Law ministry says tariff cannot be increased retrospectively. ILLUSTRATION: JAMAL KHURSHID
The incoming Pakistan Muslim League-Nawaz government will face an additional subsidy burden of Rs200 billion as the Ministry of Law is not allowing any increase in power tariff with retrospective effect, terming it illegal.
The problem arises after the National Electric Power Regulatory Authority dilly-dallied on tariff revision last year.
Apart from the tariff, the new government will have to deal with a crushing circular debt burden of Rs500 billion, racked up mostly in the past five years.
As the law ministry insists that power tariff cannot be increased from back dates, the new government will be in a difficult situation and may not be able to increase the tariff with retrospective effect.
In June 2012, power distribution companies filed petitions with Nepra, seeking an upward revision in tariff on the back of higher operational costs for financial year 2012-13. A decision on this was to take effect from July last year.
However, Nepra, in the face of pressure from the then government which feared a political backlash, kept on dragging its feet until the government completed its tenure in mid-March this year.
According to sources, the law ministry has told the water and power ministry that it can increase tariff with immediate effect, but not retrospectively.
The water and power ministry has sent a summary to the law ministry for examining a notification for pushing up power price from Rs11.89 to Rs14.50 per unit, a difference of Rs2.61 that will take overall subsidy to Rs5.63 per unit.
In this programme, the power ministry decides that it will not apply the tariff rise to end-consumers, as decided by Nepra, instead the finance ministry will bear an extra subsidy of Rs200 billion.
In 2011-12, the government increased power tariff by 16% and in 2010-11 by 22%. Consumers are already enjoying a subsidy of Rs3.02 per unit as they pay Rs8.87 per unit, instead of Rs11.89.
This fiscal year, payment on account of power subsidy is expected to go up to Rs291 billion compared to the target of Rs185 billion.
Not only the subsidy, circular debt estimated at Rs500 billion could prove to be another headache for the incoming government. Every month over Rs30 billion is added to the runaway debt because of heavy transmission and distribution losses, lower bill collection, late payment surcharge to independent power producers, loss of fuel adjustment surcharge and high non-technical losses.
Earlier, the Musharraf government had also frozen power tariff in its last year in power, leaving the task to the caretakers which increased the tariff by a whopping 30%. Later on, in the face of widespread protests across the country, the tariff rise was curtailed to 16%.
Published in The Express Tribune, May 17th, 2013.
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If there is any tarrif increase there will be wide spread protests. I didnt vote pmln to make things expensive but cheaper.
We cant afford to subsidize anymore, thats how countries like chile, hungary, brazil..improved there economic conditions, remove the subsidies for oil and electricity because those prices are determined by the world market..it will be tough the 1st year but things will start to improve..have to make the tough decisions that will yield long term benefits...we just dont have the money to subsidize.