Govt mulling raising power tariff
ZAHEER ABBASI
ISLAMABAD: Finance Ministry has reportedly informed the Senate Standing Committee on Finance that the government plans to increase power tariff in the current fiscal year. Sources said that Finance Division has told the Senate Standing Committee that as per commitment with the International Monetary Fund (IMF) under Extended Fund Facility (EFF) notified tariff would reduce the electricity subsidy to 0.5 percent of GDP, which amounts to Rs 144 billion, for fiscal year 2014-15. The increase in electricity price is part of a three-year plan agreed with the IMF with respect to phasing out tariff differential subsidy (TDS) to bring tariffs to cost recovery level. As some of the important policies underlying the EFF programme the government would keep on maintaining the power sector priority ranking in terms of gas supply after households and continue diverting the excess supply of gas to the most efficient power plants. Finance Division has shared details of the briefing given to the IMF for improving the economic conditions of Pakistan.
Energy sector reforms under the EFF include: (i) limiting the accumulation of payables arrears and gradually reducing the stock; (ii) to tackle losses, raise payment compliance, and improve energy efficiency and service delivery in the distribution companies (Discos); (iii) encourage energy conservation; (iv) prioritize the use of gas and coal rather than fuel oil in electricity generation and remain committed to a transition to market-based allocation of natural gas in the medium-term; (v) place high priority on improving energy sector governance and transparency through National Electric Power Regulatory Authority (Nepra); and (vi) the institutional capacity of all energy sector PSEs to be strengthened to allow them to operate independently from the government as efficient commercial entities.
The government has agreed to the following oil and gas sector reforms: (i) to import Liquefied Natural Gas (LNG) to tackle gas shortages; (ii) accelerate the development of domestic natural gas and continue to limit further expansion of the gas distribution networks for domestic consumption; (iii) maintaining the priority ranking of the power sector to second (after households) and continue to divert the excess supply of gas to the most efficient power plants; (iv) gradually rationalize gas prices to encourage new investment, promote efficiency in gas use, and assure that there will continue to be no fiscal cost from the gas sector; and (v) new Petroleum Exploration and Production Policy 2012 for enhanced production from existing and new fields, and to further improve producer incentives.
The reforms in business sector aimed at promoting private investment and growth are: (i) contract enforcement; (ii) plan to simplify procedures and costs for setting up businesses and for paying taxes in Pakistan; (iii) improved access to finance for poor and marginalized segments including micro, small and rural enterprises remains very limited owing to both demand and supply-side constraints; (iii) trade policy reforms to increase consumer welfare and stimulate growth as a result of increased competition. Simplifying tariff rates, phasing out statutory regulatory orders (SROs) that establish special rates and/or non tariff trade barriers in some 4,000 product areas, and improving trade relations should deliver the much needed competitive environment; (iv) simplifying the tariff structure to move over three years to a simple, transparent framework with four slabs between 0 and 25 percent rates with few exceptions; (v) strategy to take full advantage of trade preferences available from the European Union (EU) who have extended GSP plus benefits (i.e., 0 percent customs duty) from January 1, 2014 on a broad range of Pakistan’s exports.
