The government on Wednesday increased power tariff by 6 percent effective October 1, 2009 (today) after Prime Minister Syed Yousuf Raza Gilani cleared a summary of the Ministry of Water and Power, official sources told Business Recorder. The sources said the government has also done away with the differential tariff mechanism, equalising tariff for all the Discos.
This raise is part of the agreements with the International Monetary Fund (IMF), the World Bank and the Asian Development Bank (ADB). Sources said Pakistan agreed to raise power tariff up to 6 percent on October 1, 12 percent on January 1, and 6 percent from April 1, 2010. The current per unit generation cost is about Rs 8.25 whereas the sale rate is Rs 5.75 per unit, which means the government is bearing a loss of Rs 2.50 per unit.
Pakistan has to increase power tariff up to 28 percent till June 2010, in addition to 6 percent raise due to upcoming rental power plants (RPPs). Under the agreement reached between GoP and the financial institutions, volume of subsidy would be kept at Rs 55 billion during the current financial year, sources said. The IMF has reportedly agreed to Rs 55 billion subsidy to consumers.
Analysts argue that the government may well be forced to raise tariffs by 41.5 percent, instead of the 26 percent announced, as rental power plants are likely to use more furnace oil and circular debt has again risen to over Rs 100 billion.
The government is expected to face stiff and sustained resistance across the country when it raises power tariff as industrialists have already threatened to shut down their factories, in protest. The upcoming increase in tariff of 30 paisa per unit, on average, is being notified at a time (October 1, 2009) when the country once again is in the grip of loadshedding, especially in small towns, rural and far-flung areas. This time, lifeline consumers who use up to 50 units per month, are also expected to be affected by the tariff increase.
According to the agreement with IFIs, electricity tariffs of Discos were to be raised to eliminate tariff differential subsidies in 2009-10 and more gas was proposed to be used for electricity generation. However, in the aftermath of the difficult parliamentary debate on the budget, the authorities considered the agreed tariff increases as politically too costly. In particular, they decided that the bulk of the required tariff increases would need to be postponed till after loadshedding had been reduced through additional generation capacity coming on stream.
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