While expressing concern over the rising oil prices, Economic Coordination Committee (ECC) of the Cabinet has held that capping of fuel price would generate additional burden on the exchequer, especially in the current international scenario and oil market volatility.

The ECC, headed by Finance Minister Shaukat Tarin shared their concern during the ECC meeting held on March 7, 2022 when reduction in electricity tariff by Rs 5 per unit came under discussion. On February 28, Prime Minister Imran Khan, who is facing severe political pressure from the opposition parties, announced a relief of Rs 10 per litre in prices of petrol and diesel and Rs 5 per unit in electricity rates.

The ECC has approved supplementary grant of Rs 106 billion under the head of Tariff Differential Subsidy (TDS) against supply of electricity at a reduced rate of Rs 5 per unit, against the demand of Rs 136 billion calculated by the Power Division, after excluding commercial consumers using above 5KW sanctioned load.

The government’s economic team comprising Finance Minister and Energy Minister has already been quizzed by the International Monetary Fund (IMF) for extending the relief. The ECC noted that the substantive relief of Rs 5 per unit would cover a large number of domestic consumers. The ECC also decided that the commercial consumers above 5KW sanctioned load should be excluded from the relief package as the PM’s relief was meant to target small and medium commercial consumers.

The ECC has approved monthly subsidy of Rs 26.5 billion per month for four months despite the fact Power Division had sought Rs 34 billion per month.

According to the Power Division’s estimates Fuel Charges Adjustment (FCA) in March is expected to be Rs 5.95 per unit, April, Rs 4.99 per unit, May Rs 3.36 per unit and June Rs 3.65 per unit against reference FCA of Rs 3.10 per unit in March, April, May and June, respectively.

This implies that in March gap will be Rs 2.86 per unit, April, Rs 1.90 per unit, May, Paisa 26 per unit and June Paisa 55 per unit.

Electricity demand in March is expected to be 9,264 GWh, in April 11,051 GWh, in May 14,101 GWh and in June 15,636 GWh.

For Karachi Electric (KE) in March the FCA will be Rs 3.31 per unit, April, Rs 1.15 per unit, May 4.25 per unit and June Paisa 65 per unit against reference FCA of Rs 3.10 per unit each month, thus showing a gap of Paisa 21 per unit in March and April, Rs 1.15 per unit in May and June 2022.

According to the Power Division’s estimates, the fuel impact on residential consumers using up to 700 units will be Rs 17.39 billion, of which Rs 8.50 billion will be in March, Rs 5.21 billion in April, Rs 0.89 billion in May and Rs 2.78 billion in June 2022 whereas financial impact of Rs 5 per unit reduction, assumed to be Rs 87.03 billion, of which Rs 13.73 billion is in March, Rs 19.06 billion in April, Rs 25.50 billion in May and Rs 28.73 billion in June 2022.

The FCA impact of KE has been calculated at Rs 17.95 billion for domestic consumers using up to 700 units, of which Rs 8.56 billion will be in March, Rs 5.21 billion April, Rs 1.39 billion in May and Rs 2.78 billion in June 2022.

The ECC has also approved the following proposals submitted to Power Division with some alterations: (i) Discos and K-Electric’s all commercial consumers and domestic non-ToU consumers having monthly consumption up to 700 units (excluding lifeline consumers) are eligible for PM relief package;(ii) consider and approve PM’s relief package of Rs 5 per unit by way of reduction in consumer bill for eligible consumers, which will be worked out based on the applicable notified SoT for the relief period of four months (March to June 2022);(iii) approve that the FCA of Jan-April 2022 (to be charged in March-June 2022), notified by NEPRA be capped at Rs 3.0968 per unit for eligible consumers for PM relief package.

The story was originally published in Business Recorder on March 9, 2022.