Policymakers have approved the power sector reform measures to abolish the subsidy for 8 million consumers in the first phase. The ceiling for lifeline consumers will be increased from 50 units to 100 units per month, Express Tribune reported.
The Economic Coordination Committee (ECC) has approved the summary titled ‘Re-targeting of Power Sector Subsidies Phase-I’. Although 22 million consumers of electricity are getting the subsidy, it will now be provided through the Ehsaas social welfare program which will reduce its recipients to only 13.9 million following the implementation of the reform.
It is also estimated that as a result of the new policy, around Rs. 42 billion in subsidy expenditure will be saved per year.
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In its meeting last week, the ECC was told that the electricity subsidy for residential consumers should ideally be restricted to the lowest socio-economic class. Even though the current power subsidy and tariff structure is still aimed at providing relief to low-end consumers, it has various elements that make the subsidy untargeted. One of these includes no exclusion criteria for the most subsidized slabs.
This results in consumers with a large asset or income base still being eligible for subsidized electricity especially during the winter when the consumption levels drop.
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Furthermore, the Incremental Block Tariff structure allows each consumer to benefit from the tariff rates of the previous slabs. Subsequently, a two-phase subsidy reform program was presented to the prime minister in a meeting on 10 February and was approved in principle.
In order to make the subsidy for residential consumers more targeted, it was proposed that the exclusion criteria be applied to the slabs below 300 units per month so that the ineligible consumers may not benefit from the significantly subsidized tariffs for these slabs.
The Power Division will complete the analysis on the basis and submit specific proposals to the ECC by March 31, 2021. Such changes may be implemented with effect from June 1, 2021.
