To increase revenue and meet International Monetary Fund (IMF) conditions, the Pakistani government plans to raise the power base tariff by roughly Rs7 per unit for the fiscal year 2023-24. This increase will generate over Rs3.2 trillion from power consumers beginning in July 2023. This plan is set to be discussed at the IMF Executive Board meeting on July 12, with its approval solidifying the terms of the IMF Staff Level Agreement.
The IMF has advocated for this increase, urging Pakistan to increase tariffs and eliminate power subsidies to narrow the fiscal deficit. With the proposed increase calculated by the National Electric Power Regulatory Authority (Nepra) and an additional 18% GST on bills, power consumers will face significantly higher costs starting in July 2023.
Anticipated Impacts and Measures to Address Increased Tariffs
This proposed increase will significantly impact all residential, commercial, and industrial sectors. For businesses, the increased cost of power will be passed on to consumers, contributing to inflation. Residential customers must budget more for their power usage, straining household finances. However, the government asserts this increase is necessary for the revival of the power sector and the overall economy.
The government has promised targeted subsidies to ease the burden on low-income and vulnerable citizens. In addition, a payment of Rs142 billion was made to over a hundred Independent Power Producers (IPPs) by the end of the previous month. This action reduced the outstanding dues of power producers and improved their cash flows.
Meanwhile, the power sector grapples with a circular debt of Rs2.64 trillion. The IMF has also called for a 45-50% increase in gas tariffs from July 1, 2023. This increase will affect Sui Northern Gas Pipelines Limited (SNGPL) customers and Sui Southern Gas Company Limited (SSGCL), likely causing high-end consumers to subsidise low-end consumers, as has been the government’s policy.
As the base tariff increase is finalized, confusion and uncertainty surround the finance ministry and Nepra officials, especially in light of the imminent IMF board meeting. The projections regarding the dollar’s value, GDP growth, and inflation rates are essential in determining the base tariff.
