MONDAY MARCH 12: All slabs beyond 100 units: elimination of power sector subsidy under study

ISLAMABAD: The government is considering to eliminate power sector subsidy on all the slabs beyond 100 units to recover full generation cost from the consumers to minimise its cost on the budget, it was learnt.
Sources said that a plan to rationalise the domestic sector power charges was prepared by the high ups of the Planning Commission with recommendation to the government that benefit of slab should be restricted to 100 units and passing on generation cost determined by National Electric Power Regulatory Authority (Nepra) to the rest of consumers.
An official said that multilateral have been asking the government to address the structural issues in the power sector instead of price charges because this would not solve the problem.
The official on condition of anonymity said that increase in electricity tariff would give rise to the power theft and admitted that Planning Commission, Ministry of Water and Power and Finance have been unable to implement reforms in power sector during the last four years for a host of reason, including political consideration and lack of co-operation by the provinces in dealing with the rising cases of power theft.
The implementation of the plan to remove slab benefit and pass on generation cost to 101-300 units would help the economic managers to recover Rs 87.41 billion. The withdrawal of subsidy on 301-700 units help the government saving Rs 5.85 billion and more than Rs 4.22 billion on above 700 units, which could help contain the fiscal deficit for the current fiscal year.
However, analysts said that the increase in electricity cost is feared to have negative impact on the growth and exports by increasing the input cost and that may have been the reason that the multilaterals have been advising the government to fix the structural issues in the power sector.
The current year is considered to be very difficult for the electricity consumers as on the one hand government intends to recover about Rs 90 billion on account of fuel adjustment charges for the last five months to minimise the impact of tariff differential subsidies on the budget; while on the other hand Planning Commission has suggested to the government to restrict the slab benefit to 100 unit users per month otherwise subsidies to households, which consume about 44.29 percent of total electricity supplied, would cross Rs 169 billion in the ongoing fiscal year.
Sources said that annual impact of subsidy provided to lifeline consumers up to 50 units is Rs 27.46 billion, and for 1-100 units it would be Rs 52.24 billion in the current fiscal year if the government does not increase power tariff. About total usage of electricity by consumers of various slabs, he said that life line consumers up to 50 units have been consuming 3.4 percent of the total electricity, followed by 8.97 percent consumption by 1-100 unit users, and 22.3 percent on consumers using 101-300 units monthly. The electricity consumed by those using 301-700 units was 6.25 percent of total and 3.59 percent for those utilising above 700 units.
The high ups of the Planning Commission argue that of the total 60 percent subsidy given on account of tariff differential to the domestic sector, majority of the subsidies goes to the riches 40 percent households in Pakistan. This huge quantum of untargeted subsidy is neither sustainable nor desirable and the government was recommended to increase the lifeline definition to those using 100 units per month instead of 50 units and target the subsidy as direct cash transfer to these lifeline consumers. Additionally tariff must be increased for those using more than 100kWh per month to Nepra determined generation costs and restrict the slab benefit to one slab only.