Power tariff raised to meet IMF target

ISLAMABAD: To meet another target before a mee­ting of the executive board of the International Mone­tary Fund (IMF), the government on Thursday app­roved an increase of 26 paisa per unit in electricity tariff, instead of 15 paisa allowed by the power regulator.

This decision was made at a meeting of the Economic Coordination Committee (ECC) of the Cabinet that also further increased wheat support price by Rs15 per 40kg to Rs1,365 and exempted two LNG-based power projects in Punjab from ‘guaranteed take or pay’ of 66 per cent gas quantities to facilitate their privatisation that may add a minimum of Rs117bn subsidy to the budget.

The ECC meeting was presided over by the Prime Minister’s Adviser on Finance & Revenue Dr Abdul Hafeez Shaikh.

On a summary from the power division, the ECC “approved proposal for notifying the Nepra approved quarterly adjustment of 15 paisa per unit after incorporating an additional charge of 11 paisa per unit for maintaining uniform tariff on all categories of consumers except lifeline and domestic consumers”, said an official statement. The increase coming into effect on Dec 1 for 12 months would not apply to about 20 million using up to 300 units per month, out of the total 30m consumers, while 600,000 of the remaining 10m consumers would only pay seven paisa per unit as a result of this increase.

Dr Shaikh also constituted a committee -- led by himself and comprising Minister of National Food Security and Research Makhdoom Khusro Bakhtiar, the PM’s Adviser on Commerce and Investment Razak Dawood and Special Assistant to the PM on Petroleum Nadeem Babar -- to examine the current framework of determining power tariff and make it more simple, on the pattern of mature markets’ practice for automatic quarterly adjustments.

This is in line with the memorandum of economic, fiscal and monetary policies given to the IMF before its management and executive directors take up for approval a recently concluded agreement between a Fund mission and Pakistan authorities to enable disbursement of about $450m.

As such, the average electricity tariff has now reached Rs13.77 per unit from the current Rs13.51 per unit, excluding general sales tax, monthly fuel price adjustments and some other taxes and duties.

The government has in recent months increased power tariff on account of quarterly adjustments for previous fiscal (2017-18) by about Rs2.33 per unit. The government has also given an undertaking to the IMF to ensure “regular and timely notifications for end-consumer tariffs in the electricity sector” through an automatic mechanism.

Wheat support price

The ECC also increased the minimum support price of wheat from the previously announced rate of Rs1,350 per 40 kg on Nov 16 to Rs1,365 per 40 kg, in view of representations from various farmers and growers’ associations as well as the federal cabinet and the National Assembly’s Special Committee on Agricultural Products, which had proposed reconsideration of the minimum support price to compensate the farmers in the areas where the cost of wheat production has increased to Rs1349.57 per 40 kg.

Earlier, the Ministry of National Food Security & Research briefed the ECC on the feedback received from various farmers’ associations as well as different government forums and requested for fixing the minimum support price of wheat at Rs1,400 per 40 kg.

The ECC deliberated on the proposal and, in view of the discussion and input on the impact of any further increase in wheat price on food inflation and financial impact on the commodity stock operations, decided to raise the minimum support price of wheat to Rs1,365 per 40kg.

The ECC also viewed a presentation from the Ministry of Finance on the government commodity operations which had over the years resulted in Rs757bn debt and liabilities and recommendations for reducing the debt.

LNG power plant sale

At the request of the power division, the ECC meeting also decided to exempt two LNG-based power plants – Haveli Bahadur Shah and Balloki – from their 66pc guaranteed LNG take or pay even though it noted that the government would have to bear Rs117 billion burden of subsidy annually to take care of price differential between Qatari LNG and any other alternative source or fuel given declining furnace oil prices.

The two power plants are estimated to yield around Rs300bn in privatisation proceeds. The power division had come up with a set of proposals for post-privatisation risk mitigation of the National Power Parks Management Company, particularly the impact on fuel basket price due to non or reduced off take of 66pc generation under the Power Purchase Agreement rules till 2024 and cost of diversion of Regasified Liquefied Natural Gas to other sectors with workable options to mitigate the risk.

It suggested diversion of LNG to a new project coming up near Karachi and some other sectors, but it was noted that other sectors did not have enough and sustainable appetite for LNG. The ECC discussed the proposals in details and approved them with a proviso that any other option that could be considered as part of the mitigation plan should also be taken into account and approved, if found suitable.

NHA loans

The ECC also considered a proposal by the Ministry of Communications that more than Rs1.8 trillion cash development loans (CDLs) and foreign loans, whether direct or relent, including interest accumulated thereon, received up to June 30, 2019 by the National Highway Authority (NHA) be converted into government grant or be “written-off”.

The summary demanded that for future, all Public Sector Development Programme allocations -- including relent or direct loans, both rupee and foreign exchange component for non-commercially viable projects and for strategic or defence roads -- to the NHA be provided as government grant.

The summary also suggested that CDLs should only be advanced for commercially feasible projects on which the Finance Division and NHA mutually agree regarding the terms and conditions of the loan and its repayment or these viable projects may be undertaken by NHA in public-private partnership or build, operate and transfer mode financing.

Published in Dawn, November 29th, 2019

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