ISLAMABAD: The energy and food-pushed inflation will continue haunting voiceless consumers as the government has committed to the IMF to pass on two more increases in power tariff and average hike in gas tariff by 15 percent next month in January 2020. It will result into increasing the inflationary pressures over the next couple of months. The government has committed with the IMF to pass on Rs73 billion on account of net hydel profit arrears recovery from consumers next month under structural benchmark condition.
The gas tariff on average 15 percent increase for all consumers as it will be ranging up to 130-140 percent for higher slabs, will also hike energy pushed inflation in coming month. Although, despite food prices have started witnessing declining trends in recent weeks, the overall Consumer Price Index (CPI) would be hovering close to 13 percent for December 2019 that would be made public by Pakistan Bureau of Statistics (PBS) this week.
There is also risk of fluctuation of POL prices in international market as if it hiked it could cause pressures on import bill and possessed possibility to further increase the inflationary pressures.
The IMF’s review report and Memorandum of Economic and Financial Policies (MEFP) document signed by Pakistani authorities stated that there would be quarterly notification of adjustment of power tariff. “Until the process of adjusting quarterly tariffs becomes fully automatic, we will continue to timely notify tariffs on a quarterly basis” the IMF’s review document reads out. It explains that the government committed to amend Nepra Act after which the determined tariff by the regulator would stand notified but until this mechanism would be in place, the authorities were committed to notify quarterly adjustment of tariff. “In this regard, on November 29, we announced the increase in tariffs for capacity payments by around 2 percent, effective for Q1 FY 2020 (prior action) and we will adjust Q2 FY 2020 tariffs for capacity payments by end-January 2020 (new SB)” the IMF document states.
Recovery of net hydel profits stock of arrears: The tariff update of January 2020 will incorporate the recovery from consumers of half the outstanding stock of remaining net hydel profits arrears, equivalent to Rs73 billion.
Eliminating delays in tariff adjustments and reintroducing the government’s power to introduce tariff surcharges: To this end, we are preparing amendments to the Nepra Act focusing on (i) giving the regulator the power to determine and notify quarterly tariffs; (ii) ensuring timely submissions of quarterly and annual petitions by the DISCOs; (iii) eliminating the gap between the regular annual tariff determination and notification by the government; and (iv) reinstating the power of the government to levy surcharges over and above the system’s revenue requirements under the Nepra Act. We will submit these changes to the Nepra Act to Parliament, in consultation with international partners, by end- December 2019 (a modified end-December SB).
iv. Ensuring timely disbursement of power sector-related subsidies: We will aim to streamline and facilitate the disbursement of sector-related subsidies and, to this end, by end-November 2019 the Ministry of Energy will streamline the required auditing procedures to ensure the timely disbursement of subsidies.
v. Performance-based management of DISCOs: To improve efficiencies and collections the government will sign performance-based contracts with all DISCOs by end-January 2020.
The contracts will contain KPIs for improvements in collection, reductions in losses, and meeting the regulatory timelines for petitions submissions, with mechanisms to reward good performance and/or compensate for shortfalls. DISCOs will submit quarterly performance reports to Nepra and will publish in Nepra’s website.
vi. Start legal process against defaulters: Ensuring compliance with the Consumer Service Manual, we will immediately start abolishing running defaulters’ categories and disconnect non-paying consumers, with reconnections made with higher security deposits and/or prepaid metres.
The Ministry of Law will ensure that all legal aspects are adequately followed. Recovery of late payment charges. In connection to PRs 110.6 billion of late payment charges accumulated prior to FY 2016, Nepra will allow this cost in the tariff by end-June 2020 so that it can be incorporated in the tariff from FY 2021.
viii. Targeting of subsidies: Before end-March 2020, we will revisit all government-provided power sector subsidies with a view to their streamlining and rationalisation. In particular, in the FY 2021 budget we will aim to better target the subsidies provided to residential consumers, the industrial sectors, and the agricultural sector.
ix. Reassessing regulatory benchmarks: Currently, Nepra assumes in the determination of the tariffs 100 percent recoveries for all DISCOs. This feature of the system leads to the structural accumulation of circular debt. The Ministry of Energy will engage all stakeholders on possible options to adequately address this aspect of the system and will propose to the CCI by end-December 2019 revisions to the benchmarks and standards, including permission for write-offs, while preserving the adequate incentives to improve DISCOs performance.
x. Introduction of surcharges: We will introduce new surcharges as needed to ensure that the circular debt reduction targets under the plan are met.
On gas sector, the IMF report states that reforms in the gas sector are advancing as planned. Key achievements include:
a. Timely update of tariffs. The tariff adjustment on July 1 eliminated the flow of gas sector arrears. Going forward, we will adjust tariffs by end-December 2019 based on Ogra’s midyear decision on tariffs.
b. Reducing unaccounted for gas losses (UFG). The ECC has approved the UFG reduction plans prepared by the two gas companies. The 3-year plans envisage an annual 1–2 percent reduction in UFGs to bring their levels in line with the regulator’s allowance through, inter alia, improvements in infrastructure, rehabilitation of networks, theft control. Quarterly monitoring reports will be published by the regulator.
c. Other initiatives remain on track, such as the preparation of amendments to the Ogra Act to ensure timely notification of tariffs and the changes to the petroleum policy to facilitate new explorations and streamline regulations and rules.