ISLAMABAD: The government plans to revise consumer tariff for natural gas and electricity this month to allow loss-making public sector companies to meet their revenue requirements.

Under the plan committed with the International Monetary Fund (IMF), the government would increase gas tariff to meet higher revenue requirements of Sui Northern Gas Pipelines Limited and Sui Southern Gas Company Limited.

However, the government would not pass on to consumers the tariff cuts approved by the National Electric Power Regulatory Authority (Nepra) for distribution companies (Discos) and may absorb it in the existing higher tariff through a new surcharge to protect revenue flows of the distribution companies without budgetary injections.

“We are committed to resuming our practice of regular semi-annual notifications and we have started the required regulatory process of tariff determination...which will be followed by gas price notification in July 2016 to allow recovering the revenue requirements of gas utility companies,” wrote Finance Minister Ishaq Dar to the IMF. “We will continue to make necessary adjustments to notified prices of imported gas, so that the cost of this gas is fully reflected in the tariff on a monthly basis,” he added referring to liquefied natural gas.

The minister said the government had devised a gas price rationalisation plan in December 2013 to encourage new investment, promote efficiency in gas use, eliminate distortions in the price structure, etc. “We remain committed to the plan and are stepping up action to implement it,” he wrote.

He said the government was incentivising gas producers to enhance output from existing fields and initiate new exploratory efforts, with price increase ranging from $2.8–3.0 per MMBTU to $6–10, to be subsequently adjusted to the movements in international oil prices.

The minister said that the loss in cost recovery incurred by gas companies because of the delayed price notifications of fiscal year 2014-15 [due in July and January] was partially recuperated in the new tariff which was notified and implemented in August 2015.

Mr Dar explained that following enactment of the GIDC Act in May 2015, the government had recovered Rs57 billion in the fiscal year 2014-15 and the GIDC collection reached Rs60bn in the first three quarters of fiscal year 2015-16.

Power tariff

The minister informed the lender that the government had introduced surcharges in power tariff in June 2015 to meet the IMF targets. “We are committed to protecting the level of revenue in the electricity sector by adjusting prices as needed,” he wrote.

He said Nepra had determined multi-year tariffs for Fesco in December 2015, for Iesco in February 2016 and for Lesco in March following delays in the finalisation of the investment plan by the financial adviser. The tariff determination for the rest of Discos was completed in April.

Discos have filed review petitions in an attempt to achieve revised losses and collection targets. “Follow­ing the review process by Nepra, we will notify the tariffs for Fesco, Iesco and Lesco...by July 15, 2016 as required under the modified structural benchmark...and will notify the annual tariffs for the remaining Discos at the same time,” he said.

An official explained that the July 15 deadline was missed because the water and power secretary was on a visit to India, but the commitment would be honoured in a few days.

The finance minister told the IMF that to meet the target the government had notified the quarterly determination for K-Electric for the pending four quarters. “We are committed to continue reducing electricity subsidies to 0.3 per cent of GDP in fiscal year 2016-17,” he said.

Published in Dawn, July 18th, 2016