Power subsidy dilemma: Govt reluctant to approve proposed hike in tariff

Mehtab Haider & Khalid Mustafa
Wednesday, Jul 06, 2022

ISLAMABAD: Despite making a commitment with the IMF for raising the electricity tariff by Rs7.92 per unit, the federal cabinet has not yet approved the recent proposed increase of the power tariff by the National Electric Power Regulatory Authority (NEPRA) in a phase-wise manner.

The government has made a commitment with the IMF for implementing the first phase of raising electricity tariffs with effect from July 1, 2022, but it could not be done. NEPRA has given its determination for hiking electricity tariff by Rs7.92 per unit tariff. The raising of power tariff has been one of the prior actions placed by the IMF with effect from July 1, 2022, but so far, the government has not yet implemented the decision. The hiking in power tariff cannot be notified with retrospective effect, so now the government would notify raise of power tariff after taking the ruling partners into confidence.

When contacted, Federal Minister for Power Khurram Dastgir on Tuesday confirmed that the NEPRA had determined the tariff but the government had not yet approved and notified the tariff of Rs7.92 per unit.

There is another issue which may surface as a stumbling block in the way of smooth sailing from the IMF would be the subsidy granted by the Punjab government to all consumers using less than 100 units of electricity. Now the Centre has advised the Punjab government for providing this relief of waiving of billing for those using less than 100 units, who had consumed the minimum limit during the past six months. These are the lowest income groups and the Ministry of Power estimated that it should not cost more than Rs46 billion per month.

However, some other estimates suggested that if the government provided waiving of billing for using less than 100 units for the last month, then it will cost Rs148 billion, which is not sustainable. But the provincial government high-ups argued that the Punjab government will reduce its development budget to finance the provision of subsidy amount. There are 4.8 million consumers belonging to the Punjab who are residing in the jurisdictions of five power distribution companies (DISCOS) and using less than 100 units out of total 750,000 consumers in totality.

On the proposed power tariff, the Economic Coordination Committee (ECC) of the Cabinet had already granted its approval for raising electricity tariff of up to Rs7.92 per unit in a staggered manner and in the first installment of Rs3.25 per unit would be made effective from July 1, 2022. The second phase of tariff increase will be made effective in August 1, 2022, and the third one will be notified in October 2022.

Meanwhile, Prime Minister Shehbaz Sharif has not approved the summary allowing the DISCOs to increase the base power tariff by Rs7.91 earlier determined by the NEPRA. The government has made up its mind to submit a petition to the power regulatory authority seeking a review of the decision to increase the tariff, one of the top officials of the concerned ministry told The News.

The Economic Coordination Committee (ECC) had earlier approved summary of the Power Division with the proposal of increasing tariff in a phase-wise manner under which it was proposed to increase the tariff by Rs3.50 per unit from July 1, with the same increase of Rs3.50 per unit from August 1, 2022 and the remaining hike of Re0.91 per unit from September 1, 2022. However, in a recently-held cabinet meeting with Prime Minister Shehbaz Sharif, it was observed that the increase in the electricity base tariff of Rs7.91 was too high and it was decided to submit a petition to the NEPRA seeking a review of the decision.

The top sources said the prime minister wanted the Power Division to move NEPRA with a new petition along with more facts seeking the review of its decision under which the power regulator had raised the electricity base tariff by Rs7.91 per unit. It would be interesting to note that how the IMF would react to the decision of the government to ask NEPRA to review its decision instead of implementing the raise in tariff in a phase-wise mechanism. The NEPRA on May 2, 2022 agreed to increase the electricity base tariff of Rs7.9078 per unit for the next budgetary year 2022-23, jacking up the national average tariff to Rs24.82 per unit from earlier determined tariff at Rs16.91.

After the NEPRA's determination in the shape of the differential tariff of all DISCOs, the government was supposed to respond to the decision of the regulator with its decision on what portion of the increase in the tariff it will pass on to end consumers and what portion of subsidy it will pick up in the tariff or it will pass the full increase in tariff to end consumers. Under the new NEPRA Act, the government is bound to respond within 30 days for reconsideration of the tariff with its new assertion in the review petition. Now the government has decided to submit a new petition asking for the review against the proposed raise of Rs7.9078 per unit in tariff determined by the NEPRA on May 2 as the government is of the view that the increase should be lower than the hike determined by the power regulator.