ISLAMABAD: The Economic Coordination Committee (ECC) of the cabinet on Tuesday deferred until next meeting a proposal for increasing electricity rates.

Finance Minister Asad Umar, who presided over the meeting, questioned the recurrence of circular debt, unchecked system losses and insufficient recoveries against billing.

An official said that the summary moved by the Power Division recommended about Rs4.53 per unit increase in average electricity rates. It proposed Rs3.20 per unit increase for domestic consumers with consumption of 300-700 units per month and about 26 per cent increase for consumers in consumption band of 100 to 300 units per month.

Finance minister raises questions over recurrence of circular debt, unchecked system losses, insufficient recoveries

The committee was of the view that it would be morally unfair to burden paying consumers with the cost of past losses, inadequate recoveries and other inefficiencies. The cost of circular debt, line losses and prior year adjustments etc was worked out at Rs2.82 per unit.

It was explained that without the impact of this Rs2.82 per unit, the electricity rates required to be increased by Rs1.61 per unit on average that would entail an annual subsidy of Rs161 billion. The power sector subsidy envisaged in the federal budget is about Rs151bn.

Another proposal was to increase consumer tariff by an average Rs1.22 per unit but this would require Rs214bn subsidy — almost Rs65bn higher than the budget allocation.

Majority of the ECC members disagreed to the Power Division’s strategy to address circular debt by adding burden on honest and paying consumers. They believed such a strategy had not delivered in the past and would result in recurrence of circular debt in future. “It would be injustice with the consumers of today and tomorrow to suddenly pay for the T&D losses of last five years,” one of the ECC members was quoted as saying.

An official statement said that the ECC directed Nepra and the Power Division to prepare a comprehensive plan for improvement of service delivery in the power sector, reduction in T&D losses and maximising recovery when the proposal moved by the Ministry of Energy for the “Tariff Rationalisation for Power Sector” came under discussion.

Published in Dawn, September 26th, 2018