The government has decided to pass the full impact of electricity tariff determined by the regulator on to consumers in the future and restrict subsidy to ‘low-income residential consumers’ as part of efforts to keep power producers financially viable and curb circular debt.
The Economic Coordination Committee (ECC) of the cabinet took the decision when it met on January 28, sources said. It comes in the backdrop of commitments made to the multilateral donors.
The ECC – the apex economic decision-making body – agreed on the move while approving the National Tariff Policy Guidelines and National Subsidy Policy Guidelines 2014, which was tabled by the Ministry of Water and Power.
Under the policy, the government will not offer any subsidy to the power consumers more than the amount set aside in the budget.
Government estimates suggest that total power subsidy will be Rs168 billion in the current fiscal year.
According to the sources, participants of the ECC meeting reminded the government that it was committed to pursuing a far-reaching reform programme in the power sector in order to meet the country’s future electricity needs.
“As the power sector requires a significant quantity of resources to meet the requirements, its ability to attract commercial capital needs to be ensured through relevant policy and regulatory actions,” an ECC member suggested.
Because of this, the Ministry of Water and Power proposed the tariff policy guidelines in an attempt to strike a balance between the interests of consumers and capital providers.
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According to the ministry, the guidelines took into consideration the existing legal framework and emerging trends in the sector in terms of promotion of efficiency, introduction of conservation through pricing, rationalisation of tariff, protection of consumer interest and transparency in subsidy administration.
The guidelines also reflected the government’s intent with respect to electricity pricing and cost allocation so that policymakers, planners, companies, regulators and customers had a concrete picture of the steps necessary to achieve a sustainable power sector.
Major suggestions included ensuring financial viability of power companies while protecting the interest of consumers and ensuring predictability in regulatory actions.
The ECC observed that the Law, Justice and Human Rights Division had supported the policy guidelines with the view that these were in line with Section 7 of the Nepra Act and the Finance Division were also on board.
Published in The Express Tribune, February 4th, 2014.
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