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Government’s set to increase electricity prices

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News Analysis |

National Electric Power Regulatory Authority (Nepra) has re-imposed the three surcharges on electricity consumers on the recommendations of the International Monetary Fund (IMF), which asked the government to notify the updated electricity tariffs.

Nepra had used its statutory power to pass on the surcharges on behest of the deferral government which was imposed under section 31(5) of the Nepra law. Three surcharges imposed include;

  • Neelum-Jhelum Surcharge at a rate of 10 paisa per unit is expected to generate about Rs7.5bn per annum
  • Financing Cost Surcharge at a rate of 43 paisa per unit, will help collection of Rs30-32bn which would be used in debt servicing of the Power Holding Private Limited.
  • Tariff Rationalisation Surcharge will yield about Rs70bn per annum, levied at a rate of Rs1.02 per unit reduce overall power subsidy on the budget and to keep the tariff uniform across the country through cross-subsidy.

To finance Rs110 billion worth of system losses, theft, and non-recovery of power companies, three surcharges amounting to Rs1.55 per unit would be charged to consumers paying their bills regularly.

Read more: Businessmen term fuel price hike ‘bad move’ for PML-N

Earlier, the Supreme Court (SC) of Pakistan had suspended the May 20 judgment of the Lahore High Court, where it had declared the imposition of different surcharges on electricity bills illegal. But, on the appeal of the federal government, SC suspended the earlier verdict.

In its ‘first post-program monitoring report’, IMG urged the authorities in Pakistan to take decisive short-term actions to contain the quasi-fiscal losses in Public Sector Entities (PSEs). Fund had asked officials to revise the electricity tariffs to contain the buildup the power sector arrears.

The accumulation of circular debt or new payment arrears of power distribution companies brought to near zero at the end of the Financial Year (FY) 2015-16 reached mammoth, Rs 514 billion
which is the 1.5 percent of GDP by December 31, 2017.

The government failed to tackle the circular debt. Now at the behest of IMF, this has urged faster implementation of other components of the circular debt reduction plan. Moreover, it recommended “the additional electricity surcharges to
facilitate cost recovery until the underlying structural issues are tackled.”

Read more: Pak media polarized? It’s just business, nothing personal!

Why did the incumbent government of Pakistan Muslim League-Nawaz fail to solve the electricity issues? Why did allow the circular debt to increase up to non-manageable levels? Now, the public will have to endure the mistakes of its rulers again. Moreover, the government failed to reduce technical and distribution losses in
the power and gas sectors, including by stricter enforcement of the “Gas Theft and Recovery Act.”

The government had to contain arrears, which it did not. Now, after implementation of these new surcharges, the government is expecting to create significant fiscal space in the medium term.  

Pakistan’s fiscal space is in squeeze at the moment. But, it is aware of the public pressure, since elections are only months away, the government wants to avoid any sort of backlash. Fearing the probable, it would not indulge in indiscipline and must have to adhere to the austerity measures (as always) devised by the IMF [as we still owe them] to ensure fiscal discipline until the elections are over.


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