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Monday June 17, 2024

Power tariff may go up to revive IMF package

Minister for Finance Ishaq Dar claims no consideration to hike power tariff at the moment

By Mehtab Haider
December 20, 2022
In a last-ditch effort to revive the stalled IMF programme, the government has made a plan with four options under consideration for slashing circular debt. — AFP/File
In a last-ditch effort to revive the stalled IMF programme, the government has made a plan with four options under consideration for slashing circular debt. — AFP/File

ISLAMABAD: In a last-ditch effort to revive the stalled IMF programme, the government has made a plan with four options under consideration for slashing circular debt whereby the maximum electricity tariff can go up by Rs31.6/kWh through the imposition of a new surcharge.

The proposal aims to slap a surcharge on five categories including commercial, bulk, industrial, others, and general services while protecting domestic and agriculture sectors. Top official sources confirmed to The News on Monday that the cash-bleeding power sector was heading towards a totally unsustainable level as the requirement of the power sector might escalate to a whopping Rs1.73 trillion for the current fiscal year against an initial budgetary allocation of Rs0.57 trillion mainly because of inadequate budgetary allocations.

Under the plan, there are four major proposals out of which three comprise hiking the electricity tariff in the range of Rs 2.27/kWh and Rs12.59 kwh and a maximum of Rs 31.6 kwh through the imposition of a surcharge on all five categories of consumers. For slapping the surcharge, the government will have to amend the NEPRA Act 1997. Under option one for imposing a surcharge of Rs 31.6 per unit, the rate of commercial consumers might go up to Rs 94 per unit from the existing rate of Rs 49 per unit; the bulk consumer rate may increase to Rs 77.9 per unit from the existing tariff of Rs 40 per unit, industrial consumer up to Rs 80 per unit from the existing price of Rs 40 per unit, others Rs 77 per unit against the existing tariff of Rs 40 per unit and general services tariff Rs 77 per unit from existing Rs 40 per unit. Under option two with an increase of Rs12.50 per kWh, the tariff for the commercial consumers will go up to Rs 67 per unit, bulk Rs55 per unit, industrial Rs56 per unit, others Rs54 per unit, and general services Rs54 per unit.

With the imposition of a surcharge of Rs 2.59 per unit, the commercial consumer tariff will go up to Rs 52 per unit, bulk Rs 43.37 per unit, industrial Rs 43 per unit, others Rs 42.4 per unit and general services Rs 42.8 per unit.

In case of the status quo and no hike in the power tariff under the fourth option, the subsidy requirement stands at a whopping Rs 700 billion during the current fiscal year. The Kissan package and zero rating for export-oriented industries will add a financial burden of Rs 146 billion and the IMF is asking to find out resources to finance the subsidy otherwise it would add to the monster of circular debt.

According to the plan for reducing the circular debt, four options are under consideration which envisage hiking the electricity tariff by Rs 31.6/kwh under option one, Rs 12.59 per kwh under option two, Rs 2.27/kwh with subsidy of Rs 580 billion under option three and subsidy requirements will go up to over Rs 700 billion with no increase in power tariff.

When asked about the possibility of an increase in the power tariff, Minister for Finance Ishaq Dar told The News on Monday that there was no consideration for hiking the power tariff at the moment and promised to discuss it in details when the plan was finalized for reducing the circular debt.

However, the official sources said that the power sector faced a very grim situation in the wake of its inability to implement all agreed actions with the IMF and World Bank as the baseline tariff of Rs 7.91 per unit got partially implemented, not fully passing on Fuel Price Adjustment and Quarterly Tariff Adjustment, recovery of bills less than 90 percent against the target of 93 percent, failure to curtail Transmission & Distribution losses around 17 percent against the target of 15.8 percent, demand of electricity in quarter first stood less than 44 billion units against target of 45 billion units, additional subsidy requirements with regard to Zero Rating Regime Industry, Kissan Package and staggering of Fuel Cost Adjustments and Karachi Interbank Offered Rates standing at 15 percent against envisaged target of 10.5 percent on eve of the budget for 2022-23.

The prevailing difficult situation of power sector can be analyzed with this reality that the power sector losses peaked to over Rs 390 billion in the first quarter of the current fiscal year so caused ballooning of the circular debt.

The bill collection dropped significantly in the first quarter as it stood at 83 percent against the target of 93 percent, having financial implication of over Rs 100 billion. The power theft on account of Transmission & Distribution (T&D) losses touched 17.4 percent against the fixed target of 15.8 percent, resulting into increased financial losses of Rs 13 billion, rebasing of 7.91 per unit hike in tariff was passed on partially quarterly tariff adjustment of over Rs 45 billion recoverable in third quarter of ongoing fiscal year, Rs 6 billion recovered in FCA in November while Fuel Cost Adjustment of Rs 14 and Rs 13 billion were deferred.

It was envisaged that the government would release subsidy amount of Rs 46 billion but not a penny was released in the first quarter of the current fiscal year. The markup for Power Holding Company and IPPs increased from Rs 39 to Rs 40 billion so there was impact of Rs 1 billion on this account. The quarter one demand decreased from 45 billion units to 40 billion units, causing financial loss of Rs 55 billion. The non recovered GST to FBR stood at Rs 31 billion in the first quarter of the current fiscal year. The bill deferment caused loss of Rs 34 billion in the first quarter of the current financial year.

According to the revised plan for reducing the circular debt known as Circular Debt Management Plan (CDMP) which was under discussion with the IMF and World Bank, the target of bill recovery was revised from 93.5 percent to 92 percent which will have negative impact of Rs 55 billion, losses of T& D will accumulate burden of Rs 31 billion, inability to generation cost recovery will add into losses of Rs 63 billion, increase in mark-up on Power Holding Company and IPPs will add in financial loss by Rs 64 billion, non allocation of K-Electric subsidy will add by Rs 136 billion, un-budgeted subsidy for export oriented industry Rs 118 billion and Kissan Package Rs 28 billion, Fuel Price Adjustment (FPA) and bill deferment Rs 65 billion additional burden, less demand of electricity will cause loss of Rs 55 billion and variation of GST collection Rs 91 billion. The revised estimates of CDMP shows that total additional requirement of loss-making power sector stood at Rs 780 billion against initial allocation of around Rs 75 to 80 billion.

However, official sources said that the real loses might go up to additional requirement of Rs 800 billion instead of Rs 700 billion.

According to official statement issued by Ministry of Finance on Monday stating that Federal Minister for Finance and Revenue Senator Mohammad Ishaq Dar chaired a follow-up meeting on reforms in Energy Sector at Finance Division on Monday.

Federal Minister for Power Mr. Khurram Dastgir Khan, Minister of State for Finance and Revenue Dr. Ayesha Ghous Pasha, Minister of State for Petroleum Mr. Musadik Masood Malik, SAPM on Finance Mr. Tariq Bajwa, Secretary Power and senior officers attended the meeting.

Meeting discussed in detail viable proposals presented by the relevant Ministries for introducing reforms in Power and Gas sectors aiming to bring efficiency in the system, minimize wastage of the energy and provide relief to the masses. The proposals focused on bringing sustainability to the energy sector and thereby achieve economic growth in the country, the official statement concluded. (Ends)