Negative impacts of IMF conditions force govt for smaller power tariff hike

Power Division asks Nepra for Rs3.55 increase instead of initial Rs5.40 demand

ISLAMABAD (Web Desk) – The record-high inflation and interest rate as well as energy prices are taking its toll on the national economy in the shape of less electricity demand [just like petrol and diesel], as the Power Division has backtracked from its initial request to raise electricity tariff by Rs5.40 per unit and suggested a smaller raise of Rs3.55 in terms of quarterly tariff adjustment (QTA).

Read more: Increasing energy prices, interest rates, tax collection remains IMF's focus

It is a huge amount of Rs146 billion for which the Power Division had requested the National Electric Power Regulatory Authority (Nepra) to increase the per unit power tariff by Rs5.40 for the April-June quarter of 2023 through the monthly bills of October, November and December.

Read more: Argentina's peso, Pakistan's rupee, depreciation and IMF

Currently, the power consumers are paying Rs1.24 per unit in the monthly bills of July, August and September for the Jan-March 2023 quarter.

As Nepra held a public hearing on Tuesday, the audience were shocked albeit in a pleasant way when the Power Division asked for recovering Rs146bn through smaller monthly increase over next six months – from October to March – instead of the supposed three.

However, the suggested Rs3.55 hike in tariff means that net increase in the per unit electricity price will be Rs2.31 because the consumers are already paying Rs1.25 as QTA.

During the hearing, the Nepra directed the Power Division to submit a written request for the recovery of Rs146 billion in six months with an assurance that the fiscal impact was not passed on to the consumers.

PAY FOR EVEN THAT ELECTRICITY WHICH YOU DON’T CONSUME

Before explaining the reasons behind the latest government request and the impacts of the IMF conditions related to the energy sector, one should know why we have to pay this massive amount of Rs146bn.

Read more: Pakistan: What lies ahead in post-IMF deal period?

It is mainly due to the capacity charges which amounts to Rs124bn. So no matter what the demand and consumption is, the independent power producers (IPPs) are supposed to get a certain amount for the electricity they generate. That’s why power generation became a lucrative business thanks to the conditions listed in the agreement signed with the government.

But the government charges the consumers for these capacity charges and pay the amount to the IPPs. Nonpayment means increase in circular debt. It’s a vicious circle but the people are at the receiving end as always.

Meanwhile, the remaining amount comprise Rs7.5b for operations and maintenance, Rs7.2bn for impact of transmission and distribution losses on monthly FCA (fuel charge adjustment), and Rs14.3bn for the use of services charges and financial cost.

That’s why the Nepra pointed out during the hearing that the impact of the drop in sales by about five billion units apparently added this cost to the consumers which was an alarming thing.

WHO IS CONSUMING LESS

It is due to the closure of industrial units chiefly for unsustainable cost of doing business thanks to higher power and gas tariffs as well as interest rates and inflation which have paralysed Pakistan’s economy.

The cost of living crisis means fewer consumers with less demand or consumption both domestically and abroad [for the exporters].

IMF WISDOM IN QUESTION

There is no doubt it is the IMF conditions – from higher tariffs to interest rate hikes – that are not only fuelling inflation but also have killed the prospects of growth in the country’s economy.

Read more: IMF condition dragging Pakistan rupee down the slope with no stop in sight

So the government raises power and gas tariffs as well as fuel prices to a level that it becomes impossible for many industrialists to continue with their businesses. Instead of boosting government revenues, the IMF’s economic wisdom has pushed the country to a point that there is less consumption of these in the country.

It is in this context, Brazilian President Luiz Inacio Lula da Silva on Tuesday criticised the IMF's loans as "suffocating".