Govt goes for another power tariff hike to secure IMF tranche

Updated November 15, 2019

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The government has decided to introduce another electricity tariff hike before the management and executive directors of the International Monetary Fund (IMF) take up for approval a recently concluded agreement between the Fund mission and Pakistani authorities to pave the way for disbursement of about $450 million. — Reuters/File
The government has decided to introduce another electricity tariff hike before the management and executive directors of the International Monetary Fund (IMF) take up for approval a recently concluded agreement between the Fund mission and Pakistani authorities to pave the way for disbursement of about $450 million. — Reuters/File

ISLAMABAD: The government has decided to introduce another electricity tariff hike before the management and executive directors of the International Monetary Fund (IMF) take up for approval a recently concluded agreement between the Fund mission and Pakistani authorities to pave the way for disbursement of about $450 million.

Under the decision, 10 distribution companies (Discos) of ex-Wapda have sought Rs17.2 billion additional revenue generation through an average price increase of about 18 paisa per unit. Once cleared by the National Electric Power Regulatory Authority (Nepra) later this month, the average electricity tariff would increase to about Rs13.69 per unit, excluding general sales tax and some other taxes and duties, from the current rate of Rs13.51 per unit.

The increase in power tariff was one of the remaining agenda items between the IMF staff and Pakistani authorities on reaching the agreement on the first quarter review last week. “Work continues towards completing the remaining structural benchmarks for end-September,” the IMF reported last week.

The increase in electricity tariff has been proposed for the first quarter of the current fiscal (July-Sept 2019). The power companies said they had to pay additional amounts on account of adjustments to capacity purchase prices, higher system losses and variation in operation and maintenance costs during the quarter than previously allowed under their estimated revenue requirements.

The increase was one of remaining agenda items between Fund staff and local authorities on reaching agreement on first quarter review

As per breakup, the power companies have demanded [the highest increase of] Rs11.2bn on account of transmission and distribution losses, Rs3.5bn over higher fuel costs and Rs3.46bn for operation and maintenance charges. The Discos have reported cumulative saving of about Rs1.5bn on account of capacity purchase price during the quarter.

The additional expenses of eight power companies are reported to have gone higher than they were originally estimated, while the expenses of two Discos (Faisalabad and Tribal Electric) have been reported on the lower side during the quarter. These two companies have proposed a benefit of Rs946 million and Rs991m, respectively, to be passed on to the consumers because of their lower than estimated expenses.

According to tariff petitions, Lahore Electric has demanded the highest additional recovery of Rs5.05bn, followed by Rs3.7bn by Peshawar Electric and Rs2.5bn by Hyderabad Electric. Multan Electric has proposed Rs2.5bn additional cost to consumers, followed by Rs1.536bn by Gujranwala Electric and Rs1.529bn by Quetta Electric. Islamabad Electric and Sukkur Electric have demanded recovery of about Rs1.445bn and Rs1.2bn, respectively, in additional funds from their consumers.

The government has in recent months increased power tariff by about Rs2.33per unit on account of quarterly adjustments for the last fiscal year (2017-18).

The current notified uniform weighted average electricity tariff stands at Rs13.51 per unit for all consumers, as reported by the government to the IMF. This includes weighted average tariff of Rs11.95 per unit, inter-Disco tariff rationalisation of Rs1.03 per unit, debt servicing surcharge of 43 paisa per unit and Neelum-Jhelum surcharge of 10 paisa per unit. In addition, the government also charges electricity duty, PTV fee, 17pc GST, fuel price adjustment, etc.

As prior action to secure IMF bailout, the PTI government has for the first time introduced a quarterly automatic tariff adjustment mechanism in the electricity sector. Under this mechanism, it increased power tariff by 10pc to generate Rs150bn before the close of the last fiscal. The remaining quarterly adjustment cost increase of about 85 paisa per unit was allowed in October.

Going forward, the government has committed with the IMF to notify the FY2020 electricity tariff schedule, as determined by the regulator, by end-September 2019, and develop a strategy to address the issue of circular debt that stood at about Rs1.6bn as of March 2019, including a fresh flow of Rs762bn and old stock of Rs807bn.

As committed with the IMF, the government has now finalised circular debt reduction plan in consultation with the Fund, World Bank and Asian Development Bank with quarterly targets for loses, collection and accumulation of arrears [flow] by Discos.

The government has also given an undertaking to the IMF to ensure “regular and timely notifications for end-consumer tariffs in the electricity sector” through an automatic mechanism. For this, the government is required to “submit to parliament by end-December 2019 changes to the NEPRA Act to ensure full automaticity of the quarterly tariff adjustments and eliminate the gap between the regular annual tariff determination and notification by the government’’.

Published in Dawn, November 15th, 2019