ISLAMABAD, Dec 29: The government is likely to increase electricity tariff in April to generate additional revenue for bridging a shortfall of Rs72 billion by the end of current financial year in accordance with an agreement with the International Monetary Fund.

A senior official of the ministry of finance told Dawn that several options were under consideration to generate revenue and make a minimal increase in power tariff.

“Pepco has been asked to cover maximum portion of the shortfall by improving efficiency,” he said.

The official said the government was also contemplating a slight reduction in prices of petrol, diesel and kerosene.

Although a Rs65 billion subsidy has been allocated in the budget for the power sector, the government still has to pass on the burden to the end-consumer as one of the steps for achieving the 4.2 per cent budget deficit for the current fiscal year, as committed to the IMF.

The government has already passed on Rs41 billion to consumers by increasing the power tariff in September. And a decline in the price of furnace oil in the international market has also helped it to save more than Rs50 billion.

Despite the positive factors, the official said, the government would have to increase power tariff to reduce pressure on the balance of payments.

Adviser to the Prime Minister on Finance Shaukat Tarin, however, has said there will be no major increase in power tariff. According to him, Pepco has been asked to improve its efficiency to cover the shortfall.

The government has assured the IMF that all subsidies on oil and power will be phased out before the end of June 2009 as one of the conditions for securing a $7.6 billion loan under a standby arrangement.

The government earned more than Rs20 billion by selling oil at high prices in recent months despite huge declines in international crude rates.

A source in the petroleum ministry said that an amount of Rs15 billion on account of oil companies’ differential claims (subsidy) was outstanding and the government was yet to work out a mechanism to bring down the amount to zero.

When asked why was the government not passing on the actual price reduction to end-consumer, the official said the amount had been adjusted against the subsidy being given to the power sector, which was due to be collected from consumers.

He said the amount received from consumers had been used for subsiding the power sector.

The government has already increased the petroleum development levy and is earning Rs29.49 on each litre of petrol, Rs39.85 on HOBC, Rs12.48 on kerosene and Rs12.40 on LDO.

The international market trends were being studied to determine whether the decline in oil prices is seasonal or based on some solid reasons, the official said, adding that if the trend persisted the benefit would be passed on to consumers.

He said that there was no proposal for a mini-budget or increase in duties and taxes before the next budget. “We have made any commitment to the IMF to do so,” he added.