ECC approves elimination of Rs 125 billion annual subsidy (almost 50% reduction)

[Kabira]

ISLAMABAD: The government made on Thursday a financial adjustment of more than Rs250 billion by deciding to reduce power sector subsidies and gain additional revenue on account of lower oil price to ensure $506 million disbursement from the International Monetary Fund (IMF) before June 30.

The decisions to reduce annual subsidy for the power sector by around Rs100-125bn and block the benefit of reduced fuel price adjustment to smaller electricity consumers (around Rs15-20bn per month) were taken at a meeting of the Economic Coordination Committee (ECC) of the cabinet presided over by Finance Minister Ishaq Dar.

A power ministry official said that two separate summaries had been prepared on the desire and with active participation of the finance ministry in the follow-up of the recent successful conclusion of the seventh review of the IMF programme for Pakistan.

Take a look: Govt, IMF agree plan to end Rs600bn circular debt

Another major achievement of the government on the IMF front was approval by both houses of parliament over the past two days of a law enabling the government to collect Rs145bn through Gas Infrastructure Development Cess.

The ECC decisions would not increase electricity tariff at the outset but they would block a substantial reduction, an official said. Subsequently, the tariff will increase when international oil prices go up.

He said the National Electric Power Regulatory Authority (Nepra) had determined an average reduction of Rs2 to Rs2.80 per unit in fuel price adjustment for fiscal year 2014-15. Based on the existing subsidy level, the average consumer tariff should have been reduced by about Rs1.65 per unit but the government decided to reduce the subsidy to maintain the existing tariff. This will have a revenue impact of Rs100-125 billion.

By doing so, the government has given legal cover to a series of surcharges and special surcharges which have either been challenged or suspended by courts.

The surcharges to be made part of tariff include equalisation surcharges of Rs1.54 per unit and 24 paisa per unit, financial cost surcharge of 43 paisa per unit and Neelum-Jhelum surcharge of 10 paisa per unit (until 2016). Some of the surcharges will be kept in a tariff rationalisation fund under a special escrow account for its use for uniform power rates for all distribution companies.

“The ECC discussed a proposal submitted by the Ministry of Water and Power on tariff and subsidy rationalisation and decided that the current notified average consumer tariff rate along with its components and surcharges will be maintained so that the total average national tariff may not increase,” said a statement issued by the ministry of finance.

The government would continue to subsidise the domestic consumers using up to 300 units per month and agricultural consumers and to pass on the full cost of service as determined by Nepra, it added.

Secondly, the recent spate of reductions in tariff arising out of automatic monthly fuel price adjustment had created a cash flow problem for distribution companies. Under the existing law, the companies had charged an average of Rs9 per unit monthly fuel price last year under a pre-determined reference tariff which started going down as international oil prices fell.

Over the past five months, Nepra had determined Rs2 to 4 per unit reduction in tariff. In some cases, the tariff for consumers using less than 300 units per month fell below the fixed subsidised tariff for lifeline consumers.

An official said that last month the overall impact of fuel-based reduction in tariff amounted to Rs27bn, of which around 65 per cent went to domestic consumers below 300-unit consumption. “Based on fuel price, the monthly impact of this decision can vary between Rs15bn and Rs20bn”, he said.

The official statement said: “The ECC also considered the proposal submitted by the Ministry of Water and Power that full benefit of all negative adjustment on account of monthly fuel cost adjustments will be passed on to all consumers except those who have subsidised electricity tariff. This will ensure that the cost reduction benefits will be passed on to the consumers who are paying higher cost of electricity.”

Secretary of Water and Power Younas Dagha could not be contacted for comments despite repeated efforts. On repeated queries, a power ministry spokesman simply repeated the press release issued by the ministry of finance.

The ECC also approved a provision in renewable energy policy to allow the provinces to facilitate sponsors of renewable projects and enter into tripartite arrangements with the federal government providing sovereign guarantee.

It also approved import of additional 150,000 tons of urea fertiliser for the Kharif season and creation of a buffer stock. On April 23, the ECC had allowed import of 100,000 tons of the fertiliser.

