Consumers may expect another utility circus as the government aims to increase Pakistan’s circular debt by Rs. 952 billion, cancel it out by hiking electricity bills, and provide additional subsidies worth Rs. 675 billion while doing so.
To recover Rs. 73 billion, the government has suggested three distinct quarterly tariff hikes ranging from 69 paisas per unit to Rs. 3.21 per unit from February to May of this year in its revised Circular Debt Management Plan (CDMP).
According to the news agency, the administration has decided to impose the pending fuel cost adjustments (FCA) in electricity bills as well as levy a debt tax of Rs. 2.93 per unit in an effort to win over the International Monetary Fund (IMF).
The proposal initially seems implausible since it relies on an inflated rupee-dollar exchange rate of Rs. 232 (real: 268) and a negative yield KIBOR rate of 16.84 percent (real: 18 percent).
Increase tariffs in Electricity bills
In any case, ignoring the effects of the pending FCAs, the price of electricity may increase at any moment between February and June by an extra Rs. 3.62 per unit to Rs. 6.14 per unit.
If Pakistan and the IMF are unable to come to an agreement on the size of the additional subsidies of Rs. 675 billion that the Ministry of Energy wants to provide to close the Rs. 952 billion circular gap anticipated in the current fiscal year, things could become worse.
The IMF has been informed of the idea, and discussions will start this week. Since the plan seems unduly ambitious considering the lack of such space in the budget, everyone is anticipating some intense questioning from the lender.
Despite pressure from the IMF, the government opted against deducting Rs. 284 billion from the circular debt and instead wanted the plan delayed for another two years.
The Power Division defended itself by claiming that the delay was caused by a number of unknown assumptions, including changes in fuel prices, shifting economic parameters, resource availability, and shifting commercial operation dates (COD) for new power plants.
The administration has decided to try again today with the updated CDMP, although the usage of improbable parameters has made things a little challenging.
This time, the government fixed the KIBOR rate at 16.84 percent and the price of one US dollar at Rs. 232. They appear better than the rates that were used about a month ago, although being somewhat ridiculous.
When the 3-month loan rate rose above 14 percent in the past, the Power Division assumed KIBOR at 10.50 percent.
The USD was originally established by the Power Division at 195, while it actually closed at 204 in the preceding fiscal year.
To read our blog on “Due to a monthly fuel adjustment, NEPRA raises electricity rates,” click here.