The Economic Coordination Committee (ECC) of the Cabinet, under the chairmanship of Federal Finance Minister Asad Umar, after two deferrals due to the failure of the Power Division to present a viable reform plan, finally approved a raise in electricity tariffs. Households (and small commercial units) using less than 300 units per month would not be subjected to any raise in tariffs while those consuming from between 301 to 700 units per month would be subjected to a rate rise of 10 percent; and the final slab consisting of those consuming 701 units and above per month would be charged 15 percent more.
Tariff for the export sector (five zero-rated industries) has been fixed at 7.5 cents per unit or 9.75 rupees per unit given the current exchange rate. This is a continuation of the policy of the previous administration and reflects a subsidy of 3 rupees per unit to exporters. The 9.75 rupees per unit rate for exporters would not be adjusted as and when the rupee loses further value in the market (as local and international economists maintain that the real value of the rupee is likely to settle at around 140 rupees to the dollar) because the ECC decided to maintain this rate. It is unclear how long the government would be able to keep this commitment to exporters given the current state of the sector as well as the economy as it may require injection of billions of rupees from the depleted treasury, though it has not been quantified. Large commercial consumers would be charged 20 percent higher electricity tariff, a fact which would be passed onto consumers though the government is assuming that only those with means go to large business centres.
Well, first off, ECC decisions imply that the rate rise is targeted which must be appreciated; however, the distinction in rates between different categories of consumers was made by previous administrations as well and hence does not reflect a new approach. And neither does the objective to present a viable business plan as administration after administration presented a targeted business plan for the power sector, reflective of not only a commitment by the previous three administrations to their electorate, but also an important feature of the letter of intent, consisting of a time-bound action plan (inclusive of structural adjustments) submitted to the International Monetary Fund as a prerequisite for approval of a bailout package. The detailed action plan was not revealed, however, Asad Umar highlighted some features of the plan on a private TV channel which included lower transmission and distribution losses and a reduction in theft. While former administrations are on record as having stated that they would succeed where previous administrations failed in improving governance of this sector yet Business Recorder wishes success to the plan presented by the Power Division and approved by Umar.
The ECC also decided to slash tariff on agricultural tube-wells by half - from 10.35 rupees per unit to 5.35 rupees per unit - that would increase the budgeted subsidy amount from 5 billion rupees to 10 billion rupees. Total budgeted subsidy for the year was around 180 billion rupees and any addition would simply raise the budget deficit with a consequent negative impact on the rate of inflation.
To conclude, sorting out the numerous kinks in the performance of the power sector is a challenge that the past four administrations, including the incumbent, have taken head on and while the solution in the past was to pass it onto consumers after all else failed that approach does not appear to have been totally abandoned by the Khan administration. Be that as it may, while the task is daunting it needs to be tackled.