Not quite the “landmine” the current government cried when it took over, but the power sector relief is back in some form. This is not the first time, and won’t be the last, and is not necessarily uncalled for. June’s FPA at Rs10/unit was the highest ever and was always going to be difficult to be passed through, especially when base tariffs have also been revised upwards.
Finer details on the relief package are now emerging. Government has been publicizing the relief on Fuel Price Adjustment (FPA), saying it benefits more than 17 million consumers. That may be a stretch, given lifeline consumers have always been exempted from monthly FPAs. Single-phase non ToU consumers with consumption staying within 100 units for 12 months, fall under the lifeline category. That covers around 17 percent of total domestic consumption at an average of 800 million units per month.
The slab within protected category that stands to benefit from the relief package falls in the 101-200 bracket. A total relief of Rs6/unit has been allowed for this slab, where last six-month consumption does not exceed 200 units at any point. A reduced rate of Rs3.89/unit will be charged on account of FPA for this slab, instead of Rs9.89/unit, as allowed by the regulator, and billed by respective distribution companies.
The aforementioned slab accounts for no more than 4 percent of all domestic consumption, or around 200-250 million monthly units. A Rs6/unit benefit here would cost close to Rs1.2-1.5 billion for the month, and should be easily manageable, provided it gets duly funded, and is not left to be settled for later.
The biggest relief comes for the unprotected category that has recently been subject to base tariff revision. The unprotected category will be fully exempt from FPA for the consumption in June 2022. Combined, the two slabs for 1-100 and 101-200 units – have an 18 percent share in total domestic consumption. That said, for the unprotected category, consumption within 200 units is a much-reduced occurrence in peak months from May-August. Roughly 600 million units would fall under the two unprotected slabs – with a total relief cost of Rs6 billion.
Much bigger impact will be on agriculture consumption, which stands to be fully exempted, as per initial reports. If that remains the case, nearly 10 percent of overall consumption or 1 billion monthly units stand to be fully exempt from FPA on units consumed in June 2022. That is a relief of Rs10/billion for the sector.
Fuel adjustments promise to be lower in the months to come, as higher reference costs have been used in the revised base tariff calculations. An ad-hoc relief only for one month should not looked down upon, especially when it is targeted to a great extent. One hopes the relief for one segment does not mean burden for others – and the amount gets timely funded.
It would also be worth reminding the government that the high FPA incidence has nothing to do with the “incompetence” of the previous government. The phenomenon has been in place since a long time, and June FPA was a consequence of a combination of factors, of which importing expensive RLNG at any cost was one. Not only did the government imported the most expensive RLNG in June resulting in loss of foreign exchange, but it also now has to dole out a relief package for the same mistake.
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