The committee also approved a Rs5 per kg subsidy on sugar for its sale through the Utility Stores Corporation in Ramazan, instead of previously approved rate of Rs3 per kg.

Published in Dawn, May 22nd, 2015

Power sector subsidy reduced by Rs250bn - Pakistan - DAWN.COM

 

[Kabira]

Energy prices: Tariff stays flat despite cut in production cost
By Our Correspondent
Published: May 22, 2015
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PHOTO: REUTERS

ISLAMABAD:
In a bid to reduce its subsidy bill by Rs100 billion over the next fiscal year, the government on Thursday approved three separate surcharges to be levied on electricity to keep tariffs at their current level, despite the fact that power generation costs have declined by 17% due to lower global oil prices.

The decision was taken by the Economic Coordination Committee (ECC) of the Cabinet, which approved the Water and Power Ministry’s proposal. The three surcharges, collectively equal to Rs1.97 per kilowatt-hour, will keep prices at their current level. Among the surcharges is a Rs0.95 per unit electricity equalisation surcharge, a Rs0.59 per unit tariff rationalisation surcharge, and a Rs0.43 per unit debt servicing surcharge.

As a result, the average tariff charged to customers of the state-owned power distribution companies will stay at Rs11.95 per kWh instead of coming down by 17% to an average of Rs9.95 per unit. According to the National Electric Power Regulatory Authority (Nepra), the weighted average cost of power generation in the country, referred to as the ‘determined tariff’, was Rs13.83 per kWh for fiscal year 2015, a number that is expected to come down to Rs12.50 per unit in fiscal 2016.

Even after leaving tariffs unchanged, the government will still be subsidising electricity by an average of Rs0.53 per unit, substantially lower than previous years, but still expected to cost the government Rs118 billion, or 0.4% of the total size of the economy, said one Finance Ministry official. For the outgoing year, the government had allocated Rs221 billion for electricity subsidies.

In a bid to make these surcharges more politically palatable, the government said that they are not new and emphasized that rates were not going up. “These are old and currently levied (surcharges) and that these will be part of new tariff determination exercise”, said Finance Minister Ishaq Dar.

“No new surcharge will be imposed on the electricity consumers and the average national tariff will be maintained at current level,” according to a handout issued by the Water and Power Ministry. It added these tariffs are closer to the tariffs determined by Nepra.

The government maintained that it will continue to apply a uniform tariff across the country (except Karachi) and subsidise household consumers who use up to 300 units, agricultural consumers, and continue to pass on the full cost of service as determined by Nepra.

The ECC also decided to pass on the benefit of all negative adjustments on account of monthly fuel price adjustments to all consumers except those who have subsidised and special electricity tariff. This will ensure that the benefits of cost reduction will be passed on to those consumers who are paying a higher cost of electricity, said the Finance Ministry.

Fertiliser imports

The ECC decided to allow the import of an additional 150,000 tons of urea fertiliser for the winter growing season. It has already allowed the import of 100,000 tons of urea earlier this year. The additional import was allowed to bridge the growing demand and supply gap and build up sufficient reserve stocks, said the Finance Ministry.

Ramazan package

The Industries Ministry requested an increase in the subsidy on sugar during the month of Ramazan for sugar sold at the Utility Stores Corporation, a state-owned nationwide retail chain. The ECC approved the increased subsidy on sugar from Rs3 per kilogram to Rs5 per kg. In a nation that suffers from widespread Type 2 diabetes, this step would add around another Rs100 million to the sugar subsidy.

Renewable energy projects

The ECC also considered the proposal submitted by the Water and Power Ministry to empower the provinces in setting up renewable energy projects.

Published in The Express Tribune, May 22nd, 2015.

 

[FunkyGen]

Excellent! simply marvelous...

 

[Kabira]

No power subsidy in next fiscal year

• Business

21 hours ago BY AMER SIAL

• ECC approves elimination of Rs 125 billion annual subsidy for consumers using more than 300 units
• Also approves import of additional 150,000 tonnes of fertilizer for Kharif crops

To meet one of the stringent conditions of the International Monetary Fund (IMF), the Economic Coordination Committee of the Cabinet (ECC) on Thursday approved elimination of Rs 125 billion per annum subsidy for electricity consumers.

