Failure to implement power sector reforms: government may have to raise subsidy by Rs 100 billion

The government may have to increase subsidy for power by Rs 100 billion for the current fiscal year due to failure of the Ministry of Water and Power and the Planning Commission to implement reforms in the power sector in an effort to minimise tariff differential as per the conditions of multilateral agencies, sources in the Finance Ministry said.
Rupees 30 billion was earmarked as subsidy for power sector in the current fiscal year's budget which was recently increased to Rs 67 billion largely due to failure of power reforms aimed at minimising production and tariff recovery differential cost. The subsidy for power sector, an official of the Ministry of Finance said, is most likely to be increased by Rs 100 billion owing to Rs 136 to Rs 156 billion anticipated loss on account of tariff shortfall.
The government is raising tariff by 2 percent each month effective October 2010 and will continue to do so for the remaining six months of the current fiscal year to bridge tariff differential cost of around Rs 3 per unit. An official of the Ministry of Water and Power admitted recently during the National Assembly Standing Committee on Water and Power hearing that the tariff increase was resulting in rise in power theft.
Sources in the Finance Ministry said there is tariff differential between 20 to 25 percent on account of production and recovery cost that, if not minimised by addressing issues pertaining to efficiency of distribution companies or passed on to consumers, may have an impact of Rs 210 to Rs 230 billion on the budget. This can compound problems with respect to achieving 4.7 percent fiscal deficit target for the ongoing fiscal year that has been agreed with the International Monetary Fund (IMF).
Sources further said that the Ministry of Water and Power has failed to tackle inefficiencies in organisation, generation, distribution and recovery in distribution companies (Discos).
Pakistan's circular debt in power and oil sector is still over Rs 400 billion due to non-payment of dues by different sectors to Pakistan State Oil (PSO) and Pakistan Electric Power Company (Pepco). Fata and federal as well as provincial governments are major defaulters of Pepco. The line losses in power sector ranging between 10 to 40 percent are the main reason of circular debt which power distribution companies have failed to overcome. Pakistan State Oil is to receive Rs 148.7 billion from its clients and power sector is its major defaulter. In power sector, Wapda, Hubco and Kapco are to pay around Rs 136 billion to PSO. PSO has also been unable to pay Rs 130 billion to fuel suppliers due to non-payment of dues by power sector.