Proposed plan: ‘Remove power subsidy, increase tariff by 20%’

Energy committee proposes end to subsidy regime from next financial year.

ISLAMABAD:

While presenting a gloomy picture of the energy sector, a high-powered energy committee has proposed to the Cabinet to end subsidy and increase power tariff by 20% to cover it from next financial year, documents reveal. 

Under the plan, the National Electric Power Regulatory Authority (Nepra) would be given the power to make direct notifications of all tariffs by June 2012, cutting the federal government out of the loop.

The cabinet in its meeting held on October 12 also proposed to link outages with line losses and install prepaid meters from January 2012.

Spokesperson of Ministry of Water and Power on the proposal said that Cabinet has not taken any decision yet.

The cabinet was informed in a presentation during the meeting that the power sector is at its worst position ever and that the government will incur a loss of Rs337 billion in the ongoing financial year due to inefficiency and resistance by the government to increase tariff due to political pressure.

The country’s industrial sector has been badly affected by the situation and 6 to 13 per cent of the workforce has been unemployed directly because of power cuts. Load shedding continues despite the addition of about 3,400MW in the last two years.

The Cabinet was informed in the presentation that the government will face a Rs24 billion revenue loss due to line losses, Rs70 billion due to non-collection of bills, Rs24 billion loss on fuel adjustment due to line losses, Rs12 billion on non-collection of General Sales Tax (GST) on bills, Rs26 billion on late payment surcharge, Rs 42 billion on Karachi Electric Supply Company subsidy difference and Rs72 billion on differential between gas and diesel.

The government had earlier planned a 12 per cent power tariff hike and if the proposed tariff increase is not passed to consumers, then the government will face a burden of Rs67 billion, the committee said. At present, the government is giving a subsidy of Rs1.57 per unit to power consumers that amounts Rs114 billion.

The government will have to pass on the 20 per cent power tariff differential to recover full cost of power generation. According to estimates made by the energy committee, there is a difference of 20 per cent between power tariff determined by Nepra and tariff being charged to consumers.

The deferential gap between tariffs determined by Nepra and notified by government stood at 13 per cent in year 2006-07, 7 per cent in 2007-08, 30 per cent in 2008-09, 45 per cent in 2009-10 and 20 per cent in last financial year 2010-11.

Government increased 12.5 per cent power tariff in 2007-08, 20 per cent in 2008-09, 24 per cent in 2009-10 and 22 per cent in year 2010-11.

The government paid Rs114 billion in subsidy during financial year 2007-08, Rs391 billion in 2008-09, Rs147 billion in 2009-10 and Rs346 billion during the outgoing financial year 2010-11, totalling about one trillion rupees in four financial years.

Published in The Express Tribune, October 21^st, 2011.