Budgetary allocations: Government decides to implement uniform tariffs
Those in lowest income bracket to get power subsidy, NEPRA to get more independence.
By 2017, all power distribution companies will be on a multi-year tariff with automatic fuel adjustment mechanism. PHOTO: FILE
ISLAMABAD:
In a bid to limit power subsidies within budgetary allocations for the upcoming fiscal year, the government has decided to implement uniform electricity prices and may pay in cash to those who are at the bottom of the income bracket and deserve subsidies.
It has also decided to restrict political intervention in implementation of increase in power tariffs and is going to give vast powers to the National Electric Power Regulatory Authority (Nepra) – the sector’s regulator. Nepra is going to announce multi-year power tariffs with powers to automatically implement the increase, if the government decides to withhold the increase.
The decisions, having far-reaching implications for the sector and the consumers as well, have been officially conveyed to the presidents of the three international lending agencies, through a letter signed by Finance Minister Ishaq Dar.
The letter has been written to the World Bank President Jim Yong Kim, president of the Asian Development Bank, Takehiko Nakao and president of Japan International Cooperation Agency, Akihiko Tanaka. These three institutions have approved over $1 billion loan for reforming the power sector during the last two weeks.
Dar wrote that comprehensive tariff and subsidy guidelines for the electricity sector have been issued to Nepra. These are aimed at reducing the government’s discretion, moving to a formula based on multi-year tariff regime, while empowering Nepra to determine as well as notify tariffs.
By 2017, all power distribution companies will be on a multi-year tariff with automatic fuel adjustment mechanism, wrote Dar. In the first phase, Nepra will announce multi-year tariff for two power distribution companies.
The provision has been made for deemed notification of tariff, if not notified by the government, he assured the heads of the International Financial Institutions.
But according to sector experts, until the government truly gives autonomy to Nepra, these guidelines will make little difference. The government has not appointed a permanent head for Nepra; its current charge is given to a relative of Minister for Water and Power.
Dar assured that Pakistan will provide electricity subsidies to the households that fall within the lowest 20% in terms of per capita income. “This will reduce power subsides from 2% of GDP to only 0.4% by end of financial year 2016-17”. He said there will be uniform national tariff for all the consumers.
However, the government has not yet finalised whether it will compensate the lowest income group through Benazir Income Support Programme or a separate mechanism will be devised for them. The government plans identification of these customers and subsequent implementation of the subsidy payment through a study that reviews alternative payment options as well as existing mechanisms.
He wrote that a significant decline in investment and persistent failure to increase electricity prices has created a backlog in terms of cost of recovery which has not been eliminated despite 160% increase in power tariffs from 2009 to October 2014.
Dar has said that the government’s goal was to reduce load shedding to zero by 2017, reduce weighted average cost of generation, reduce generation and line losses to 16% from 25% and reduce the government’s decision time.
He wrote that new guidelines for managing tariff and subsidies will help to have clear policies on tariffs and subsidies targeted at low-income customers, limiting discretionary policy decisions and lags in tariff approval and implementation, and to limit power sector arrears.
For the current fiscal year, the government had allocated Rs220 billion for power subsidies. According to Rana Assad Amin, the spokesman of Ministry of Finance, the subsidies will increase to 1.2% of GDP (Rs312 billion).
For the next fiscal year, the government is planning to bring down allocations to about Rs200 billion.
Published in The Express Tribune, May 9th, 2014.
In a bid to limit power subsidies within budgetary allocations for the upcoming fiscal year, the government has decided to implement uniform electricity prices and may pay in cash to those who are at the bottom of the income bracket and deserve subsidies.
It has also decided to restrict political intervention in implementation of increase in power tariffs and is going to give vast powers to the National Electric Power Regulatory Authority (Nepra) – the sector’s regulator. Nepra is going to announce multi-year power tariffs with powers to automatically implement the increase, if the government decides to withhold the increase.
The decisions, having far-reaching implications for the sector and the consumers as well, have been officially conveyed to the presidents of the three international lending agencies, through a letter signed by Finance Minister Ishaq Dar.
The letter has been written to the World Bank President Jim Yong Kim, president of the Asian Development Bank, Takehiko Nakao and president of Japan International Cooperation Agency, Akihiko Tanaka. These three institutions have approved over $1 billion loan for reforming the power sector during the last two weeks.
Dar wrote that comprehensive tariff and subsidy guidelines for the electricity sector have been issued to Nepra. These are aimed at reducing the government’s discretion, moving to a formula based on multi-year tariff regime, while empowering Nepra to determine as well as notify tariffs.
By 2017, all power distribution companies will be on a multi-year tariff with automatic fuel adjustment mechanism, wrote Dar. In the first phase, Nepra will announce multi-year tariff for two power distribution companies.
The provision has been made for deemed notification of tariff, if not notified by the government, he assured the heads of the International Financial Institutions.
But according to sector experts, until the government truly gives autonomy to Nepra, these guidelines will make little difference. The government has not appointed a permanent head for Nepra; its current charge is given to a relative of Minister for Water and Power.
Dar assured that Pakistan will provide electricity subsidies to the households that fall within the lowest 20% in terms of per capita income. “This will reduce power subsides from 2% of GDP to only 0.4% by end of financial year 2016-17”. He said there will be uniform national tariff for all the consumers.
However, the government has not yet finalised whether it will compensate the lowest income group through Benazir Income Support Programme or a separate mechanism will be devised for them. The government plans identification of these customers and subsequent implementation of the subsidy payment through a study that reviews alternative payment options as well as existing mechanisms.
He wrote that a significant decline in investment and persistent failure to increase electricity prices has created a backlog in terms of cost of recovery which has not been eliminated despite 160% increase in power tariffs from 2009 to October 2014.
Dar has said that the government’s goal was to reduce load shedding to zero by 2017, reduce weighted average cost of generation, reduce generation and line losses to 16% from 25% and reduce the government’s decision time.
He wrote that new guidelines for managing tariff and subsidies will help to have clear policies on tariffs and subsidies targeted at low-income customers, limiting discretionary policy decisions and lags in tariff approval and implementation, and to limit power sector arrears.
For the current fiscal year, the government had allocated Rs220 billion for power subsidies. According to Rana Assad Amin, the spokesman of Ministry of Finance, the subsidies will increase to 1.2% of GDP (Rs312 billion).
For the next fiscal year, the government is planning to bring down allocations to about Rs200 billion.
Published in The Express Tribune, May 9th, 2014.