Plan to hike power tariff by Rs6.32/unit to cut circular debt

ISLAMABAD: The government has prepared a revised Circular Debt Management Plan (CDMP) for slashing the flow of this monster by taking all kinds of measures, including raising the electricity tariff by Rs6.32 per unit. 

Despite raising the electricity tariff by Rs6.32 per unit, the revised CDMP has estimated that it requires an additional subsidy of Rs675 billion during the current fiscal year. Under the revised CDMP, which will be shared with a visiting IMF team, the government will slash the circular debt flow from Rs1,526 billion to Rs952 billion during the ongoing financial year with certain base scenarios. For raising tariff, the Quarterly Tariff Adjustment (QTA), the government wanted collection of Rs73 billion through hike in tariff by Rs5.54 per unit. There will be another tariff hike of Rs0.68 per unit through imposition of surcharge for recovery of the Power Holding Limited (PHL) markup. The PHL recovery, which is being planned through imposition of surcharge, will fetch Rs68 billion. So, the imposition of surcharge is also on the cards.

The government will raise electricity tariff by Rs3.21 per unit under Quarter 1 of FY2023 from February 23 to March 2023. For QTA (Q2) from Mar 23 to May 23, the electricity tariff of Rs0.69/unit will be raised. For QTA-Q3 from Jun 23 to Aug 23, the government will hike the electricity tariff by Rs1.64 per unit.

There are some fundamental flaws in the revised CDMP for 2023 as the government believed that the additional subsidy requirement from the national exchequer stood at Rs 675 billion which might not get endorsement of the IMF. The revised CDMP envisages that the government would bring desired improvement of Power Distribution Companies (Discos) up to 16.27 per cent on average from the earlier envisaged target of 17 per cent, so it would save Rs12 billion. The government has envisaged the target to recover Fuel Price Adjustment (FPA) charges deferred in last summer to fetch Rs20 billion into the kitty. The markup saving due to IPPs stock payment will bring Rs11 billion.

The GST and other taxes on a collection basis will help recover Rs18 billion in the current fiscal year. It is estimated that if the plan is implemented in true letter and spirit, even then the additional subsidy requirement from the government will be standing at Rs675 billion during the current fiscal year. The IMF sternly opposed across-the-board subsidy and the now the government will have to convince the IMF through toughest negotiations for ensuring endorsement of the revised CDMP for financial year 2023. The revised circular debt projection after stock payment shows that there will be an addition of Rs140 billion to this monster during the current fiscal year.

The circular debt is estimated to hover around Rs2,113 billion till the end of FY2023, including the amount parked in the Power Holding Limited (PHL), Rs765 billion and Rs1,248 billion payable to power producers and Rs100 billion to fuel suppliers.