LAHORE: Each electricity unit has become costlier by Rs1.30 as the federal government started charging two recently introduced taxes in fresh bills, transferring a cumulative burden of around Rs117 billion to consumers this year.

The November bills include the Universal Obligation Fund at the rate of Re1 per unit for those falling between 301 and 700 units and 50 paisa for consumers over 700 units.

Similarly, a debt servicing surcharge of 30 paisa per unit has also been included in the bills. Both the surcharges are over and above 30 paisa per unit monthly fuel adjustment charges for August and another 51 paisa per unit for September.

Prime Minister Nawaz Sharif had withdrawn the September fuel charges, but they are still part of November bills.

“The sector sells around 90 billion units every year,” explains a former head of the Central Power Purchase Agency. By raising tax on each unit by Rs1.30, the government has transferred an additional burden of Rs117 billion to consumers – a killing figure by any stretch of imagination.

Of the two, the debt servicing charge is the most interesting one. When the PML-N government took over, it drew huge political mileage out of clearance of circular debt. Its ministers went about painting it as a testimony to their party’s financial wizardry and claimed that it would have a positive impact on loadshedding.

But it turned out that out of Rs500bn, roughly 50 per cent was paid in cash to the independent power producers (IPPs) and the rest was parked in the debt holding company which the PPP government had set up in 2010 to clear sectoral books of Rs301bn.

The company is now holding a debt of over Rs500bn and the new surcharge of Rs0.30 per unit is needed to service it.

“Originally, the debt accumulated because the tariff was not raised between 2003 and 2008,” said a former Pepco head. The servicing cost during that period had gone up substantially. The government refused to raise tariff and promised to pay the differential as subsidy, but it did not. As a result, the debt shot up to Rs301bn and a new company was formed to shift the burden to it and clear the sector.

BAD POLITICS: The present government added to the debt roughly the same amount and now wants consumers to service the loans that were accumulated over the past decade. It is bad politics, even worse financial management and a disastrous action socially, he concluded.

The Universal Obligation Fund of Re1 per unit is even more discriminatory and is tantamount to covering corruption and inefficiency, says a former head of the National Transmission and Dispatch Company. The government wants to keep electricity rates uniformed throughout the country but it is not ready to pay the differential – under pressure from lenders. Thus, it has introduced a new tax. It tried to make it part of tariff through Nepra which refused to budge.

Thus it has levied a tax to reduce subsidy of equivalent amount; if it sells 92bn units it would earn Rs92bn more and reduce the subsidy by the same margin, to the much satisfaction of international lenders and social and poverty disaster for the Pakistanis, he concluded.

Published in Dawn, November 30th , 2014