Stay informed on the latest developments as the IMF greenlights a new power tariff regime, propelling electricity prices to unprecedented heights. Here’s a breakdown of the imminent changes and their potential impact on consumers.
Current Economic Quandary
In response to the looming economic collapse, the Power Division has taken a decisive step by submitting a draft for the restructuring of the power tariff regime to the Finance Ministry. The current framework, deemed unsustainable, necessitates a comprehensive overhaul to avert a crisis.
Apex Committee Authorization
The Special Investment Facilitation Council (SIFC) Apex Committee, on January 3, 2024, granted authorization to the Power Division to spearhead the reform of the power tariff regime. This transformative initiative is set to be shared with the International Monetary Fund (IMF), indicating a global acknowledgment of the urgency.
Unveiling the Imbalance
Current Cost Composition
At present, the total cost of an electrical unit comprises 72 percent fixed and 28 percent variable costs, including fuel, maintenance, and the impact of losses. However, fixed rates contribute a mere 2 percent of revenue, with the lion’s share, 98 percent, attributed to variable charges.
Cross-subsidies, currently amounting to Rs. 473 billion, support 29 million protected users and certain unprotected home consumers consuming up to 300-400 monthly units. The government’s aim is to terminate the Rs. 244 billion cross-subsidy provided by the manufacturing sector to both protected and unprotected consumers in this consumption bracket.
As part of the restructuring, the removal of cross-subsidies will lead to tariff hikes for both protected and unprotected consumers. This strategic move enables the government to reduce industrial sector tariffs to 9 cents per unit, fostering an environment conducive to industrial growth and export expansion.
In the most recent electricity tariff adjustment, non-protected consumers witnessed varying increases based on their consumption levels. Users in the 1-100 unit slab category experienced a Rs. 3 per unit hike, while those in the 301-400 unit range faced an increase of Rs. 6.5 per unit.
As the IMF’s approval paves the way for this monumental transformation in the power tariff regime, consumers brace themselves for imminent increases in electricity prices. The government’s strategic realignment aims to address economic challenges and create a sustainable foundation for the energy sector’s future. Stay tuned for further updates on this dynamic shift in the power dynamics.