-ToU (time-of-use) domestic consumers having less than 300 units consumption.
The ECC approved an additional supplementary grant of Rs10.3 billion to cover the cost of waived electricity bills for the flood-stricken areas. The revised plan showed that despite recovering Rs237 billion from the consumers, an additional Rs336 billion in subsidies will be needed.
Compared to the old plan, the government will add Rs261 billion to the circular debt, taking the figure to Rs2.374 trillion by June this year.
The ECC allowed the fixation of maximum retail prices of 18 new drugs as recommended by the Drug Pricing Committee. Prices of these 18 drugs are at the lowest levels as compared to the prices of same drugs in neighbouring countries, especially in India, according to the finance ministry.
The ECC approved an increase in the maximum retail price of Paracetamol products and fixed the price of Paracetamol Plain Tablet 500 mg at Rs2.67 and Paracetamol Extra Tablet 500 mg at Rs3.32. It also considered another summary of the Ministry of National Health Services and approved the recommendation of the Drug Pricing Committee for reduction in the maximum retail prices of 20 drugs.
Published in The Express Tribune, February 11th, 2023.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.