The ECC had detailed deliberations on proposal submitted by Ministry of Water and Power on Tariff and subsidy rationalization and approved that the current notified average consumer tariff rate along with its components and surcharges would be maintained to contain the total average national tariff. The government will continue to subsidise the domestic consumers (up to 300 units) and agriculture consumers and pass on the full cost of service as determined by NEPRA.

It is important to mention that the IMF has imposed a new condition under the current programme that the Pakistani government would take measures to eliminate subsidy completely from the power sector. Subsidy is attributed as the major reason for circular debt which has ballooned again to over Rs 260 billion during the first nine months of the current financial year.

An official source said the IMF has imposed the condition as it wants the government to handover the DISCOs and GENCOs to investors during the next financial year. The investors would only come if the power sale and purchase slate was clean and transparent without any legal or financial liabilities. To bring the power sector out of circular debt, the DISCOs have already reduced the number of consumers using 300 units per month. This has been done to make companies profitable before handing over to investors.

The government has maintained the subsidy on the agriculture tubewells but it is likely to be lifted as soon as the power supply situation improves in the country. At present there is very less power supply for tubewells and it is more of a political ploy than an economic strategy, he added.

The ECC also considered the proposal submitted by Ministry of Water and Power that full benefit of all negative adjustment on account of monthly FCA(Fuel Cost adjustments) will be passed on to all consumers except those who have subsidized electricity tariff. This will ensure that the cost reduction benefits will be passed on to the consumers who are paying higher cost of electricity.

The committee also considered the proposal submitted by Ministry of Water and Power to further empower the provinces in setting up of renewable energy projects. An enabling provision in the renewable energy policy has been incorporated. The provision will allow the provinces to facilitate sponsors of renewable projects and enter into tripartite arrangements where the federal government will provide sovereign guarantee to the provincial projects on renewable energy.

The ECC approved import of additional 150,000 tons of Urea fertilizer for Kharif.

ECC, in its meeting on April 23, had allowed import of 0.1 million tons of Urea. Additional import has been allowed with a view to bridge the demand and supply gap and build up sufficient buffer stock. On the summary of the Ministry of Industries and Production the committee approved increase in amount of subsidy on sugar from Rs 3 to Rs 5 per kilogram at the Utility Stores. This step would add around another Rs 100 million to the amount of subsidy.

Excellent! simply marvelous...

50% reduction, all thanks to low oil prices.

"Even after leaving tariffs unchanged, the government will still be subsidising electricity by an average of Rs0.53 per unit, substantially lower than previous years, but still expected to cost the government Rs118 billion, or 0.4% of the total size of the economy, said one Finance Ministry official. For the outgoing year, the government had allocated Rs221 billion for electricity subsidies."

@ziaulislam

 

[Wolfhound]

No power subsidy in next fiscal year

• Business

21 hours ago BY AMER SIAL

• ECC approves elimination of Rs 125 billion annual subsidy for consumers using more than 300 units
• Also approves import of additional 150,000 tonnes of fertilizer for Kharif crops

To meet one of the stringent conditions of the International Monetary Fund (IMF), the Economic Coordination Committee of the Cabinet (ECC) on Thursday approved elimination of Rs 125 billion per annum subsidy for electricity consumers.

The ECC had detailed deliberations on proposal submitted by Ministry of Water and Power on Tariff and subsidy rationalization and approved that the current notified average consumer tariff rate along with its components and surcharges would be maintained to contain the total average national tariff. The government will continue to subsidise the domestic consumers (up to 300 units) and agriculture consumers and pass on the full cost of service as determined by NEPRA.

It is important to mention that the IMF has imposed a new condition under the current programme that the Pakistani government would take measures to eliminate subsidy completely from the power sector. Subsidy is attributed as the major reason for circular debt which has ballooned again to over Rs 260 billion during the first nine months of the current financial year.

