The Asian Development Bank (ADB) has proposed to the government a further increase in electricity tariff, for using it as an energy conservation tool, besides generating additional revenue. The current tariff structure for domestic consumers consists of multiple slabs, and the bank has suggested that these slabs should be rationalised to increase power sector revenue.
The current tariff structure for domestic consumers consists of multiple slabs, and the bank has suggested that these slabs should be rationalised to increase power sector revenue.
Official documents available with Business Recorder reveal that ADB has estimated that tariff rationalisation could comfortably bring in about Rs 20 billion additional revenues annually for the Discos.
Currently, the revenue requirements of Discos were determined through tariff setting mechanism by the National Electric Power Regulatory Authority (Nepra). The government's stance was that the power sector customers were unable to cover the entire revenue requirement of the Discos, and accordingly, notified a unified tariff lower than the determined tariff by Nepra, while the gap was being bridged by the finance ministry.
Payment of subsidies, settlement of past dues, and cash flow are said to be the three major actions to be taken by the federal government, the documents further disclosed.
After detailed discussions with Pepco, Finance Ministry, Water and Power Ministry, and the Planning Commission, on the financial hardships of Discos, ADB was of the view that a single action would not resolve the current financial crisis in the power sector. Instead, a combined effect of several actions would ensure a substantially improved environment that could lower the power sectors' negative impact on the national economy.
The mission suggests the government to maintain the current subsidy level at Rs 25 billion in 2008-9, increase tariff, and move towards full cost recovery in the power sector.
The bank suggested further that the government has to provide written confirmation that it has met all current financial obligations to the Discos, emerging from the tariff determination and notification differential, without imposing additional debt burden on the Discos.
The bank, which was in the process of negotiations with the government, has suggested an umbrella-PC-1 and a project concept clearance approval, which would be required for overall Multi-tranche Financing Facility (MFF), as well as a PC-1 for each of the subsequent tranches.
Accordingly, PC-1 for the tranche was understood to be incorporated in the global PC-1 documents for the MFF. It had been agreed that Pepco was responsible for the preparation of the PC-1 with consultants' assistance, and the Ministry of Water and Power would ensure that the document was submitted in time for approval of the authority.
When contacted, an official confirmed that the MFF proposal would be presented to ADB board on May 29 for approval, which the federal government would on-lend to the Pepco at 17 percent interest, despite the fact that the bank wanted it to be on-lent at no more than 9 per cent interest.