Govt will not subsidise power, oil in the upcoming budget

[Naveed Yaseen]

By Sajid Chaudhry
ISLAMABAD: To keep the budget deficit at sustainable level and divert subsidy amount to other priority sectors the government would not allocate money for fuel subsidy and power subsidy incase oil price and power production prices increase in 2009-10, official sources told Daily Times on Monday.

According to the Medium Term Policy Framework of Pakistan, to reduce government’s subsidy bill, fuel subsidies have been eliminated by end December 2008 and power sector subsidies would be eliminated by end June 2009.

Power Tariff Adjustment: To bring out the power utilities out of the circular debt and similar issues the government has already put in place fuel adjustment surcharge on the basis of power purchase price (PPP). New electricity tariffs proposed by National Electric Power Regulatory Authority (NEPRA) would now be required to be notified within next 15 days of its determination or re-determination of tariff would be done on power purchase price basis in same period.

Fuel Price Adjustment: Automatic monthly adjustment of consumer fuel prices have been introduced and a minimum level of Petroleum Development Levy is already been specified that would remain in case oil prices go up. Incase the fuel prices jump to a higher level, the government would pass on the impact to the consumer and this increase would not be subsidised in future, the sources added.

Power Sector: The portion of Medium Term Policy Framework that would be implemented in fiscal year 2009-10 includes no fuel subsidies. Power sector plan, which covers clearance of inter-corporate circular debt that has already been approved and is under implementation since March 2009, would continue to be implemented in 2009-10, official sources added. Similarly, incase the price of furnace oil which is also witnessing increasing trend in recent weeks, increases further, the government would pass impact to the consumer. Pakistan Electric Power Company (PEPCO) on last Saturday announced that the government would release Rs 12 billion in couple of days to Independent Power Producers (IPPs) to clear the circular debt. Out of Rs 180 billion circular debt, Rs 80 billion had been retired in March and the remaining circular debt would be cleared by end June.

Fuel subsidies were projected at Rs 15 billion in budget 2007-08, however, with the increase in oil prices in the international market, Shaukat Aziz’s government increased this subsidy to Rs 175 billion by end June 2007. Fuel subsidy for the current fiscal year was fixed at Rs 140 billion, however, with the sudden drop of oil prices in international market, the government is the net beneficiary and it has not only eliminated POL subsidy six months earlier but is also earning Rs 14 billion to Rs 18 billion monthly by not passing on to the consumer decrease in oil prices in second half of the current fiscal year 2008-09.

WAPDA subsidies were projected to be Rs 52.893 billion in 2007-08, however, these increased to Rs 113.658 by end June 2008 and the government has announced power subsidy of Rs 74.612 for WAPDA in the fiscal year 2008-09. WAPDA - GST subsidies were recorded at Rs 21.307 billion in 2007-08 and such subsidy for the current fiscal year has been fixed at Rs 3. 018 billion. Power subsidy for Karachi Electric Supply Corporation (KESC) was recorded at Rs 19.596 billion in 2007-08 and it was reduced to Rs 13.800 billion for current fiscal year 2008-09.

http://www.dailytimes.com.pk/default.asp...2009_pg5_1