The Federal Government is all set to increase electricity base tariff by up to Paisa 95 per unit under the garb of second phase of subsidy reforms agreed with International Monetary Fund (IMF) and World Bank (WB), which according to Chairman Nepra will further erode the quality of life of the public.

Sharing the details, sources said, ECC considered the principles and three phases of subsidy reforms on a summary submitted by the Ministry of Energy (Power Division) on April 30, 2021 and cleared mechanism for the first phase of the subsidy reform.

Phase-1 provided expanded definition of lifeline consumers, creation of new categories of consumers (protected and unprotected) and restructuring of the slabs from 300-700 units without changing the effective tariff, pursuant to the decision, the modification/ adjustments in e Discos’ Schedule of Tariffs (SoT) and term and conditions thereof, which have been notified on October 1, 2021 after determination by Nepra on September 23, 2021.

The phase-1, which stands implemented states “restructuring tariff for residential consumers with identification of vulnerable, creation of new category consuming less than 200 units consistently for six months and breaking the slab of 301-700 into smaller equal sized slabs ensuring that effective rates for all categories of consumers are not affected.”

The phase-II of the subsidy reforms, as considered by the ECC entails the following: (i) Residential consumers- gradual reduction in total net subsidy for unprotected consumers, reduction in cross-subsidy and removal of previous slab benefit; and (ii) Agriculture consumers- dividing agriculture tube-wells slab into two categories and reforming/ gradually decreasing subsidies to Quetta Electric Supply Company (Qesco) tube-wells by subsidizing solarisation/ modernization of tube-wells.

For implementation of phase-II, a two-part approach has been proposed keeping in view the different timelines involved for proper analysis and firming up of proposal.

Accordingly, components of phase –II except cross subsidy reduction were placed before the ECC for consideration and approval which are as follows: (i) removal of one slab benefit (incremental block tariff) and incorporation of revised subsidy and inter Distribution Companies (Discos) tariff rationalisation/ cross subsidies.

Reduction of subsidy would effectively increase tariff of non-protected residential non-ToU consumers by average Rs 0.53 per unit;(ii) Nepra may be approached on behalf of Discos for incorporation of proposal in the schedule of electricity tariff of Nepra determination of November 5, 2021 by making motion to Nepra for timely recovery of full cost of service, financial self-sustainability so as to minimize the need for government subsidies;(iii) upon approval of Nepra, notification in the official gazette may be made to the extent of modification determined as per para 3(i) in SROs 01 to 10 of 2019 issued on January 1, 2021 as modified by SROS 182 to 191(1) 2021 and SROs 1419 to 1428(1) 2021 of November 5, 2021 to be from February, 2022; and (iv) and on the same pattern of Discos, Nepra may issue revised SoT for K-Electric with prospective application of applicable uniform rates after incorporating the proposed changes in SoT and approval of Nepra, notify it in official gazette by way of modification in SRO Nos 1429(1), 2021, 192(1) 2021, 1037(1) 2020 and 575(1) 2019.

According to the proposed effective rates after IBT removal and subsidy reduction, there will be no increase for protected domestic consumers, using up to 200 units monthly. However, increase for the unprotected consumers will be as follows: (i) 1-100(Paisa 8 per unit);(ii) 101-200 (Paisa 18 per unit;(iii) 201-300 (Paisa 48 per unit);(iv) 301-400 (paisa 95 per unit);(v) 401-500(Paisa 95 per unit);(vi) 501-600(Paisa 95 per unit);(vii) 601-700 (Paisa 95 per unit); and (viii) 700 units + no change.

The total financial impact of implementation of phase-II has been estimated to be Rs 20 billion per annum.

At the time of approval of first phase of subsidy reforms, Chairman Nepra, Tauseef H. Farooqi had stated that the second phase of subsidy reforms will make the people scream in protest.

Meanwhile, the Ministry of Energy has started pressurising Nepra for alteration in the benchmarks to help further reduce the circular debt.

The sources said Nepra has revised the loss target of Discos from 15.53% to 13.46% which is notified by GoP in Feb-21. The actual T&D loss of Discos for FY 20-21 stood at 17.32%.

Due to revision in loss targets, the implication of excess loss on circular debt has increased from Rs. 42 billion to Rs. 120 billion per annum.

While revising the loss targets for Discos, Nepra has not incorporated any margin on account of law-and-order situation which was previously allowed to Discos, whereas a margin of 5.2% has been assessed for K-Electric in its MYT determination. This disparity should be removed.

Keeping in view the huge financial impact, Power Division, has requested the Federal Government to issue following guidelines to Nepra: (i) T&D loss assessment methodology should be revised consistent with the practice adapted for K-Electric;(ii) Discos’ loss targets should also include a % margin on account of their law-and-order situation;(iii) for future target setting, 5-year gradual loss reduction targets should be determined starting from actual losses level of 17.82% in FY 19-20, at the same pattern adopted for K-Electric; and (iv) T&D loss targets for FY 20-21 & FY 21-22 should not be further reduced as the period has already lapsed.

Power Division argues that if the proposed guidelines are not incorporated, excess losses of more than Rs. 500 billion (Rs 100 billion per annum) shall be accumulated in circular debt in the next 5 years.

This story was first published in Business Recorder on Dec 17, 2021.