Govt decides to slash down power subsidy in next budget

ISLAMABAD: In a bid to get benefits from declined oil prices in international market for the purpose of restricting budget deficit at desired level, the government has decided to slash down power sector subsidy by Rs143 billion in the coming budget 2015-16 instead of passing on benefits to voiceless consumers.
In the wake of reduced oil prices, the government has got a space where subsidy reduction will not hike the electricity prices for time being and till the time the price did not rebound.So the government and the IMF had agreed in recent talks held at Dubai for taking steps for cost recovery, stopping accumulation of circular debt, bringing efficiency in cash bleeding sector and implementing multi-year tariff by Nepra for power distribution companies (DISCOs)
In line with IMF’s agreement, the government has envisaged massive reduction in power sector subsidy by bringing it down to Rs124 billion or 0.4 percent of GDP in the coming budget 2015-16 against revised estimates of Rs265 billion or close to 1 percent of GDP during the outgoing fiscal year 2014-15.
“The Economic Coordination Committee (ECC) of the Cabinet’s latest decision has enabled the government to bring three different surcharges in consolidated form for the purpose of determining tariff,” said the official sources and added that now the average tariff determined by Nepra increased by Rs2 per unit. “Actually the government has made adjustment in such a way that the benefit of declined oil prices could not reach to consumers of power sector,” said the official.
The three surcharges such as equalization surcharge, tariff rationalisation surcharge and debt servicing surcharge would be standing equal to Rs2 per unit. The Nepra has determined an average tariff in the range of 9.95 per kWh and after the ECC’s decision the average price will be increased to Rs11.95 per unit.
Finance Minister Ishaq Dar said on Friday that the government only consolidated surcharges for determining tariff that would keep existing tariff unchanged.“We will protect all those who are using 200 units of electricity as 67 percent falls into this category,” he concluded.
However, the sources said that it was true that the tariff would remain unchanged for time being and until the prices of oil did not escalate in international market.In case the oil and furnace oil prices go up in the international market then the prices of electricity will go up, said the sources.
The government is also considering different proposals to come up with the concept of targeted subsidy for power sector. Under the proposed plan, the government will pass on full cost on those who are using more electricity units. For instance the cut off limit is under consideration for users of over 400 or 500 units and final decision is expected in consultation with top political leadership of the country.