Electricity Prices to Rise Even Higher After IMF Approval On New Power Tariff Regime

The Power Division has submitted a draft of a new power tariff restructuring regime to the Finance Ministry as the current framework is causing an economic collapse. The Special Investment Facilitation Council (SIFC) Apex Committee on January 3, 2024, authorized the Power Division to reform the power tariff regime which will later be shared with the International Monetary Fund, reported a national daily. Currently, the total cost of an electrical unit consists of 72 percent fixed and 28 percent variable costs (fuel, maintenance and impact of losses). But fixed rates contribute just 2 percent of revenue compared to 98 percent by variable charges. Capacity payments contribute to 57 percent of the fixed rates for energy, while DISCOs’ assets, including administrative costs, account for 10 percent, and transmission and market operator costs account for 4.5 percent. Currently, Rs. 473 billion in cross-subsidies are being supplied to 29 million protected users and some unprotected home consumers who consume up to 300-400 monthly units. Restructuring the pricing regime will reduce wheeling charges from the CPPA’s requirement of Rs. 27 per unit to a lower level. The government aims to terminate the Rs. 244 billion cross-subsidy provided by the manufacturing sector to protected and unprotected consumers for up to 300-400 monthly units. Industrial, commercial, and high-slab domestic consumers are indirectly paying up Rs. 473 billion in cross-subsidies for protected consumers and some non-protected users who consume up to 400 units and have had their prices frozen for decades. The removal of cross-subsidies will result in tariff hikes for both protected and unprotected consumers. This will allow the government to reduce industrial sector tariffs to 9 cents per unit, further enabling the industry to thrive and grow exports. In the most recent increase in electricity tariff, non-protected consumers in the 1-100 unit slab category saw a hike of Rs. 3 per unit, those using 100-200 units saw an increase of Rs. 4 per unit, those consuming 200-300 units saw an increase of Rs. 5 per unit, and users of 301-400 units saw an increase of Rs. 6.5 per unit.