Power tariff hike to pacify IMF Approved by Govt

To appease the IMF, the government accepts an increase in the price of electricity.
Kissan package won't provide subsidies for zero-rated companies starting on March 1; Rs340 billion would be used to control circular debt flow

ISLAMABAD: The Economic Coordination Committee (ECC) of the cabinet approved the imposition of a special financing surcharge of Rs3.39 per unit in average power tariff, along with quarterly tariff adjustments of up to Rs3.21 per unit for one year and recovery of pending fuel cost adjustments of up to Rs4 per unit for approximately three months, on Friday, moving swiftly to meet prior actions of the IMF programme.

The two other tariff changes would occasionally overlap simultaneously and fluctuate at other times, while the financing surcharge would continue to be a regular component of the average base national tariff. In addition, a further financing surcharge of Re1 per unit has been agreed in advance for the following fiscal year (FY24), in addition to the now in effect and ongoing financing surcharge of 43 paise per unit to cover the service of the debt owed by the electricity industry.

Additionally, the Kissan package and the termination of power tariff subsidies to zero-rated companies were both authorized at the ECC meeting, which was presided over by Finance Minister Ishaq Dar, and will take effect on March 1.

The administration made the decisions hours after concluding ten days of negotiations with an IMF staff delegation that necessitated a number of earlier moves to achieve a $1.2 billion tranche necessary to prevent sovereign default.

Kissan package won't provide subsidies for zero-rated companies starting on March 1; Rs340 billion will be used to control circular debt flow.

The cyclical debt flow is intended to be limited by around Rs340 billion primarily based on the aforementioned methods. The entire fiscal impact of tariff hikes during the current year is expected to be around Rs280bn, excluding surcharge for the following year.

A comprehensive Revised Circular Debt Reduction Plan of Rs952 billion for the current fiscal year, together with an additional budget subsidy of around Rs335 billion, were also authorized by the ECC as part of the earlier steps. The circular debt for the power sector is expected to increase by another Rs336 billion to reach Rs2.375 trillion by the end of the current fiscal year, up from Rs2.253 trillion as of June 30 last year.

Consumers in domestic protected categories who use up to 300 units per month would be largely shielded from additional burden as a result of these tariff revisions, but consumers in general in higher consumption brackets would bear the heavier burden to make up for this protection.

After taking into account the different actions stated above, the Power Division and its businesses would now approach the National Electric Power Regulatory Authority (Nepra) for updated schedules of tariff.

A summary of the debt refinancing of Power Holding Limited (PHL) and a surcharge to recoup markup payments were submitted by the Ministry of Energy's Power Division, according to an official release.

The proposal to recover Rs. 76 billion while exempting non-ToU (time of use) domestic consumers with consumption of less than 300 units and private agriculture consumers was approved by the ECC following discussion, according to the statement. The recovery period would be four months, from March 2023 to June 2023.

The approved summary states that this will be accomplished "by an extra levy of Rs3.39 per unit to compensate the markup charges of loans not through an existing appropriate financing cost (FC) surcharge of 43 paisa per unit for FY2022-23."

The ECC was additionally "permitted to impose an extra surcharge of Rs1/unit for FY2023–24 to collect additional markup charges of PHL loans not already covered by the already in effect FC surcharge. To maintain a uniform tariff across the nation, the aforementioned surcharges will also apply to K-Electric customers, and KE will return its recovery to the Central Power Purchasing Agency of the Power Division.

The ECC also took into account and "accepted the proposals included in another summary of the Ministry of Energy (Power Division) regarding recovery of staggered fuel charges adjustments (FCAs) applicable for the months of August and September 2022. These FCAs for KE and Discos (distribution companies) were approved by Nepra at rates of Rs9.90 and Rs4.35 per unit for June and July 2022, respectively, however they were unable to be charged as a result of a prime minister's decision due to flooding. This involves recovering more than Rs55 billion from all users from this point forward through October 2023 at an average rate of Rs1.20 per unit each month.

In addition, the circular debt management plan will impose quarterly adjustments starting at Rs3.21 per unit from now on, decreasing to 69 paise in the following months, and then rising once again to Rs1.64 per unit from June onwards till August of 2023.

The government intends to cut average system losses in the power sector by just 0.58 percent for the year, to 16.27 percent, despite these regressive measures.

Additionally, the ECC ordered the Finance Division to issue a government guarantee for repayment of principal as well as interest/fees, etc. for the new facilities of Rs283.287bn and deferred a decision on PHL's principal instalments payable in respect of Rs283.287bn for a period of two years from the date of execution of fresh facilities.

The ECC waived electricity bills for the months of August and September 2022 for non-ToU household consumers consuming less than 300 units and postponed electricity bills for the month of September 2022 for business consumers in the flood-affected areas until the next billing cycle.

An additional supplementary grant of Rs10.34 billion was granted by the ECC to pay for the waiver of energy tariffs in flood-affected districts. Due to the lack of a Programme Management Unit at the Finance Division, it authorized the Finance Division's overview of the Kamyab Pakistan Programme in principle and delegated responsibility for conducting due diligence to the State Bank of Pakistan.

A technical supplemental grant of Rs450 million in favor of the Ministry of Defence was also authorized in principle by the ECC.