Monday September 25, 2023

IMF terms: Govt to impose surcharge of Rs3.50 per unit on power tariff

The global lender wants the government to end the subsidy to export sector

February 08, 2023
A file photo of electrical grids. —AFP/file
A file photo of electrical grids. —AFP/file 

ISLAMABAD: In line with the IMF diktat, the government has decided to impose a surcharge of Rs3.50 on electricity bills and in principle to do away with the subsided tariff of Rs19.90 available to the export sector. The Fund wants the government to end the subsidy being given to the export sector.

However, the government may increase the gas price for the export industry in Sindh from the existing rate of $3.11 per MMBtu to $7 per MMBtu. The export sector in Punjab will continue to pay $9 per MMBtu for gas.

“We are left with no option but to take the above-mentioned decisions; the export sector products will no longer be competitive in the international market,” senior officials of both the Petroleum and Power Divisions, who are part of talks with the IMF, told The News. “The circular debt in the power sector has swelled to Rs2,600 billion while in the gas sector, it stands at Rs1,300 billion and in the oil sector Rs350 billion. This is how the total circular debt in the energy sector as of today stands at Rs4,250 billion.”

The Fund is asking for an increase in power tariff by Rs10 per unit, but the authorities are still engaged with the Fund and want to increase it in a staggered form. But with an immediate effect, the government has shown its willingness to increase the tariff by imposing the financing cost surcharge of Rs3.50 per unit. The end consumers are already paying the same surcharge of Rs0.43 per unit.

As far as the gas sector is concerned, the IMF has asked the authorities concerned to increase the gas tariff to bridge the shortfall in revenue requirements of both the gas utilities that has surged to Rs610 billion by June 2022. Out of Rs610 billion, Rs190 billion have been recovered with a deficit of Rs410 billion in balance. This means an immediate increase in gas tariff, the officials said while quoting the IMF officials as saying. “We have shared with the Fund that the government intends to change the gas pricing mechanism under which the existing slabs of residential gas consumers will be increased from 6 to 9, ensuring the high-end consumers will cross-subsidise the lower-end consumers.”

The officials said that the plan has been carved out with the input of the World Bank which has been shared with the Fund. “The Fund has been briefed that the government is going to propose to increase the gas price of consumers falling in the 2-3 slabs category by 25-30 percent, 3-4 slab consumers by 100 percent and consumers of 4-5 slab category by 300 percent. And the last high-end consumers who will use the gas under the last three slabs from 6-9 will have to pay Rs3,230 per MMBTU. The LPG cylinder’s cost still stands at Rs4,200.

“However, the first three slab category consumers of 0.5hm3, 1hm3, and 2hm3 will face no increase in gas prices.” “The objective to increase the slabs is to accommodate the consumers who jump into other slabs by using a little more gas.”