Cabinet approves Rs3.50 to Rs7.96 hike in power base tariff
Business
Nepra had recommended Rs4.96 increase
ISLAMABAD (Dunya News/Web Desk) – The federal cabinet late on Friday approved a massive hike - Rs3.50 to Rs7.96 per unit - in electricity base tariff through circulation as Pakistan is moving ahead to meet the harsh IMF conditions under the $3 billion deal reached a stand-by arrangement.
Earlier, the National Electric Power Regulatory Authority (Nepra) had recommended at Rs4.96 increase in base price and sent the summary to the Ministry of Energy for necessary action – a move that will place an additional burden of Rs3,495 on consumers.
Sources say the government, according to the official process, has now sent the matter to the Nepra to increase the tariff and the regulator will hold a public hearing to decide the matter before a final notification.
The move comes as Prime Minister Shehbaz Sharif had reassured IMF Managing Director Kristalina Georgieva that he would not tolerate an iota of violation of the agreement reached with the world’s top financial institution.
In a press release, the regulator had earlier said that the tariff was determined by evaluating the transmission and distribution losses of the electricity distribution companies and the federal government reserved the right of request for unanimous tariff for all Discos.
The main reasons for the increase in tariffs, says Nepra, are the decline in sales, depreciation of the rupee, inflation, interest hike and increase in capacity.
As the world’s top financial institution’s executive board gave final approval to the $3 billion stand-by arrangement for the country, IMF Managing Director Kristalina Georgieva had stressed that Pakistan would have to accelerate structural reforms, which means increasing energy prices, interest rates and tax collection remains IMF's focus.
According to Georgieva, these reforms are necessary for job creation and raising inclusive growth. The list includes building climate resilience, enhancing safety nets, strengthening governance – including of state-owned enterprises – and improving the business environment by creating a level-playing-field for investment and trade.
Read more: Vulnerable consumers will get Rs148bn subsidy to protect them from hiked power base price
Praising the coalition government for the 2023-24 budget, she said it was a welcome step toward fiscal stabilization, while calling for enhancing tax collection, which, she said, was critical to strengthen public finances, and to eventually create the fiscal space needed to bolster social and development spending.
At the same time, she called for reducing state expenditure and bringing changes in the energy sector through steps like increase in tariff while modifying the subsidy structure.
“Maintaining discipline over non-critical primary expenditure will be essential to support budget execution within the envisaged envelope. In parallel, the authorities urgently need to strengthen energy sector viability by aligning tariffs with costs, reforming the sectors cost base, and better-targeting power subsidies."
The IMF managing director also touched the subject of monetary tightening by praising the State Bank of Pakistan (SBP) for interest rate hikes.
“The recent increase in the policy rate by the SBP is appropriate given the very high inflationary pressures, which disproportionately impact the most vulnerable. A continued tight, proactive, and data-driven monetary policy is warranted going forward.”
She also repeated the IMF stance that the government shouldn’t intervene to check the rupee value, saying. “A market-determined exchange rate is also critical to absorbing external shocks, reducing external imbalances, and restoring growth, competitiveness, and buffers. Close oversight of the banking system and decisive action to address undercapitalized financial institutions would support financial stability.”
