Plan under study to raise power tariff by 12%

Subsidies for the power sector have spiralled out of control, say officials.

ISLAMABAD: Demands from international donors and the prospect of having to pay power subsidies to the tune of Rs396 billion for the current financial year has led to the tabling of a new plan to raise power tariffs by 12%. A senior official of the Ministry of Water and Power has said that a summary in this regard will be moved shortly to its Law Division to vet the notification.

When approached, the spokesman for the Ministry of Water and Power did not respond to requests for official verification. According to the power ministry official, multilateral donors have approached the government several times with demands to bridge the gap between the cost of service and the power purchase price. Donors say that the cost of service in the power sector is higher than its revenue generation, and are of the view that the power tariff does not fully cover the costs of power generation, while present tariff slabs indirectly subsidise the rich. They have also urged the government to focus on a cost recovery tariff with targeted subsidies.

One donor has proposed three measures for improvements, that include either “an increased tariff to cover costs of service, increased subsidies to cover the difference, or reduction in the costs of service by adopting efficiency measures,” the official informed.

The proposed 12% increase in the power tariff will be in addition to the Rs2.38 per unit hike on account of fuel adjustment charges; which the National Electric Power Regulatory Authority recently allowed power distribution companies (DISCOs) to charge from consumers to recover costs of fuel for the month of February and March 2012.

Overall, the average base applicable tariff is Rs7.80 per unit. “Under the proposed plan, the government will raise the power tariff by Rs0.62 to Rs 1.84 per unit, across the board, for all categories of consumers, excluding lifeline consumers,” the power ministry official said. The official claimed that the government will recover a Rs65 billion deficit in revenues through the tariff hike.

Circular debt and subsidies in the power sector have been a drain on government resources due to rooted inefficiencies in the sector. The government paid Rs114 billion in subsidies for 2007-08, Rs391 billion for 2008-09, Rs147 billion for 2009-10 and Rs346 billion for financial year 2010-11.

For the current financial year, the Cabinet Committee on Energy had projected in September 2011 that Rs337 billion would have to be paid out in subsidies. “But latest estimates suggest that the subsidy may exceed the Rs396 billion mark; Rs320 billion of which will go to ex-Pepco DISCOs, and Rs76 billion to Karachi Electric Supply Company consumers,” a senior official of the Ministry of Water and Power said.

Published in The Express Tribune, May 1^st, 2012.