Federal budget to take Rs100bn hit

The federal budget is estimated to take an additional hit of Rs100 billion as political considerations take priority over economic decision making in the 100 days of the government’s tenure.
Indicating that the government was entering a populist mode that could compromise the fiscal discipline maintained so far in the current year, a senior government official said, “These costs would keep growing as we get closer to the two major events — upcoming elections and the next year’s budget.”
The official explained that the federal cabinet’s move to deny an increase to consumer-end power tariff determined by the National Electric Power Regulatory Authority (Nepra) under duress was an example of politico-economic decision making.
“On tariff rationalisation for the power sector, the cabinet rejected Nepra’s recommendation for upward revision of the power tariff and decided to maintain the existing tariff,” said an official statement at the end of a meeting of the federal cabinet earlier on Tuesday.

Govt is taking populist steps as it enters last 100 days of its term

The official said the federal government had utilised all forums and resources to compel the regulator to allow recovery of higher system losses from consumers through tariff. The regulator kept resisting the pressure for more than two years and when finally when it agreed to oblige with higher determined tariff, the government decided not to pass it on to the consumers to avoid political backlash ahead of the general elections.
Informed sources said the decision not to pass on higher tariff to consumers came after the opposition parties started building up a case against continuous increase in petroleum prices.
The ruling PML-N believes the combination of power tariff, oil prices and other fuel prices could add to the rising rate of inflation. This could drag public support away from the government so close to elections.
Sharing details of the tariff, the official said Nepra had determined the national average tariff for fiscal year 2014-15 at Rs12.33 per unit (Kwh) and the government notified a rate of Rs11.45 per unit. The difference of 88 paisa per unit was then picked up by the federal government as subsidy, a net amount of Rs65 billion.
The same tariff remained effective until now even though Nepra had subsequently started reducing average national tariff. However, the government did not allow its implementation.
For instance, Nepra determined tariff for the fiscal year 2015-16 at Rs.10.90 per unit but the erstwhile Ministry of Water and Power facilitated the distribution companies to challenge the tariff in the Islamabad High Court and secured a stay order. After a series of persuasions and background engagements, the regulator finally re-determined the 2015-16 tariff at Rs11.38 per unit instead of Rs10.90.
This resulted in per unit differential of 48 paisa per unit on account of one per cent increase in transmission and despatch loss in tariff from 15.23pc to 16.28pc worth Rs10bn a year. Another Rs24.339bn was allowed through write-off on debt and outstanding bills on provisional basis without the approval of the board of directors.
The proposal was to increase the total tariff by Rs1.36pc on national average basis but the government viewed its political cost to be on the higher side. The combined impact of these matters was estimated at Rs100bn when the impact of revision in hydropower profit to provinces was also taken into account, said the official.
The hit would have to be taken on the budget on top of Rs105bn subsidy allocated in budget for the current year, he added.
A spokesman for the Power Division said, “The federal cabinet approved the tariff notification determined by the Nepra by keeping the consumer end tariff at the same level and rejecting tariff increase determined by (the) Nepra.”
The “end-consumer tariff across Pakistan will remain at the same level and there will not be any increase,” he said.
An official said the power companies would try to mitigate the impact of subsidy through adjustments in power supply as indicated by the minister for power.
He said the prime minister would spend the remaining three months announcing development schemes and inaugurating various projects and try to maintain all consumer prices within current levels to win popular support in coming elections.