Power tariff raised to salvage IMF talks

Published October 20, 2014
The government is reported to have increased electricity tariff by about 43 paisa per uni.—AFP file photo
The government is reported to have increased electricity tariff by about 43 paisa per uni.—AFP file photo

ISLAMABAD: The government is reported to have increased electricity tariff for consumers of all distribution companies, except K-Electric, by about 43 paisa per unit to service about Rs147 billion bank loans ahead of the resumption of suspended talks with the International Monetary Fund (IMF) in Dubai from Oct 29.

Sources told Dawn on Sunday that the increase in tariff was imposed through an ‘equalisation surcharge’ by the Ministry of Water and Power after the National Electric Power Regulatory Authority (Nepra) declined to make ‘imprudent costs’ part of the base tariff on legal and technical grounds.

Also read: Faltering IMF talks

The increase would be charged to consumers in the next billing month -- with effect from Oct 16. Talks between Pakistan and the IMF mission on the fourth review of Islamabad’s economic performance on Aug 18 had proven inconclusive, leading to the suspension of a planned $550 million disbursement in September. With the support of the United States, the IMF agreed to resume talks between Oct 29 and Nov 7 after merging the 4th and 5th reviews for possible disbursement of $1.1bn in December.

As the government faces problems with the planned sale of OGDCL shares in the international capital market owing to cases in court, it considers a tariff increase ‘low hanging fruit’ and a bid to minimise the hurdles in the revival of the IMF programme.

The tariff increase was notified when additional secretary in charge of the power ministry, Sohail Akbar Shah, formally excused himself from working under the newly-appointed Water and Power Secretary Younas Dagha. Mr Shah wrote to the Establishment Division, asking them to post him elsewhere, grant him leave or make him officer on special duty (OSD), because he could not work under a junior officer.

A senior bureaucrat said Mr Shah had forwarded the summary for a 43-paisa per unit increase, along with the advice that such an increase could be exploited by the Pakistan Tehreek-i-Insaf (PTI) and Pakistan Awami Tehreek (PAT) in the ongoing protests. The tariff notification was, therefore, not made public.

Know more: Electricity tariff raised by 43 paisa

Joint Secretary Zargham Ishaq Khan, who deals with tariff issues in the ministry, was not available for comment despite repeated attempts. Power Minister Khawaja Mohammad Asif could not be reached for comment either.

However, another officer close to Mr Ishaq, who declined to speak on record, confirmed that the tariff had been increased through a special surcharge, but insisted it was a routine increase and had nothing to do with the IMF requirement. He also said the “increase may be 28 or 29 paisas per unit but not 43 paisas” and refused to give a specific number.

He also confirmed that Nepra had refused to include the cost of servicing bank loans obtained for distribution companies in base tariff through Nepra determination but the federal government could achieve the objective through a surcharge.

On May 29 of this year, the Economic Coordination Committee (ECC) of the federal cabinet – headed by Finance Minister Ishaq Dar -- had decided to charge consumers the cost of about three per cent additional technical losses and interest on power sector loans through an average of Rs2.35 per unit impact in power tariff.

“The ECC also considered and approved a summary from the Ministry of Water and Power for issuance of policy guidelines to Nepra to incorporate debt servicing on an actual basis in revenue requirements of distribution companies which would be adjusted in tariff of Discos on annual basis,” an official statement had said.

This was considered necessary because about Rs147bn worth of additional loans and syndicated term finance certificates were contracted over the past couple of years by the government or on its sovereign guarantees and this was proposed to be financed through the inclusion of interest payments in the consumer tariff. The debt servicing cost on this account was estimated at about Rs10bn.

A previous dispensation of similar debt stock of about Rs306bn taken over by the federal government a few years ago was made part of the federal budget but the government had given a commitment to the IMF to reduce the burden on the power sector in the budget and instead, passed it on to consumers.

The ECC had also issued policy guidelines to Nepra to rationalise the target of transmission and dispatch losses from 12.82pc to 15.75pc as had been done in the case of power tariff for 2012-13. The distribution companies now claim that their technical losses stood at 17.55pc for 2013-14.

Both advices were turned down by Nepra. A Nepra official said the federal government did not have the power under the Nepra Act to issue policy guidelines on tariff standards and other benchmarks that become part of the tariff at any stage.

He said that Section 31 of the Nepra Act empowered the federal government to issue policy guidelines to the extent of final consumer tariff on the basis of average tariff determined by the regulator for prudent revenue requirements of power companies. He said the regulator had held that increase in borrowing was a direct result of non-recovery of bills by power companies from government departments and dishonest private consumers while losses were resulting out of mismanagement and inefficiencies, for which honest consumers should not be burdened any more.

Published in Dawn, October 20th, 2014

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