The National Electric Power Regulatory Authority (Nepra) announced a significant increase of Rs4.96 per unit in the electricity base tariff for the fiscal year 2024, in response to a demand from the International Monetary Fund (IMF). This adjustment will result in the government collecting Rs3.281 trillion from power consumers across all distribution companies.

Additionally, the government is actively working on raising gas rates, as the Oil and Gas Regulatory Authority (OGRA) has already determined a 45-50 per cent increase in gas prices on June 2, 2023.

The implementation of the power tariff hike is scheduled to commence on July 1, with the tariff rising to Rs29.78 per unit from the current rate of Rs24.82 per unit.

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Customers utilising time-of-use (ToU) meters will be charged up to Rs49.35 per unit. During peak hours from 5pm to 11pm, they will pay Rs49.35 per unit, while during non-peak hours, the charge will be Rs33.03 per unit.

This decision has imposed an additional burden on the residents of Karachi, as Nepra has also raised the monthly fuel charges adjustment for the month of May by Rs1.44 per unit, which will be reflected in the billing for July.

However, the increase in the base tariff will be implemented differently for various categories. Some categories will experience a lower increase, while for others, the increase may reach up to Rs6 per unit, depending on the government’s decision.

The power regulator has determined an average increase in the base tariff of Rs4.96 per unit. Apart from the new base tariff of Rs29.78 per unit, end consumers will also be required to pay a financing cost surcharge of Rs3.23 per unit from July 1.

This surcharge aims to generate Rs335 billion to address the power sector’s debt and liabilities, which currently amount to Rs2.6 trillion. Furthermore, consumers will continue to pay the Tariff Rationalisation Surcharge of Rs0.47 per unit.

Within the base tariff increase of Rs4.96 per unit, the payment for capacity charges has risen to 70 per cent, equivalent to Rs3.472 per unit, while 30 per cent accounts for energy prices.

The new base tariff increase has been calculated considering a dollar value of Rs287, an inflation rate of 17 per cent, and a 7 per cent growth in electricity generation. As a result, consumers will pay capacity charges totaling Rs1.874 trillion, compared to Rs1.251 trillion in 2022-23.

Unfortunately, the end electricity consumer in Pakistan is being burdened with additional costs to compensate for ongoing inefficiencies in the power sector, in addition to paying for the actual cost of electricity. These costs include tariff rationalisation charges, financing cost surcharges, electricity duty, PTV license fee, GST, income tax, extra tax, further tax, and sales tax.

In reality, consumers are paying 31 per cent above the actual cost of electricity in the form of surcharges, duties, and taxes. Electricity Duty, a provincial duty, is levied on all consumers, ranging from 1.0 per cent to 1.5 per cent of Variable Charges. General Sales Tax (GST) is charged at a rate of 17 per cent on all consumers under the Sale Tax Act 1990.

Income Tax is applicable to non-taxpayer consumers at varying rates depending on the tariff and electricity bill amount, and commercial consumers pay 5 per cent on bills up to Rs20,000 and 7.5 per cent on bills exceeding Rs20,000. Further tax of 3 per cent is charged from all consumers without a Sales Tax Return Number (STRN), except for domestic, agriculture, bulk consumers, and street light connections.

The increase in power tariffs was a necessary requirement imposed by the IMF to provide financial assistance to Pakistan. The IMF has consistently urged the government to raise tariffs and eliminate power subsidies as part of its efforts to reduce the country’s fiscal deficit.

However, Nepra attributes the tariff increase to factors such as low sales growth, rupee devaluation, high inflation, exorbitant interest rates, and the addition of new capacities.