The government has to weigh three possible options to resolve the energy crisis: improve Pepco's performance, explore cheaper generation sources, or increase tariffs by 33 percent, a well placed official in the Finance Ministry revealed exclusively to Business Recorder. The official said according to estimates there is about 33 percent gap between power production cost and tariff recovery.
He said the government envisaged a subsidy of Rs 84 billion for the power sector for the current year but the overall expenditure on this count was estimated to touch Rs 180 billion. They said TFC interest would also be paid from the envisaged subsidy of Rs 84 billion for the power sector. The options, he noted, are limited and the government has to either increase price of electricity during the current fiscal year or explore cheaper resources for power generation.
The fear, he said, was that a further increase in tariff may lead to increase in power theft. Moreover, he said the delayed decisions on implementation of energy tariffs had only given rise to the need for higher tariff increases down the line.
"The original estimates in July 2009 had suggested an average increase of Rs 1.75 per unit but the tariff had to be increased by Rs 2.25 per unit because of delayed implementation," he added. When asked about the outcome of talks with the IMF, he said the Ministry of Finance had made a presentation to the Fund delegation however the final doable mix of the proposed options would be presented in the next meeting of the IMF scheduled for next month.
The proposed options are, either to explore cheaper resources for power generation, improve performance of Pepco, or pass on 33 percent gap between power production cost and tariff recovery to the consumer. The official said all three options are challenging and unless difficult political decisions were taken promptly, things are unlikely to improve.