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Circular debt plan: Power tariff to increase by Rs4 per unit from July 1

ISLAMABAD: The average consumer power tariff will increase approximately by Rs4 per unit on July 1, 2022, according to the government-approved updated Circular Debt Management Plan (CDMP).

The updated CDMP proposes two mechanisms for increasing the electricity tariff: annual tariff rebasing and monthly subsidy reduction for slab users from 101 to 600 units.

The average cost for users with 700 or more units will be Rs22.22 per unit in fiscal year 2022–23, effective July 1, 2022. The government would increase electricity costs by Rs2.92 per unit effective July 1, 2022, in order to account for annual rebasing. The first increase will be Rs0.75 per unit in February 2022, and the second will be Rs2.17 per unit on July 1, 2022.

Another increase in electricity prices will occur as a result of the IMF and World Bank’s desire to eliminate power sector subsidies in Phase II of the Subsidy Reform. The unprotected slabs of power tariffs from 101 to 200 units will increase by Rs0.18 per unit, from Rs10.18 to Rs10.36 per unit.

Tariffs for slab users with 301 to 400 units will increase from Rs14.78 to Rs15.73 per unit, representing a 0.95 per unit increase. For slabs of 501 to 600 units, the power cost will be hiked from Rs 17.16 to Rs 18.11 per unit, a 0.95 per unit rise. Tariffs for electricity slab users with a capacity of 700 units or more would remain constant at Rs 22.22 per unit from July 1, 2022.

According to the revised CDMP, the power tariff will increase by Rs2.92 per unit due to the annual re-basing of the average tariff, as well as by Rs0.75 per unit in February 2022 to reflect the higher devaluation of the Pakistan Rupee against the US dollar, and by another Rs2.17 per unit in July 2022 due to the annual re-basing of the average tariff.

However, as POL costs have climbed significantly, the cash bleeding power sector’s prices may rise above Rs5 per unit, at least in light of the country’s rising reliance on fuel-based power generation in comparison to the revised CDMP’s hike rate of Rs2.92 per unit. POL prices were $75 per barrel at the revision of the CDMP, but have since risen to $95 per barrel on the international market. The fuel price adjustment was increased from Rs 1 to Rs 4 in relation to a spike in international fuel rates.

The amended CDMP would result in an annual rebasing of Rs2.17 per unit, which will increase power costs next fiscal year. This is mostly because the government has agreed to add extra capacity to the system.

It also warned that, with the baseline scenario, the consumer tariff will go up to Rs 21.04 per unit during the next fiscal year (FY2023) from Rs 18.99 per unit in the last fiscal year 2021. At the time of the preparation of the CDMP in FY2021, the average tariff for electricity stood at Rs 16.44 per unit. At the end of the PTI-led regime’s five-year term, the consumer rate will go up to Rs 18.37 per unit at Rs 18.09 per unit during the current fiscal year FY2022.

The plan envisages that all quarterly tariff adjustments and tariffs determined for FY2021 to FY2023 have been notified as the quarterly tariff adjustment (QTA) for FY2020 of Rs0.83 per unit will enable the collection of Rs51 billion in FY2022 and Rs31 billion in FY2023. The notification of QTAs of FY2021 of Rs0.90 per unit in October 2021, Rs0.07 per unit, and Rs0.24 per unit will result in a recovery of Rs37 billion in FY2022 and Rs20 billion in FY2023.

The notifications of QTAs for December 2021 at the rate of Rs0.32 per unit and Rs0.22 per unit in February 2022 will have an impact on the collection of Rs24 billion in FY2022 and Rs28 billion in FY2023. The notification of tariff-rebasing in November 2021 at the rate of Rs 1.39 per kWh will result in an improved collection of Rs 86 billion in FY2022 and Rs 66 billion in FY2023. With a tariff hike of Rs 0.75 per unit in an ongoing month as an annual rebasing in tariff, the CDMP envisages a collection of Rs 23 billion in FY2022 and Rs 62 billion in FY2023. With a tariff increase of Rs2.17 per kWh in July 2022, the CDMP plans an improved recovery of Rs203 billion in the next fiscal year FY2023.

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