Rs3.23 debt surcharge slapped

Power consumers will pay Rs335b in FY24 to cope with circular debt pile-up

ISLAMABAD:

In a major development, Pakistan on Wednesday conceded to the International Monetary Fund’s (IMF) demand and slapped a permanent electricity surcharge of Rs3.23 per unit to recover Rs335 billion from consumers, removing another bottleneck in the way of reaching a staff-level agreement.

The decision was made by the Economic Coordination Committee (ECC) of the cabinet, which also fixed the minimum wheat procurement price at Rs3,900 per 40 kg, a whopping 77% increase that would sow seeds of massive food inflation.

“The ECC approved the proposal regarding enhancement of surcharge for financial year 2024 to cover federal government obligations towards power producers,” said a statement released by the Ministry of Finance. The surcharge will continue beyond fiscal year 2024.

Consumers will cough up an additional Rs335 billion in the next fiscal year, a price that they are forced to pay to compensate for the inefficiency of Power Division that has failed to settle a circular debt of Rs800 billion parked in a government company.

The IMF had demanded a total surcharge of Rs3.82 per unit to eliminate one aspect of the circular debt accumulation. Finance Minister Ishaq Dar had on last Wednesday refused to accept the IMF’s demand but caved in after one week.

The central bank’s monetary policy committee is meeting today (Thursday) to fulfill another condition of the IMF to raise interest rate. The central bank on Wednesday let the rupee depreciate to nearly Rs267 to a dollar to meet yet another demand.

Details showed that the consumers using up to 300 units would bear a surcharge of Rs1.96 per unit and pay a total of Rs141 billion. The rest of the domestic consumers will be charged Rs3.23 per unit to collect another Rs30 billion.

Commercial and industrial consumers will also be charged Rs3.23 per unit to recover Rs30 billion from commercial and Rs107 billion from industrial consumers. Agricultural tube wells will be charged Rs2.19 per unit for getting an additional Rs25 billion.

The permanent debt servicing surcharge would also be applied to K-Electric (KE) consumers to maintain uniform tariff across the country, said the finance ministry.

KE consumers would pay a total additional tariff of Rs8 per unit from March to May in the current fiscal year, as the ECC also approved two quarterly surcharges, totalling Rs4.77 per unit. From July, they will be subject to the surcharge of Rs3.23 per unit.

Last month, the cabinet had approved an additional surcharge of Rs3.82 per unit for four months from March to June 2023. Furthermore, it approved a surcharge of Rs1.43 per unit for the next fiscal year to recover Rs126 billion, which the IMF rejected.

After the IMF’s rebuke, the Power Division proposed that the surcharge may be “enhanced to Rs335 billion for FY 2023-24 and onwards for the consumers”.

Wheat price

In a compromised decision, the ECC agreed to increase the wheat procurement price by Rs1,700 per 40 kg, a rise of 78%, which would stoke massive inflation.

“The ECC after detailed discussion approved a uniform procurement price of wheat crop 2022-23 at Rs3,900/40 kg,” said the finance ministry. Earlier, the price was Rs2,200. According to various studies, a 10% increase in support price causes 3% hike in the overall inflation rate.

The ECC approved 56% profit margin for farmers. The Agriculture Policy Institute estimated the cost of production of wheat crop 2022-23 at Rs2,495 per 40 kg. The federal government had earlier recommended a price of up to Rs3,200 per 40 kg which Sindh rejected.

Pakistan Bureau of Statistics on Wednesday reported an inflation rate of 31.5%, the highest in half a century, and the wheat price decision may soon push it closer to the hyperinflation status.

The ECC also approved a Ramazan relief package of Rs5 billion to partially reduce prices of 19 items for the Utility Stores Corporation.

Tariff increase for Karachi

The ECC agreed to increase KE’s consumer prices cumulatively by Rs4.77 per unit on account of quarterly tariff adjustments.

The increase will be passed on from March to May 2023, a period when the country will also see a significant increase in prices due to other tariff adjustments under the IMF deal. Earlier, a summary was approved by the ECC in December 2022, however, the ECC chairman, the finance minister, withdrew the summary. Considering the financial implications and the anticipated subsidy savings, the summary was resubmitted for consideration of the ECC.

The decision will result in tariff increase of Rs1.6/unit with recovery period of three months on the consumption of July 2022 to September 2022 to be recovered from consumers from March 2023 to May 2023.

The second tariff adjustment on account of first quarter of current fiscal year will result in tariff increase of Rs3.21 per unit with recovery period of two months – March to April 2023.

The ECC approved a KPT board resolution regarding waiving all charges of storage on the stuck containers and cargo landed at Karachi Port as a result of non-retirement of Letters of Credit and remittances of foreign exchange subject to the condition that demurrage charges on each case beyond Rs5 million would be waived after getting certification from the SBP.

Published in The Express Tribune, March 2^nd, 2023.

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