ISLAMABAD: The government has called a meeting of the Economic Coordination Committee (ECC) today to take a decision on the electricity tariff increase it had deferred on Oct 2 owing to by-elections.

Under the chairmanship of Finance Minister Asad Umar, ECC is also expected to take up issuance of security clearance certificate for transfer of majority shares of K-Electric to Shanghai Electric of China as well as review a report on tax benefits enjoyed by the sugar industry.

ECC has been struggling to decide on the electricity tariff increase worked out by the National Electric Power Regulatory Authority (Nepra) under policy guidelines from previous government, envisaging higher cost of inefficiencies and theft charged to paying consumers. The International Monetary Fund (IMF) has also encouraged PTI to ensure full cost recovery of electricity being supplied to consumers.

Umar, in previous meetings of the committee, had made clear to authorities that he did not support non-recoveries and defaults to burden honest consumers. He has also shown reluctance to add substantial burden on lower-middle class domestic and commercial consumers and announced reducing power costs to five export-oriented sectors.

That means the government would have to shift the burden towards middle class, rich residential and general industrial sectors or increase its allocation for subsidies which are strongly opposed by IMF given existing uncertainties about the fiscal deficit targets.

As things stand, Nepra has worked out a Rs3.90 per unit increase in average power tariff and had suggested that after accounting for the existing subsidy allocation in the budget, government has to increase average power tariff by about Rs2 per unit.

Based on observations of the finance minister, sources said the Power Division had suggested about Rs2.20 per unit or almost 35-39 per cent increase for domestic consumers with monthly consumption of 300-700 units and about 26pc average increase for lower slabs of below 300 units.

The Power Division has estimated the impact of past losses, inadequate recoveries, late notifications and other inefficiencies etc at about Rs2.30 per unit, leaving behind the need for an average Rs1.60 per unit hike.

It has been arguing that in the absence of a substantial tariff increase, power sector faces a severe liquidity crunch, resulting in over Rs1.2 trillion in circular debt. Hence, the banking sector was not ready to lend more. The division has told ECC that average tariff worked out by Nepra for current year was about Rs15.90 per unit versus existing tariff of Rs12 per unit and it was up to the government to decide how much subsidy it could spare for the power sector, keeping in mind the IMF programme.

The Power Division proposed no increase for lifeline consumers –– less than 50 unit per month consumption, 26pc (87paisa per unit) for up to 100 units and Rs1.30 per unit hike for up to 300 units.

ECC would also review a report of a special committee comprising representatives from Finance, Power Division, Auditor General of Pakistan, Ministry of Petroleum and the Federal Bureau of Revenue to address various issues relating K-Electric’s share transfer from Abraaj Capital to Shanghai Electric, including liabilities payable to National Transmission and Despatch Company and Sui Southern Gas Company.

Published in Dawn, October 16th, 2018

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