The power regulator held a hearing on the authority’s request to consider rationalization of power base tariffs. The proposal is pretty much in line with what has been making rounds since the IMF talks resurfaced. In fact, it is part of the Circular Debt Management Plan, the third phase of which was aimed at rationalizing tariffs in a staged manner, after having recategorized consumption slabs, and creating distinct categories of protected and unprotected domestic electricity consumers.

The proposed price increase ranges from 42 percent to 83 percent across various consumption slabs. The protected consumer category has been insulated from price increase, which is around one-fifth of all domestic consumption. The biggest hit will be faced by consumers in the 101-200 unit slabs – where the increase is 83 percent by October 2022 as compared to existing tariff. From Rs10.36 to Rs18.95 per unit, does not seem progressive, considering higher consumption categories undergo lesser increase.

The proposal puts the subsidy at Rs200 billion or Rs2/unit, as the average selling price settles around Rs23.39 per unit. One wonders how the government plans to tackle the issue of agriculture and industrial electricity tariffs. In case of tube well use, the price increased by as much as 100 percent in high consumption categories. For industrial users, the price increase is also significant – at 70-80 percent in some cases.

The calculations are based on consumption of 110 billion units – a 10 percent rise from previous rebasing exercise carried in November 2021. Recall that the government aims at increasing the consumption by 40 percent in the near-term to bring the average power tariffs down. However noble it may sound, an increase of such magnitude will only add to challenges in terms of overall consumption growth, consumers’ paying habits, and a distribution loss.

There will be lot more details available once the regulator announced the final decision, as to the breakup between capacity and fuel cost components. The rebasing was inevitable, and the need to go to the IMF at all costs, just hastened it. Once it is out of the way, the focus should for once, shift towards areas of long pending reforms. The transmission, generation, planning – all require much more than lip servicing. Pricing must not be mistaken for reforms. It is just one part of it. More on the impact on inflation and household electricity bills, later.