Nepra announced the last quarterly tariff adjustment earlier this week, capping all pending tariff adjustments. The decision which recommends uniform tariff adjustment to the tune of Rs0.83 per unit, now awaits government notification. It remains to be seen how the government plans to distribute the tariff adjustment across consumer categories, but the net impact amounts at Rs84 billion to be collected over a 12-month period.

The quarterly tariff adjustment for FY20 have stood at a staggering Rs263 billion – 20 percent higher than FY19’s toll of Rs219 billion. In unit terms, that translates into an increase of Rs2.6 per unit, which is around 20 percent of the national average base tariff for FY20. No points for guessing that the capacity purchase price at Rs227 billion or 86 percent of the total adjustments, constitute the bulk.

Recall that the government has very recently announced yearly base tariff revision to the tune of Rs1.95/unit. The same is yet to be notified but it could well be implemented with effect from February 2021, which means that the quarterly adjustments for the first half of FY21 would also continue to be on the higher side.

The previous base tariff revision in January 2019 had led to lower accumulation of adjustment in the subsequent two quarters. Same could be expected for 2HFY21, given the base tariff revision for 2021 has taken into account almost all considerations that were put forward by the petitioners. That said, the test for the consumers is far from over, as two more rounds of relatively higher quarterly tariff adjustments pertaining to 1QFY21 and 2QFY21 still wait in the wings.

Part of the problem is the denominator, as the electricity consumption has stayed flat for three years, which exacerbates the impact of adjustments in unit terms. The 2Q and 3QFY20 adjustments were announced in October 2020 which totaled Rs1.62 per unit. The prior adjustments that lapsed in September 2020 totaled around Rs1.8 per unit. Now Rs0.83 per unit will continue for another year, whereas Rs1.62/unit announced earlier will go on till October 2021. Together, the consumers will be subject to adjustments of Rs2.45/unit for the best part of next 8-12 months.

The inflation implications will be severe but will depend a great deal on how the government treats the increase for different consumption segments. If the recent base tariff approved by Nepra is any guide, the tariff increase could well be uniform for all categories, which is a deviation from previous practices that usually absolved domestic consumers, consuming up to 300 units (78% of total domestic consumption). Watch out for detailed analysis of impact on monthly electricity bills and that on the PBS computed CPI in this space, later.