Govt approves power tariff hike to pacify IMF

Published February 11, 2023
Finance Minister Ishaq Dar chairs the  Economic Coordination Committee (ECC) meeting on Friday. — FinanceMinistry/Twitter
Finance Minister Ishaq Dar chairs the Economic Coordination Committee (ECC) meeting on Friday. — FinanceMinistry/Twitter

• No subsidies for zero-rated industries, Kissan package from March 1 • Circular debt flow to be contained by Rs340bn

ISLAMABAD: Moving swiftly to meet prior actions of the IMF programme, the Economic Coordination Committee (ECC) of the cabinet on Friday approved imposition of a special financing surcharge of Rs3.39 per unit in average power tariff, in addition to quarterly tariff adjustments of up to Rs3.21 per unit for one year and recovery of pending fuel cost adjustments of up to Rs4 per unit for about three months.

While the financing surcharge would remain a regular part of average base national tariff, the two other tariff adjustments would sometimes be overlapping simultaneously and fluctuating at other times. In addition, another surcharge at the rate of Re1 per unit has been approved in advance for the next fiscal year (FY24), on top of an existing and continuing financing surcharge of 43 paise per unit to cover power sector debt servicing.

Besides this, the ECC meeting presided over by Finance Minister Ishaq Dar, also approved discontinuation of power tariff subsidies to zero-rated industries as well as the Kissan package with effect from March 1.

The decisions were taken by the government hours after completing 10-day negotiations with a staff mission of the International Monetary Fund that required a series of prior actions to secure $1.2bn tranche needed to avoid sovereign default.

• No subsidies for zero-rated industries, Kissan package from March 1 • Circular debt flow to be contained by Rs340bn

Mainly based on above measures, the circular debt flow is targeted to be contained by about Rs340 billion. Excluding surcharge for next year, the total fiscal impact of tariff increases during current year is estimated at about Rs280bn.

As part of the prior actions, the ECC also approved an overarching Revised Circular Debt Reduction Plan worth Rs952bn for the current fiscal year that would also involve an additional budget subsidy of about Rs335bn. Yet another Rs336bn is estimated to flow into the power sector circular debt calculated to touch Rs2.375trillion by end of current fiscal year, up from Rs2.253tr as of June 30 last year.

In making these tariff adjustments, consumers in protected categories of domestic sector using up to 300 units per month would be partially insulated from additional burden, but then consumers generally in higher consumption brackets would face the higher brunt to compensate for this protection.

The Power Division and its entities would now approach the National Electric Power Regulatory Authority (Nepra) for revised schedules of tariff after taking into various measures listed above.

An official statement said the Ministry of Energy (Power Division) presented a summary on refinancing of Power Holding Limited’s (PHL) debt and a surcharge to recover markup payments.

“The ECC after discussion approved the proposal to recover Rs76 billion while exempting non-ToU (time of use) domestic consumers having consumption of less than 300 units and private agriculture consumers in four months’ period from March 2023 to June 2023 to recover the markup charges of PHL loans,” it said.

This would be done “through and additional surcharge of Rs3.39 per unit to cover the markup charges of loans not through an existing applicable financing cost (FC) surcharge of 43 paisa per unit for FY2022-23”, according to the approved summary.

The ECC also “allowed to impose additional surcharge of Rs1/unit for FY2023-24 to recover additional markup charges of PHL loans not covered through the already applicable FC surcharge. The above surcharges will also be applicable to K-Electric consumers to maintain uniform tariff across the country and KE would remit its recovery to the Central Power Purchasing Agency of the Power Division”.

Likewise, the ECC considered and “approved the proposals contained in another summary of Ministry of Energy (Power Division) regarding recovery of staggered fuel charges adjustment (FCAs) applicable for the months of August and September 2022. These FCAs were approved by Nepra at the rate of Rs9.90 and Rs4.35 per unit for June and July 2022, respectively, for both Discos (distribution companies) and KE but could not be charged owing to a prime minister’s decision because of floods. This involves an amount of more than Rs55bn that would now be recovered from all consumers from now onwards to October 2023 at the rate of an average Rs1.20 per unit per month”.

Besides, quarterly adjustments beginning Rs3.21 per unit from now onwards and then declining to 69 paise in the following months and increasing again to Rs1.64 per unit from June onwards to August of 2023 will be charged under the circular debt management plan.

Despite these regressive measures, the government aims to reduce average system losses in the power sector by just 0.58pc during the year to 16.27pc.

Moreover, the ECC deferred a decision on PHL’s principal instalments payable in respect of Rs283.287bn for a period of two years from the date of execution of fresh facilities and directed the Finance Division to issue a government guarantee for repayment of principal as well as interest/fees, etc, for the fresh facilities of Rs283.287bn.

The ECC deferred electricity bills for the month of September 2022 for commercial consumers in the flood-affected areas till the next billing cycle and waived electricity bills for the months of August and September 2022 for the non- ToU domestic consumers using less than 300 units.

The ECC approved additional supplementary grant of Rs10.34bn to cover waiver of electricity bills in the flood-affected areas. It approved, in principle, a summary of the Finance Division on Kamyab Pakistan Programme and entrusted the State Bank of Pakistan to validate the claims of wholesale lenders after due diligence, due to non-existence of the Programme Management Unit at the Finance Division.

The ECC also approved, in principle, a technical supplementary grant of Rs450 million in favour of the Ministry of Defence.

Published in Dawn, February 11th, 2023

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