The incoming Pakistan Muslim League-Nawaz government will face an additional subsidy burden of Rs200 billion as the Ministry of Law rebuffed the possibility of a retrospective increase in power tariff for being illegal under the constitution.
In June 2012, power distribution companies filed petitions with National Electric Power Regulatory Authority (NEPRA), seeking an upward revision in tariff on the back of higher operational costs for financial year 2012-13. A decision on this was to take effect from July last year.
However, NEPRA, in the face of pressure from the then government which feared a political backlash, kept on dragging its feet until the government completed its tenure in mid-March this year. This has led to a situation where the new government will have to bear Rs200 billion subsidy, besides the crushing circular debt burden of Rs500 billion, racked up mostly in the past five years.
According to sources, the law ministry has told the water and power ministry that it can increase tariff with immediate effect, but not retrospectively.
The water and power ministry has sent a summary to the law ministry for examining a notification for pushing up power price from Rs11.89 to Rs14.50 per unit, a difference of Rs2.61 that will take overall subsidy to Rs5.63 per unit. Under this scheme, the power ministry decided that it will not apply the tariff rise to end-consumers, as decided by Nepra, instead the finance ministry will bear an extra subsidy of Rs200 billion.
In 2011-12, the government increased power tariff by 16% and in 2010-11 by 22%. Consumers are already enjoying a subsidy of Rs3.02 per unit as they pay Rs8.87 per unit, instead of Rs11.89.
This fiscal year, payment on account of power subsidy is expected to go up to Rs291 billion compared to the target of Rs185 billion.
