Electricity tariff increases – BR Research
Electricity tariffs for domestic consumers are becoming more expensive than previously suggested. The increase approved by Nepra, pending government notification, is Rs 1.68 per unit in the newly announced unprotected consumer category. Recall that the definition of the lifeline consumer has now been extended from 50 units to 100 units. And the protected category now also included consumers using up to 200 units per month – but qualifying for maximum monthly use of less than 200 units for six consecutive months.
Contrary to what was communicated earlier, Nepra’s decision on the government motion clearly included a price increase for 01-100 and 101-200 units in the unprotected categories. One hoped to see a more detailed breakdown of the discounted income needs of consumer slabs and nightclubs and PPP alongside the Nepra decision. But not to be, which leaves more room for guesswork.
Low consumption slabs in the unprotected category face the highest percentage increase. The consumer slab of 1 to 100 units has undergone a 22% increase in base tariffs compared to the tariffs in force. The same had increased by 34% in January 2021, marking a 73% increase in less than a year for the lowest consumption slab outside the protected category.
The total incremental impact is around 150 billion rupees. One wonders whether the subsidy allocated to the electricity sector for the current year, in excess of Rs 600 billion, is insufficient to take into account the increase in capacity payments. Either that or the IMF persuaded the authorities to cut the subsidy in mid-year, which may well qualify as a mini-budget.
Worse yet, the real impact on prices will once again not be reflected in official inflation estimates. This time, more because of inadequate information, than because of a fault of the Pakistan Bureau of Statistics (PBS). Recall that the calculation of the electricity price for PBS inflation is based on five consumption quintiles. The current methodology has almost 60 percent of consumption in the first two slabs up to 200 units.
But there is no distribution of expected consumption between protected and unprotected categories within consumption bands 1-100 and 101-200. And the assumption is that all consumption in bands 1-200 falls into the protected category, which is incorrect, as it kills the very purpose of the first phase of subsidy reform. The current methodology will not incorporate the impact of the price increase on the first three consumption quintiles, which means that 60% of the price will be reflected without change. This is far from the reality, and the resulting increase shown in the PBS numbers will be small to single digits.
More clarity is sought on industrial electricity tariffs, and their subsidy requirement, in particular for zero-rate sectors. Another price increase is scheduled for March 2022 to complement IMF requests. It would be nice if one of these days some of the advisers from the Ministries of Finance and Energy did a benchmarking of electricity prices with India, the United States, Poland and everywhere else – as they love so much. do it for gasoline, legumes and sugar.