ECC meets today to consider increase in power tariff

Published October 22, 2018
Finance Minister Asad Umar chairs an ECC meeting. — Photo/File
Finance Minister Asad Umar chairs an ECC meeting. — Photo/File

ISLAMABAD: The government has called a meeting of the Economic Coordi­nation Committee (ECC) of the cabinet on Monday (today) to sanction the inevitable increase in electricity tariff — by around 20 per cent — and decide on how to deal with an unsustainable surge of agricultural tube wells in Balochistan.

The ECC meeting to be presided over by Finance Minister Asad Umar will only have the two items on the agenda — a subsidy for agricultural tube well consumers in Balochistan and tariff rationalisation for the power sector.

An official said that the financial impact of the 20pc increase in power tariff — Rs2.20 per unit — was estimated at more than Rs200 billion per year. The cumulative outstanding arrears of tube wells in Balochistan have also reached close to Rs200bn and the combined financial impact of the two challenges is estimated at about Rs400bn.

Dues payable by tube wells in Balochistan on agenda

Ahead of negotiations with the International Monetary Fund for an economic bailout, the government had last week announced that an increase in power tariff had become unavoidable because of an addition of Rs35bn to the circular debt, which in total stands at about Rs1.2 trillion. The number includes the old stock of Rs582bn financed through Rs2.21 per unit surcharges from consumers and about Rs615bn in fresh flow. Sources said that the increase in electricity rates was a prior action for the Fund programme.

The power division has been arguing that in the absence of a substantial tariff increase, the power sector faced a severe liquidity crunch, and because of the circular debt the banking sector had stopped lending. It said the power regulator — National Electric Power Regulatory Authority — had determined an average tariff of Rs12.90 per unit for the last fiscal year (2017-18) which could not be notified owing to legal and political challenges. Power companies were, therefore, forced to charge Rs11.70 per unit, which continues to this day, creating a gap of Rs1.20 per unit to the power sector.

As if that were not enough, the power supply cost had been determined at Rs15.53 per unit for the current fiscal year (2018-19), effectively creating a gap of Rs3.82 per unit (about 33pc) over the existing tariff of Rs11.70 per unit charged to consumers — necessitating a tariff differential subsidy of about Rs170bn instead of Rs120bn. After accounting for the budgeted subsidy, the average tariff has to be increased by about Rs2 per unit (approximately 20pc).

The ECC has taken up the power tariff issue several times over the last two months. On the advice of the finance minister, the power division has now worked out a tariff schedule envisaging no increase for lifeline consumers of less than 50 units, an 87 paisa per unit increase for 100 units, a Rs1.20 per unit increase for 101 to 200 units and a Rs2.05 per unit increase for 300 units and above.

The finance minister has already announced that he will not allow increase in tariff for export-oriented industries and that the government will protect them just as it did from the gas price increase last month to help domestic industry compete in the international market.

Tube wells in Balochistan

The ECC would also be presented a summary by the power division to report that about Rs200bn of the Quetta Electric Supply Company (Qesco) was outstanding against consumers — including about Rs189bn of agricultural tube wells. Qesco supplied about 75pc of the electricity to tube wells estimated at 32,000 in number.

Officials said that because of the acute water shortage in the province, tube well owners were allowed to pay a fixed amount of Rs4,000 per month and any amount higher than that was covered by Qesco, the Balochistan government and the Centre in the ratio 30:30:40. This arrangement remained in place between 2001 and 2010 when the total number of tube wells was less than 16,000.

An uncontrolled surge in the number of tube wells saw the groundwater table continue to drop and massive power bills amass. Therefore, the maximum bill was capped at Rs50,000 per month, including a flat rate for farmers at Rs6,000. The remaining Rs44,000 was undertaken by the federal and provincial governments at a 40:60 ratio as the number of tube wells reached 28,000.

The rates were revised again in January 2015 when the maximum bill was capped at Rs75,000. According to this revision, tube well owners had to pay a flat rate of Rs10,000 and the remaining Rs65,000 was to be shared by the federal and provincial governments — again in a 40:60 ratio.

All three parties — tube well owners, the federal and provincial governments — seldom made full payments. As of June 2018, these 28,000 consumers have not been able to clear Rs189bn, while the governments — both provincial and federal — also have outstanding payables of about Rs45bn. On top of that, about Rs50bn in payables from the 2010-12 period is still disputed, taking the total number to about Rs230bn — putting Qesco in unfavourable circumstances.

The number of tube wells has since gone up to 32,000. The power division has been advocating solarisation of all these tube wells at an estimated cost of Rs150bn to cut down generation cost to about Rs5 per unit from Rs10per. The World Bank had agreed to support the solarisation campaign during the tenure of the previous government, but the project has so far failed to materialise because of the political transition.

Published in Dawn, October 22nd, 2018

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