Government Announces Rs4.37 Per Unit Electricity Price Hike, Adding Rs721 Billion Burden on Consumers
The government of Pakistan has revealed its plan to increase electricity prices by Rs4.37 per unit in order to recover an additional Rs122 billion from consumers over the next four months. This move will result in a total burden of Rs721 billion on consumers in the current fiscal year alone.
The decision to increase electricity prices is aimed at keeping the circular debt at its current level of Rs2.31 trillion, as the Power Division does not foresee any improvement in higher electricity losses and theft, which caused an additional Rs236 billion in losses in the previous fiscal year.
According to a revised Circular Debt Management Plan shared with the International Monetary Fund (IMF), this increase is part of the adjustment for the fourth quarter of the last fiscal year and will be recovered from consumers from September to December 2023.
Despite the planned increase, there will still be a Rs392 billion addition to the flow of circular debt. However, the government aims to offset this by reducing the debt stock through budget subsidies.
The plan showcases that in a business-as-usual scenario, an astounding Rs1.37 trillion will be added to the country’s circular debt. To tackle this growing issue, the government plans to increase the price of electricity by Rs721 billion and provide approximately Rs600 billion in fiscal support to the struggling sector.
Already, the authorities have implemented an average increase of Rs7 per unit in electricity prices through quarterly and annual base tariffs, which will help recover at least Rs600 billion from consumers.
It is important to note that the success of this plan relies on assumptions, including a rupee-dollar exchange rate of Rs286 per dollar and a Karachi Interbank Offered Rate (KIBOR) of 19.4%. However, the current exchange rate is Rs295 and KIBOR stands at 22%.
Moving forward, the National Electric Power Regulatory Authority (Nepra) is scheduled to hold a hearing on the petition to increase the tariffs, after which the federal cabinet will decide on the actual increase to be passed on to consumers.
The increase in electricity tariffs is a cause for concern as consumers are already struggling to pay their bills on time. In the jurisdiction of the Islamabad Electricity Supply, the recovery of bills has been particularly challenging.
To address the issue, the government has allocated Rs310 billion in the budget to clear some of the old dues owed to power producers. However, this stockpile of dues is set to increase further.
It remains to be seen how the public will respond to the increase in electricity prices, and whether the government’s plan will effectively curb the ever-increasing circular debt. As the situation unfolds, it is crucial for all stakeholders to work together towards sustainable solutions that ensure the stability of the power sector while minimizing the burden on consumers.
In conclusion, the government’s decision to implement a Rs4.37 per unit electricity price hike to recover an additional Rs122 billion from consumers is a significant development. With the burden on consumers reaching Rs721 billion in the current fiscal year, it is imperative for the government to closely monitor the impact of these increases and explore long-term strategies to address the circular debt issue.
