Govt to implement Rs7 per unit power tariff hike, expecting over Rs3.2 trillion in revenue

The government is planning to raise the power base tariff by approximately Rs7 per unit. This move is expected to generate over Rs3.2 trillion in additional revenue from power consumers. The International Monetary Fund (IMF) Executive Board is set to discuss a stand-by arrangement, which is the final step in solidifying the IMF Staff Level Agreement. The government will then need to fulfill the program’s requirements.

The increase in power tariff is a crucial condition set by the IMF for providing financial assistance to Pakistan. The Fund has been urging the government to raise the tariff and eliminate power subsidies to reduce the country’s fiscal deficit. The proposed increase, along with an 18 per cent GST on bills, could lead to a significant financial burden on power consumers.

Nepra, the regulatory authority, has conducted hearings with distribution companies (Discos) on this matter. While the privatised company, K-Electric, will be insulated from the increase in base tariff, the price of electricity it draws from the national grid will become costlier.

The increase in base tariff, estimated at nearly Rs7 per unit, is awaiting submission to the federal government for notification. If finalised, it would raise the base tariff to Rs31.80 per unit from the current Rs24.80. The increase is aimed at reducing the power sector’s circular debt accumulation, which currently stands at approximately Rs2.64 trillion due to inefficiencies in power generation, transmission, and distribution.

The rise in power tariffs will impact consumers across residential, commercial, and industrial sectors, leading to inflation. Businesses will pass on the increased costs to consumers, while households will need to allocate more funds for power, straining their budgets. However, the government asserts that this step is necessary to revive the power sector and the economy. It has also promised targeted subsidies to alleviate the burden on the poor and vulnerable.

In a positive development, the government has made a payment of Rs142 billion to Independent Power Producers (IPPs), reducing their outstanding dues and improving their cash flows. However, the power sector still faces a circular debt of Rs2.64 trillion. Additionally, the IMF has called for a 45-50 per cent increase in gas tariffs, affecting consumers of Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL).

The government is likely to continue its policy of having high-end consumers subsidise low-end consumers. The circular debt in the energy sector amounts to over Rs4.30 trillion, including debts from the oil and gas sector.

Finance ministry and Nepra officials have experienced confusion regarding the finalisation of the increase in base tariff, as the IMF board meeting approaches. The regulator is awaiting projections from the finance ministry to determine the final base tariff. The government aims to achieve a value of Rs240 for the US dollar, despite setting it at Rs290 billion in the federal budget.

Overall, the government’s objective is to address the financial challenges in the power sector while providing support to those affected by the tariff increase. The proposed measures are crucial to stabilise the power sector and stimulate the economy.