Two days after the announcement of base electricity tariffs – the government caved in. The revised prayer now allows waiver for consumers up to 200 units consumption in both protected and unprotected categories. The very day this space ran commentary on the impact of tariff revision that left even the protected category facing massive increase, the governmentdecided to make amends – and asked for the hearing to be postponed by a day.
The revised offering now has base tariffs unchanged for the majority of domestic consumers for another three months. Nearly 24 million of the 29 million domestic consumers will now pay the previous year’s base tariff, before the revised tariffs based on FY25 Power Purchase Price come into effect from 2QFY25. Considering that 1Q electricity consumption in the domestic sector has usually been around 33 percent of the total annual consumption – the 3-month respite translates into roughly Rs50 billion relief. The amount is pretty much what the Prime Minister’s TV advertisements are also quoting – and that sounds just about right (the price, not the TV ads by a government that demands more contribution from the existing taxbase citing fiscal constraints).
The respite was much needed, and the fact that there was fiscal space available, thanks largely to a PSDP budget that was never going to materialize, it makes sense to shield the needy as much as possible. Of course, three months down the road, there will be complaints again, but the temperatures will have started to cool down, and the bills will be much lower. The pain of higher tariffs will not be felt straightaway – until next summer arrives.
Reprieved consumers in all four categories will be paying less than the trailing 12-month average tariff. On a month-on-month basis, the tariff drops in the range of 10 to 22 percent. The year-on-year change is limited to 1 percent for the protected and a maximum of 14 percent for the unprotected categories. One cannot help wondering why couldn’t the government be slightly more creative in reversing the tariff increase and limiting the subsidy, without having to increase effective tariffs.
Mind you, the periodic adjustment for July and August goes down drastically from Rs4.6/unit in June to Rs0.93/unit. Had the base tariff been adjusted by just as much so as to keep the effective tariffs unchanged, the result would have been achieved with one-fifth of the subsidy. It also makes sense to prepare consumers gradually for upward adjustments, and the room in periodic adjustments offered just the right chance which has gone begging.
For now, the lower income class stands to benefit from the move and that must be praised, as long as the fiscal space allows. It could have been done differently, but a little respite for the masses facing difficulties stretched over a long time, is a good thing. Here is hoping the need for periodic adjustments going deeper in the fiscal year is much lesser than last two years – and that could take care of effective consumer tariffs, without having to resort to additional subsidies.
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