An official source said the IMF has imposed the condition as it wants the government to handover the DISCOs and GENCOs to investors during the next financial year. The investors would only come if the power sale and purchase slate was clean and transparent without any legal or financial liabilities. To bring the power sector out of circular debt, the DISCOs have already reduced the number of consumers using 300 units per month. This has been done to make companies profitable before handing over to investors.

The government has maintained the subsidy on the agriculture tubewells but it is likely to be lifted as soon as the power supply situation improves in the country. At present there is very less power supply for tubewells and it is more of a political ploy than an economic strategy, he added.

The ECC also considered the proposal submitted by Ministry of Water and Power that full benefit of all negative adjustment on account of monthly FCA(Fuel Cost adjustments) will be passed on to all consumers except those who have subsidized electricity tariff. This will ensure that the cost reduction benefits will be passed on to the consumers who are paying higher cost of electricity.

The committee also considered the proposal submitted by Ministry of Water and Power to further empower the provinces in setting up of renewable energy projects. An enabling provision in the renewable energy policy has been incorporated. The provision will allow the provinces to facilitate sponsors of renewable projects and enter into tripartite arrangements where the federal government will provide sovereign guarantee to the provincial projects on renewable energy.

The ECC approved import of additional 150,000 tons of Urea fertilizer for Kharif.

ECC, in its meeting on April 23, had allowed import of 0.1 million tons of Urea. Additional import has been allowed with a view to bridge the demand and supply gap and build up sufficient buffer stock. On the summary of the Ministry of Industries and Production the committee approved increase in amount of subsidy on sugar from Rs 3 to Rs 5 per kilogram at the Utility Stores. This step would add around another Rs 100 million to the amount of subsidy.



50% reduction, all thanks to low oil prices.

"Even after leaving tariffs unchanged, the government will still be subsidising electricity by an average of Rs0.53 per unit, substantially lower than previous years, but still expected to cost the government Rs118 billion, or 0.4% of the total size of the economy, said one Finance Ministry official. For the outgoing year, the government had allocated Rs221 billion for electricity subsidies."

@ziaulislam

Can you summarize your posts and tell me the advantages of doing this except for savings?

 

[Kabira]

Can you summarize your posts and tell me the advantages of doing this except for savings?

Gov will save Rs100-125 billion which can be spent on development instead. Electricity prices will not increase because of lower oil prices. One of IMF condition.

@ziaulislam

 

[Hyde]

Gov will save Rs100-125 billion which can be spent on development instead. Electricity prices will not increase because of lower oil prices. One of IMF condition.

This money will not used for development. It is most likely to reduce the budget deficits...

I also think it is wrong strategy by the government to eliminate subsidy for power sector. If they did the same for industrial sector it would only make the exports more expensive and the manufacturing sector that is already been hampered by the appreciation of rupee will suffer more. You have to make the exports competitive by providing uninterrupted electricity, devaluing rupee or giving subsidy on a well calculated manner.

The only way we can eliminate subsidy is by curbing line losses and quickly developing new alternate source of electricity that is far cheaper than current electricity cost of production and use that gap to eliminate subsidy for the general masses.

It's a long evolving process, cannot be rectified over a day

 

[ziaulislam]

Gov will save Rs100-125 billion which can be spent on development instead. Electricity prices will not increase because of lower oil prices. One of IMF condition.

@ziaulislam

a good decision but there is still a dilemma.
govt is reducing subsidy not by decreasing power losses but simply increasing the cost of power!

This could cause people to steal more and is against rationalization of power tariff.
above that a common citizen is paying 2 rs of surcharges/unit.
govt has also removed the 300 units subsidy limit for three phase meter users , the distribution companies are plainly refusing even the power meters other than three phase meters as a result the 300 units life line is becoming just a political stunt
and for any one who trickles above 300 units will pay full.

the investors would only come if the power sale and purchase slate was clean and transparent without any legal or financial liabilities. To bring the power sector out of circular debt, the DISCOs have already reduced the number of consumers using 300 units per month. This has been done to make companies profitable before handing over to investors.


@ziaulislam