ISLAMABAD: The government team is all set to hold a session with International Monetary Fund (IMF) in a day or two on tariff rationalization meant to reduce tariff for industry up to cents 11.75 per unit from cents 14 per unit through subsidy neutral proposal, well-informed sources told Business Recorder.
The plan, however, if approved and implemented will further hit domestic consumers, through imposition of fixed tax ranging from Rs 50 to Rs 450 per month.
Power Division, in its letter to Finance Ministry, stated that tariff of lifeline and protected consumers has not been changed since 2021 despite a 50% increase in the average power tariff from Rs 18.53/unit to Rs 29.78/unit and the rupee devaluation against USD by CAGR of 33.8% during this period.
Effectively, the cross-subsidy burden on other consumer categories has increased over this period because the lifeline and protected consumers tariff has remained unchanged.
Under the circumstances, the imposition of a small fixed charge on domestic consumers would reduce cross subsidy as well as the variable rate for subsidizing domestic consumers.
The following was proposed: (i) add a small fixed charge for lifeline and protected consumers without affecting their variable tariff and ensuring monthly bills do not see significant increase in absolute amounts.
The impact of this would range from PKR 50/month to PKR 450/month; (ii) add a fixed charge on un-protected consumer categories who are consuming more than 100 units and reduce their variable tariff, thereby ensuring that their net monthly bill increase is less than Rs 1,000/month.
The exception would be the high income/consumption consumers whose bills will be impacted by less than 10%; (iii) apply a higher fixed charge of PKR 3,000/month on single-phase consumers using more than 700 units/month to encourage them to shift to three-phase category which will help in rationalizing this consumer category in accordance with their actual load and reduce the overall subsidy and level of cross subsidization; (iv) lower the tariff of three-phase consumers with a load of 5kW and above in order to reduce the cross-subsidy burden on them and attract single phase consumers with consumption of more than 700 units per month to switch to three–phase connections.
The cross subsidy will not however be eliminated, only rationalized; (v) discourage the existing malpractice of multiple connections in single households; and (vi) achieve 25% reduction in cross subsidies to domestic consumers. A restructuring of the tariff structure in this manner will reduce subsidy to the domestic consumer using less than 400 units by Rs 161 billion to Rs 431 billion from the current Rs 592 billion.
In order to make industrial tariff more competitive vis a vis regional industry, Power Division proposed following three changes: (i) reduction in cross subsidy by the industrial consumer to domestic consumer from Rs 244 billion to Rs 22 billion, ie, a decrease of Rs 222 billion; (ii) overall tariff design for industrial consumers rationalized with fixed charge to industrial consumers being increased from current levels of Rs 500/kW to Rs 1,500/kW; and (iii) a corresponding reduction in variable tariff being charged to industry.
According to sources, these changes will lead to an overall effective industrial tariff ranging from Cents 8.5/kWh to Cents 11.75/kWh.
Power Division maintains that the introduction of fixed charges and reduction in variable tariff is expected to encourage higher consumption by certain category of consumers. This will contribute towards higher revenues for the power system facilitating payment of fixed capacity charges faced by the sector.
The sources further stated that single point supply consumers are subsidizing other consumers by PKR 44 billion. No change is proposed in this cross subsidy however, the tariff design is proposed to be changed in line with changes in other consumer categories.
Effectively, the fixed charges on single point supply consumers will be increased from Rs 880/KW to Rs 1,000/KW and a corresponding reduction made in their variable tariff. There will be no net impact on their monthly electricity bills.
“There may be a concern about continuing the current level of protection of low-income consumer classes. In this respect, the Government, being primarily responsible for the socio-economic welfare of its citizens, is extremely cognizant of its responsibility to protect its low-income classes.
The proposed increase will impact the low-income households by only PKR 50 (18 cents) to Rs 450 ($1.60) per month. These tariff adjustments have been proposed keeping in mind the income levels of different households as well as the principles of equity and fairness,“ the sources added.
The affordability of domestic consumers, especially consumers in Quintile 1, ie, consumers using up to 300 units of electricity (regardless of their protected or unprotected status) has been carefully evaluated.
Household Integrated Economic Survey (HIES), published by the Pakistan Bureau of Statistics in 2019, has been analyzed as the same was not available for year 2023-24. The levels of income and expenditure in the aforesaid survey have been taken as reference and extrapolated for the current year.
The proposal will take this fact into consideration and covers this aspect as follows: (i) maximum loss impact due to reduction in cross subsidy to domestic consumers is 10% leading to annual impact of Rs 18 billion conservatively assuming 10% extra losses in residential consumers and almost zero loss in the industrial category.
Similarly, in case of agriculture tube well consumers, loss impact is 35% leading to annual impact of Rs 14 billion. For 2023-24, the impact for the 3 months during which the new tariff will be implemented (Apr 1 – June 30, 2024) will be around Rs 9 billion for residential and agriculture tube wells consumers.
This will have no impact on budget or Circular Debt Management Plan (CDMP) as the anti-theft drive could comfortably plug this gap since the saving/additional recovery from the anti-theft drive is much higher than the estimated gap,“ the sources added.
For future years, NEPRA is scheduled to rebase the tariff in July 2024 in which the total revenue requirement and a new CDMP will be prepared in line with new tariff as determined by NEPRA.
Copyright Business Recorder, 2024
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