Phased increase in power tariff from October

[Naveed Yaseen]

* First increase of 6% from October 1, further increase of 10% from January 1, 2010 and third increase scheduled for April 1

By Sajid Chaudhry

ISLAMABAD: The government of Pakistan and the World Bank (WB) reached an initial agreement on Wednesday to raise the power tariff by 22 to 26 percent in three phases, official sources told Daily Times.

Reaching an agreement with the WB and the Asian Development Bank (ADB) on the power tariff issue was a pre-condition of the International Monetary Fund (IMF) for the completion of the Istanbul portion of the ongoing review of Pakistan’s economy.

Sources said IMF authorities had felt that if Pakistan failed to commit to increasing the power tariff by 31 percent through the elimination of the power subsidy by June 30, it needed to establish a road map to implement the subsidy removal. The initial agreement for a phased removal of the power subsidy is subject to approval by the president and prime minister of Pakistan, who were briefed on the situation by the country’s economic managers on Wednesday.

Phased increase: Under the phased power tariff increase agreed upon by the government, the WB and the ADB, the power tariff would be increased by six percent from October 1. An additional increase of 10 percent would be implemented from January 1, 2010 and a third increase would be passed on to the consumers from April 1, 2010.

In order to avoid any further power tariff increases, the government would provide 100mmcfd of gas to the Pakistan Electric Power Company (PEPCO) daily. This would enable the power generation to be conducted through the use of cheap gas, instead of expensive furnace oil. The government would save Rs 12 billion by generating electricity through gas instead of furnace oil.

Meanwhile, the IMF has agreed that the power tariff subsidy pool would remain intact at Rs 55 billion for the fiscal year 2009-10. The government would, however, be required to make up the Rs 55 billion additional expenditures from the approved budget by keeping the budget deficit intact at 4.6 percent of the gross domestic product (GDP) after including the 0.3 percent cost budget deficit of the internally displaced persons.

A statement issued by the Finance Ministry after the agreement stated that Pakistan’s economic managers had reached an agreement with the WB and the ADB on issues related to the power sector. It said that the government of Pakistan, the WB and the ADB also agreed that the Rs 12 billion saved by using gas instead of furnace oil would be used to benefit the consumers.

Though this plan, against a revenue shortfall of Rs 122 billion, PEPCO would recover Rs 55 billion from consumers in the financial year 2009-2010.

http://www.dailytimes.com.pk/default.asp...2009_pg1_1