ISLAMABAD, Nov 2: The government is unlikely to reduce power tariff until the cumulative deficits of the two power utilities are met, a finance ministry official told Dawn on Sunday.

Under an agreement with the International Monetary Fund, the country is obliged not to reduce power tariff unless the accumulated losses of the Karachi Electric Supply Company and the Water and Power Development Authority are cleared.

A notification for an average tariff reduction of seven paisa per unit for Wapda companies, approved by the National Electric Power Regulatory Authority (Nepra) on Oct 2, has been withheld, the official said.

Under the Nepra determination based on quarterly fuel price adjustment, the power tariff for residential, AJK and agriculture consumers was to be reduced by 4.42 paisa per unit. The tariff for the commercial, industrial and bulk consumers was proposed to be brought down by 11.04 paisa per unit.

He said the government had passed half of the around 13 paisa per unit tariff increase sought by Wapda in March and had provided a subsidy of around Rs500 million to bear the burden of the remaining increase under a directive of Prime Minister Mir Zafarullah Khan Jamali.

The Rs500 million subsidy had to be recovered now by withholding the proposed reduction in tariff, he said.

He said the prime minister’s secretariat and the water and power ministry had not approved the finance ministry’s proposal to withhold the reduction in tariff during the current quarter.

Under the Nepra Act of 1997, the government has to notify Nepra’s tariff determination within 15 days of the announcement but it cannot come into effect without a notification.

The IMF executive board, in its report on the country’s economic performance under the sixth and seventh quarterly reviews this week, linked future tranches of the $1.47 billion Poverty Reduction and Growth Facility (PRGF) to a freeze on power tariff reduction.

The IMF said the KESC or Wapda’s downward electricity tariff adjustments determined by Nepra were not to be implemented unless their cumulative deficit targets for the preceding quarter were observed.

The Fund has asked the government to publish quarterly progress reports on the implementation of financial improvement plans of Wapda and its successor companies. The reports are to be submitted on Nov 30, for July-September 2003; Feb 29, 2004, for October-December 2003; May 31, 2004, for January-March 2004; and Aug 31, 2004, for April-June 2004.

The government is required to prepare an action plan to establish by the end of the year a transparent regulatory framework for setting the electricity tariffs. It has been asked to limit departures in tariff adjustments by the distributors from Nepra’s determination.

The IMF has granted a waiver for the third time to the government for not fulfilling the conditions relating to Wapda and KESC losses under the PRGF. However, it was given an undertaking by the government that Wapda tariff would be increased by 6.6 per cent during 2003-04, above the fuel adjustment.