Power FPA – no waiver

The August Fuel Price Adjustment (FPA) relief now turns out to be a deferment and not a waiver. This comes less than a week after the Prime Minister announced to have extended the relief to include consumers using up to 200 units, to make the measure more “meaningful and impactful”. Mind you the 201-300 consumption slab is the largest of the eight slabs – representing nearly a quarter of all domestic consumption.

The extension of relief to the 201-300 slab meant an additional 30 percent subsidy requirement to the one already announce to the tune of Rs20-25 billion. Now that the government has offered clarity on the terms of the relief, the concerns on funding the subsidy are gone. Under the plan, what was a subsidy of Rs6/unit, for the protected consumers under 200 units – now becomes an amount spread over six months in equal installments of Re1/unit.

For those in the unprotected segment consuming under 200 units will pay the FPA over six months in equal installments of Rs1.65/unit, starting October 2022. This is not the first time FPAs have been spread over months. Previously, incidences of higher adjustments were either deferred or spread over various months. The PTI government, froze the monthly FPA for eight months from November 2019 to July 2020 -even though the highest monthly FPA going as high as Rs1.8/unit.

While there is nothing wrong in deferring the FPA as high as June’s – there is everything wrong in how the same was communicated. The distribution companies till two days ago, seemed unaware of the development, and kept calling it a subsidy. Whether deferred FPA is an afterthought as the IMF focus on energy payments increases, is anyone’s guess.

The government benches continue to insist energy prices are going to come down in the next two to three months. This appears far from truth, as further adjustments to base tariffs and quarterly tariffs are coming up. A record high quarterly tariff adjustment in excess of Rs3/unit will take over, once the one currently in place lapses.

There is also an agreement with the IMF to rationalize subsidies on tube well tariffs. Tubewell tariffs are around 60 percent lower than national average tariffs, with a 10 percent share in total consumption. Monthly FPAs will most likely be lower than the recent highs, but there is enough in the tank to keep the final consumer tariff high.