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ISLAMABAD: The federal government will further increase the base electricity tariff by more than Rs 2 per unit in the coming months, with the aim of reducing the current level of subsidies in accordance with the agreement with the International Monetary Fund ( IMF) and adjust nightclub rates in accordance with their annual revenue needs.
The government had earmarked a grant of Rs 330 billion in the 2021-22 federal budget at the request of the Power division of Rs 501 billion.
An average increase of 60 Paisa per unit in the base nightclub rate is planned, while half of the existing subsidy of Rs 3.22 per unit will be recovered from consumers. The increase in the quarterly tariff adjustment (QTA) is also due next year when new factories become operational.
According to the new draft circular debt management plan (CDPM), shared with the IMF, the World Bank and the ADB, the average losses of nightclubs will be reduced by 0.5% each year, from 16.32% to 15.70% by 2022-2023 while the recovery will also be improved to 95.98 percent by 2022-2023, which is two difficult tasks.
Government “unveils” plan to further increase electricity tariffs
The CDMP document, sources said, will be finalized after the IMF’s executive board approves the agreement on the sixth review of the Extended Financing Facility (EFF) program.
The government has already excluded domestic consumers using more than 300 units per month from the list of beneficiaries in the first phase of the new retargeted subsidy plan while consumers using more than 101 units will be technically eliminated.
The IMF, in its official statement, said: “The continued implementation of the CDMP will help guide planned management improvements, cost reductions, rapid alignment of tariffs with cost recovery levels and better targeting. subsidies to the most vulnerable.
Substantial reduction in procurement costs; however, a modern electricity policy will be needed which: (i) ensures that PPAs do not impose a heavy burden on end consumers; (ii) tackle the poor and costly production mix, including wider use of renewable energies; and (iii) introduces more competition in the medium term.
Officials from the Energy Division say the government is currently providing a subsidy of Rs 168 billion to consumers; and still provides a subsidy of Rs 3.22 per unit to domestic consumers, or Rs 135 billion despite the increase of Rs 3.34 per unit of the base tariff (Rs 1.95 +1.39).
However, the government passed on Rs 1.68 per unit to consumers using more than 300 units per month to protect consumers using less than 300 units per month.
In the new subsidy phase-out plan, domestic consumers using up to 100 units per month will be categorized as subsidized consumers.
Government to increase electricity tariffs on “progressive basis”, says Tarin
In the domestic (non-CGU) category, 45 percent are protected consumers, who receive a subsidy of 6.53 rupees per unit, with a cumulative financial impact of 57 billion rupees. Agricultural tube wells receive a subsidy of 7.20 rupees per unit (total 74 billion), with the government moving towards full cost recovery except for lifeline consumers.
According to the sources, the government has also imposed a ban on electricity projects using imported fuel and is now focusing on renewable energy projects, with hydel production also included in this category.
The government has approved the national electricity policy to rationalize the basket of production costs and work is currently underway on the sector separately to implement the policy.
Second payments to IPPs for policies prior to 1994, 1994 and 1995 will be made by December 3, 2021, while IPPs for 2002 policy will receive their first payment. The government is reportedly placing Rs 200 billion in equity in the records of discos.
Copyright Business Recorder, 2021
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