Farmers and exporters are expecting the worst after the federal cabinet decided to raise the power tariff and eliminate subsidies to meet all conditions of the International Monetary Fund (IMF).
The cabinet on Sunday approved the revised circular debt management plan (CDMP) which will be presented to the IMF in the coming days. The government will raise power prices by Rs. 7.91 per unit over four quarterly adjustments: February-March 2023, March-May 2023, June-August 2023, and September-November 2023.
As per the CDMP plan, the government will charge Rs. 3.21 per unit for the current cycle until March, Rs. 0.69 from March to May, and Rs. 1.64 per unit for June-August 2023. From September to November, the government will raise the power tariff by Rs. 1.98 per unit. Meanwhile, the base tariff for consumers will be raised from Rs. 15.28 per unit in June 2022 to Rs. 23.39 per unit in June 2023.
The government has also agreed to end the Rs. 65 billion electricity subsidy given to exporters by March 2023. Understandably, the government plans on collecting Rs. 51 billion through the withdrawal of electricity subsidies for exporters and Rs. 14 billion by ending the Kissan Package electricity subsidies in March 2023. The expectation is Rs. 12.13 per unit subsidy on electricity will be removed for the export sector.
By June 2023, approximately Rs. 250 billion will be recovered from electricity consumers. The plan calls for a surcharge of Rs. 3.39 per unit. Moreover, the increase in quarterly adjustments until June will yield Rs. 73 billion. This month, as a result of the quarterly adjustment, electricity could cost up to Rs. 4.46 more than the current rate per unit.
Evidently, the government is doing everything in its power to get the IMF bailout, and the public will have to pay. During last week’s talks, the lender wanted a hike in the base tariff of around Rs. 4.06 per unit, and the aforesaid plan shows that the government has caved in.
The Power Division last week proposed several tariff increase options, including a quarterly tariff increase of Rs. 4.26 per unit and an average increase of Rs. 7.74 per unit in the basic tariff. The average base tariff is around Rs. 24 per unit which, under IMF conditions, could rise as high as Rs. 32 per unit by June 2023.
If implemented, it will be the government’s second increase in the current fiscal year, as the base tariff has already been raised by Rs. 7.91 per unit. The first hike did not halt losses and forced people (who could afford it) to switch to alternative energy sources. The next hike will be a lot more difficult and, for many, unmanageable.
