Minister for Energy Hammad Azhar Monday said reduction of electricity tariff by Rs 5 per unit will be adjusted through budgetary reallocation and will be circular debt flow neutral.

Recently, Secretary Power Division, Syed Asif Hyder had informed Senate Standing Committee on Power that the federal government is considering imposing projected Fuel Charges Adjustment (FCA) of Rs 2.71 per unit on consumers on permanent basis, to be adjusted at the end of each fiscal year, after calculating financial impact on fuel. Asked if Power Division’s proposal has been approved, Minister for Energy, responded in the negative.

When asked, will reduction of Rs 5 per unit announced in tariff be in the FCA, the minister said, “FCA or base tariff, same amount will be required for same result. Reduction will be in FCA.” Answering the question as to what will be the impact of reduction in tariff on circular debt the Minister responded that it will be fully funded subsidy so no impact on circular debt.

Another official told BR that the government may not notify Rs 5.93 per unit increase in FCA for January 2022 and continue to existing raise of Rs 2.80 per unit till June 30, 2022.

Govt to bear over Rs70b monthly loss by cutting POL products prices

Federal Government on Monday announced to reduce the prices of petrol and High Speed Diesel (HSD) by Rs 10 per litre with effect from March 1, 2022 by reducing petroleum levy (PL) rates on petrol and HSD.

Finance Minister Shaukat Tarin on Monday said that the government would cap the rate of PL on petrol and HSD, and not increase the proposed PL increase on petrol by Rs 10 per litre and Rs 15 per litre on HSD for remaining months of current financial year 2021-22. Later in a statement, Finance Division said that the unprecedented increase is very risky for the domestic fuel prices and inflation. The situation leaves very few options for the government. Prior to Monday’s review, the government has to bear more than Rs 70 billion per month impact to keep the prices lower and providing relief to the masses”, it maintained.

On Monday Prime Minister Imran Khan announced slashing petrol and diesel prices by Rs10 and said the government has decided not to raise them till the next budget in June.

The government has reduced the PL on petrol by Rs 16.11 per litre from Rs 17.92 to Rs 1.81 per litre. The PL rate on HSD has also been reduced from Rs 13.30 per litre to Rs 3 per litre. The rate of PL on kerosene has been abolished which was Rs 5 per litre in second half of February.

According to Finance Division, the ex-depot price of petrol has been reduced by Rs 10 per litre, from Rs 159.86 per litre to Rs 149.86 per litre. The rate of HSD has also been reduced to Rs 144.15 per litre from Rs 154.15 per litre. The ex-depot price; however, on kerosene oil (KERO) has been reduced by Rs 1 per litre from Rs 126.56 per litre to Rs 125.56 per litre and PL on light diesel oil (LDO) is reduced by Rs 5.66 per litre. The new price of LDO is now Rs118.31 per litre instead of Rs 123.97 per litre.

The Federal Board of Revenue (FBR) has already abolished sales tax on light diesel oil from Feb 1, 2022. The general sales tax (GST) on petrol was reduced from 2.50 percent to 0.79 percent, showing a decrease of 1.71 percent. Sales tax on high-speed diesel oil was reduced from 5.44 percent to 3.17 percent, reflecting a decrease of 2.27 percent. Sales tax on kerosene was brought down from 8.30 percent to 5.30 percent, showing a decrease of three percent.

Finance Division stated that in the fortnightly review, due on February 28, Oil and Gas Regulatory Authority had recommended Rs 10 per litre increase in the petroleum products’ prices. The Prime Minister has not only rejected the increase but also announced to decrease the prices of petroleum products by Rs 10 per litre despite the limited fiscal space.

These stories were first published in Business Recorder on March 1, 2022.