Govt to provide power relief to consumers

The federal government has decided to partially alleviate financial strains on households that high power bills were causing. Despite initial hesitations to revise tariffs, the IMF allowed lawmakers to cut tariffs by 1 rupee per kilowatt-hour (kwh) for consumers. Reports claim that the slash in tariffs will be sustained by diverting revenues generated from levies on captive power plants.

The international lender's greenlight to pass relief to the general public could allow for households to collectively witness savings of PKR100 billion. While the government collects sizable revenue inflows from taxes on CPPs, authorities still intend to find other avenues to boost both fiscal budget and household savings.

As per credible reports, Islamabad has recently renegotiated the terms of its agreements with several Independent Power Producers (IPPs) allowing for a great deal of savings.

The federal government was able to secure better deals with IPPs largely because of the change in global oil prices. Islamabad managed to reach agreements with seven IPPs earlier this week and attained a tariff reduction of 0.5 rupees per unit.

While the tariff cut seems measly at first glance, key officials from the power division have estimated that the tariff revisions could result in 920 billion rupees in savings over the life of the IPP agreements. Details from reports suggest that the savings are linked to capacity payments that have to be made to the IPPs.

Moreover, reports have revealed that a PM Office announcement earlier this month declared that petroleum prices would remain unchanged despite the existence of an opportunity to slash prices of the commodity by 13 rupees per liter.

Previously, the IMF had instructed the government to not pass on power relief to the general public and instead, was tasked with collecting this amount to consolidate Pakistan’s fiscal position. Moreover, after reaching a staff-level agreement with the international lender, Islamabad had decided to effectively disregard the IMF’s cautionary advice and slashed tariffs.

However, the IMF has approved revisions to the tariff and the government can enact the cut without backlash from the international lender.

While the magnitude of the tariff cut remains unknown, initial estimates quoted in reports suggest that the general public could soon receive good news. This is because the tariff cut that has been approved by the cabinet is expected to be substantial and will be announced by Prime Minister Shehbaz Sharif in the coming days.

Reports claim that Shehbaz Sharif deliberately delayed the announcement of tariff cuts to not get in hot water with the visiting IMF delegation. This is because if the international creditor believed that Pakistani authorities were not committed to following austerity measures, an agreement may not have been reached during Islamabad-IMF discussions.

Initially, Shehbaz Sharif was supposed to announce the reduction in tariffs in a speech on March 23 but, he was unable to do so given the ongoing negotiations with the IMF.

Many believe that the tariff cuts will free up purchasing power of households which they can allocate towards other expenditures. This could allow businesses to experience a surge in sales volume and boost profit margins.