LAHORE: Non-poor households receive comparatively larger electricity subsidy benefits than poor households; therefore the government has decided to generate fiscal savings by cutting the subsidy and making transfer to poor households to give subsidies through Ehsaas programme, said sources.
According to the sources, broad-based electricity subsidy was not the right policy for serving the best purposes of poor households. Pakistan spends substantial amount of resources in electricity subsidies which aggravate budget deficit and crowd out priority sector spending. The federal government has cut the power subsidies by Rs 81 billion or 36% in the budget and it has allocated only Rs 150 billion for power subsidies this year as against last fiscal year’s allocation of Rs 226 billion. Accordingly, all types of households are likely to get hurt in the medium term from subsidy reductions. However, the sources said, when savings from subsidy reduction would be distributed among poor households, recipient households would experience comparative improvement in real income and welfare.
The sources said there is no doubt that cutting energy subsidies hurts both poor and non-poor households but poor households would be better off when targeted transfers are made to them. They added that the government is in the process of finalizing amendments to the National Electric Power Regularity Authority (NEPRA) to put in place a new mechanism for subsidies while eliminating the present mechanism of providing electricity subsidies up to 300 units per month consumption, irrespective of income levels. They said the government is planning to utilize the facility of Ehsaas programme for a direct intervention in order to reduce poverty and supporting the baseline consumers.
Proponents of energy subsidies claim that broad-based subsidies benefits poor households, who otherwise could not consume fuel and electricity at higher prices. However, the Pakistan Electric Power Company (PEPCO) sources said substantial part of broad-based subsidy benefits are captured by non-poor households. Moreover, they said, energy subsidies are crowding out priority sector public spending and aggravating fiscal imbalances.
Copyright Business Recorder, 2020
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