ISLAMABAD: The Planning Commission has proposed withdrawal of power tariff subsidy for consumers using more than 100 units of electricity per month and also an increase in rates to the minimum generation cost.

With power tariff differential subsidy estimates revised to Rs350 billion for the current financial year from budgeted Rs50 billion, the commission has suggested withdrawal of slab benefits and tariff subsidies given to consumers using more than 100 units a month, saying that 20 per cent rich consumers gobble up more than 70 per cent of the subsidy.

It has also suggested providing direct cash transfers to lifeline (poorest) consumers using less than 100 units to avoid misuse of subsidy.

The commission’s calculations suggest that 60 per cent of the Rs350 billion subsidies are currently being coughed up by the domestic sector. “This quantum of untargeted subsidy is clearly unsustainable as well as undesirable,” says a rationalisation plan for domestic power charges.

It has proposed to “increase the tariff of beyond 100kwh per month to the minimum of generation costs determined by the National Electric Power Regulatory Authority (Nepra)”. It suggested restricting the slab benefit only to one previous slab.

Currently, all domestic consumers irrespective of the level of consumption are entitled to the subsidy benefit of all categories which means they are charged at Rs4.54 per unit for first 100 units, followed by Rs6.86 per unit for the next 200 units, Rs10.65 for 300-700 units and Rs13.29 per unit for more than 700 units.

The Planning Commission believes that while the electricity tariff structure provides a low price to small users, poor households are not the real beneficiaries as they receive only 10 per cent of the subsidy and the “biggest beneficiaries are the richest 20 per cent of population” who do not need tariff protection because progressive tariff applied to all units consumed with no cut-off for slabs benefit.

The minimum charge of Rs75 and low cut-off point for lifeline users put the poor at a disadvantage. For example, a poor consumer using 10 units per month should expect to be charged Rs18.7 per month but ends up paying Rs75 because of minimum charge rule. Effectively, their tariff comes to Rs7.5 per unit -- almost the same rate that applies to 100-300 slabs.

Also, the poor usually consume between 50 and 100 units per month and hence the lifeline tariff for 50 units is an ineffective way of protection. The commission has sought removal of the basic minimum charge of Rs75 per month.

It has asked the government to rectify the structure of economic and political power and make a choice between two crucial issues. “The government needs to consider carefully the balance between potential public unrest as a result of continuing blackouts and the potential for public unrest for rising tariff.”

The commission argues that it will be extremely difficult for the government to implement tariff increases or changes in tariff structure without a significant increase in performance of the power sector through reduced blackouts to justify increases.

“Even poor households may be willing to pay higher tariff if the power supply is reliable, and it could be that higher tariff may actually generate less public outcry than electricity that continues to deteriorate.”

Moreover, one of the tenets of the policy implication is that there are benefits of increasing tariff, more for those who consume more to reduce consumption. “If the pricing signal leads to better management and use of electricity, it will reduce power generation needs, lower costs, increase conservation and reduce the gap between supply and demand,” the commission said, adding that subsidising consumers using 300 units was contrary to promoting conservation and efficiency in a shortage situation.