- Tariff hike a key condition for IMF financial assistance.
- The IMF Executive Board will meet on July 12 to discuss the loan.
- The increase in electricity rates will have a huge impact on the consumers.
Islamabad: The government is set to collect an additional amount of over Rs 3.2 trillion from power consumers from July 2023 as it intends to increase power base tariff by about Rs 7 per unit for the financial year 2023-24. Official sources of Power Division.
Interestingly, the International Monetary Fund (IMF) executive board is scheduled to meet on July 12 to discuss the nine-month stand-by arrangement.
This meeting will serve as the final step in consolidating the agreement outlined in the IMF Staff Level Agreement. Thereafter, it will be the responsibility of the government to meet the requirements of the program in the days to come.
The increase in electricity duty is one of the major conditions set by the IMF for providing financial assistance to Pakistan. The fund is urging the government to raise tariffs and eliminate power subsidies to reduce the country’s fiscal deficit.
The proposed hike, calculated by Nepra, along with an additional 18% GST on bills, could result in a staggering amount being collected from electricity consumers starting July 2023.
Nepra has already held hearings with the distribution companies (Discos) regarding this issue.
Although K-Electric will be insulated as a privatized company, the cost of electricity from the national grid will become more expensive.
While Nepra is yet to submit its work to the federal government to notify it, a power sector official told The News that “the increase in base tariff will be around Rs 7 per unit and will be implemented in one go from July 2023.” Will go
This will have an impact of over Rs 3.2 trillion on electricity consumers. Last year, the base tariff hike of Rs 7.91 per unit had an impact of Rs 2.8 trillion, but was implemented in three tranches at intervals.
If the proposed hike is finalised, the decision would increase the base tariff to Rs 31.80 per unit from the existing Rs 24.80.
Notably, nearly two-thirds of this proposed increase in base tariff is allocated towards capacity charges to independent power producers (IPPs), which aims to significantly slow down the pace of circular debt accumulation of the power sector.
The circular debt currently stands at around Rs 2.64 trillion and continues to grow due to inefficiencies in power generation, transmission and distribution.
The hike in electricity tariffs will have a significant impact on consumers across various sectors including residential, commercial and industrial. Businesses will have to pass on the cost of higher electricity bills to consumers, which will lead to inflation.
Households will have to allocate more money for electricity, putting pressure on their budgets.
Though the government admits that the power tariff hike will affect the people, it claims that the move is necessary to revive the power sector and the economy.
The government has also promised to provide targeted subsidies to ease the burden on the poor and vulnerable.
As of the end of last month, the government has paid 142 billion rupees to more than a hundred independent power producers (IPPs).
This payment has had a positive impact on power producers, reducing their dues and improving their cash flow.
The power sector is already grappling with a huge debt of Rs 2.64 trillion. Additionally, the IMF has called for a 45-50% increase in gas tariffs from July 1, 2023.
Consumers of Sui Northern Gas Pipeline Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL) will experience higher gas prices.
The government may continue with its policy of subsidizing low-end consumers to high-end consumers.
The total debt in the energy sector is over Rs 4.30 trillion, including Rs 1.7 trillion in the oil and gas sector.
Finance Ministry and Nepra officials spent the whole day on Monday in a dilemma over finalizing the base tariff hike, knowing that the IMF board meeting is just a day away and will be held tomorrow (July 12).
The regulator’s top brass waited for projections from the finance ministry on dollar value, GDP growth and inflation to finalize the base tariff.
Earlier, the tariff department had used a dollar value of Rs 325 for FY2024, with a decline in power sales in 2023-24 as projected by the CPPA-G. Taking into account the above estimates, Nepra worked out an increase in base tariff of Rs 6.91 per unit. Earlier, an increase in the base tariff by more than 4 per unit was considered.
The federal government created a federal budget of US$290 billion with GDP growth of 3.5% and inflation of 21%.
However, according to an interview with Finance Minister Senator Ishaq Dar on a private channel, the real value of the dollar is Rs 240, which the government will try to achieve.
Originally published in news
