Hike in power base tariff: World Bank irked by govt's 'failure' to honour commitment

ISLAMABAD: The World Bank has, reportedly, conveyed its serious reservations to the top government authorities for not honouring their commitment regarding increase in electricity tariff as per the February 2021 agreement, and seeking a new deadline for a hike in base tariff, well-informed sources told Business Recorder.

The PTI government, sources said, has increased electricity tariff by 40 per cent since it came to power of which Rs 2.17 per unit is base tariff.

Last week World Bank's delegation led by their Vice President for South Asia, Hartwig Schafer held meetings with Prime Minister Imran Khan, Energy Minister Hammad Azhar, Finance Minister Shaukat Tarin, Minister for Economic Affairs Umar Ayub Khan and other relevant authorities and discussed energy sector and other issues.

There will be no power tariff, taxation hikes in FY22 budget: Tarin

"The main demand of World Bank is an increase in base tariff which is a political decision as it carries a price that has to be paid by the political government. However, adjustment in quarterly tariff monthly FCAs will continue," the sources added.

The government had given an undertaking in writing to the World Bank and IMF that base electricity tariff will be increased by Rs3.34 per unit in two stages. Subsequently, the first increase of Rs 1.95 per unit was notified in February 2021 but the remaining increase of Rs 1.39 per unit, due from June 1, 2021 was put on ice, after both the Prime Minister and Finance Minister refused to honour the commitment on the plea that the consumers including domestic and industry could not bear any additional burden.

Power base tariff to be further raised, IMF told

According to the previous Circular Debt Management Plan (CDMP), the government had pledged to the lenders that it would increase tariff by about Rs5 per unit by 2022.

However, with a clear "no" on tariff increase, the projections of CDMP 2021, have been derailed, which is of serious concern to the lenders.

Later the Finance Minister held meetings with the IMF officials whereas SAPM on Power and Petroleum met with a World Bank team and apprised them of the serious constraints facing the government with regard to the power tariff.

‘Rs5.36/unit hike in power tariff will ruin industry’

The sources said, during meetings with the Pakistani authorities, World Bank's team asked for a new CDMP, which is still not final as the Finance Ministry has given a ballpark figure of subsidy and increase in base tariff.

"The CDMP cannot be finalized until Finance Ministry gives a commitment on both the amount of subsidy and proposed increase in base tariff which are critical for future projections of growth in circular debt," the sources stated.

Another big hike in power tariffs anytime soon

According to the sources, both the World Bank and Power Division have constituted a joint group of experts to discuss different aspects of new CDMP, which will be shared with the lenders before the Board meetings of World Bank on September 27, 2021.

Power Division has claimed that circular debt was Rs2.280 trillion as of June 30, 2021, as compared to Rs2.150 trillion as of June 30, 2019-20. On June 1, 2021, Finance Minister Shaukat Tarin in a letter to World Bank gave the assurance that increase in consumer tariff will be focused on non-vulnerable groups, and protecting consumers who consume less than 200 units on average for six consecutive months. Total subsidies for the non-vulnerable group will be reduced. Distribution companies (Discos) will finalise the survey to link all electricity meters with CNIC and will coordinate the database with the NSER to develop a plan for transition of electricity subsidies to cash transfer.

He further pledged that Ministry of Energy will notify further adjustments to the base tariff to reflect cost changes in the sector.

The government approved the CDMP to address arrears in the energy sector and notified the absorption of debt owed by the PHPL into the public debt stock as and when the underlying instruments matured. At the end of FY20, payables of the CPPA-G amounted to Rs1.150 trillion or 2.8 percent of GDP. With support from the proposed operation series, the government agreed to retire Rs700 billion of arrears owed by the CPPA-G to the Independent Power Producers (IPPs) through issuance of government general bonds between FY21-23. From FY24 onwards, the government will settle pending arrears using the additional fiscal space created by higher revenues and/or reallocation of budgetary resources.

Copyright Business Recorder, 2021