ISLAMABAD,Pakistan News: The government’s New Year gift to the masses will be a significant increase in electricity and gas tariffs, which will further erode the value of each rupee earned. Under the Stand-by Arrangement (SBA) with the International Monetary Fund (IMF), the government has agreed to increase power tariff by 24 percent during the current fiscal year in three phases.
Power and gas prices will rise by 14.5 percent and 18 percent respectively effective from Friday (January 1, 2010). The notification to this effect has been issued. Standard normal IMF conditions support elimination of energy subsidies with the objective of full cost recovery, a policy that creates fiscal space and enables the debtor government to invest larger amount in development expenditures in 2009-10.
According to revised notification, tariff for above two million lifeline consumers would be increased by 43 percent because of adjustment in fuel charges. The Ministry of Water and Power had earlier announced that electricity subsidy for the lifeline and agriculture consumers would not be withdrawn.
The government had allowed Rs 56.8 billion in subsidy to the consumers falling under the two categories in the first half of the current year. Tariff for lifeline consumers will be raised from Rs 1.6 to Rs 2 per kWh, while the agriculture consumers will feel the brunt of Rs 1.5 per kWh. Domestic consumers who use 1-100 units will have to pay Rs 9.75 per unit from January.
Consumers, who consume 101-300 units per month, will have to pay Rs 12 per unit. Tariff for 301-700 units will be Rs 14 and above 700 units Rs 15.50 per unit. The government claims that the increase will fetch Rs 21 billion additional revenue to the Sui Northern Gas Pipelines Limited (SNGPL) and Rs 11 billion to the Sui Southern Gas Company Limited (SSGCL) during the current fiscal year.
The Oil and Gas Regulatory Authority (Ogra) has determined the increase through a process of public hearings held recently in Karachi and Lahore where representatives of categories of consumers opposed the increase on the ground that it would make input costs unbearable for industries and exports and push up the prices of all commodities and reduce purchasing power of the people.
The Ogra allowed about Rs 64.02 per million British thermal Unit (mmbtu) increase in the average rate of the SNGPL to Rs 296 per unit, up by about 18 percent. Likewise, the average rate for the SSGCL has been allowed to be increased by Rs 38.06 per mmbtu, up by about nine percent.
The average rate for all consumers, of both the SSGC and SNGPL, would go up by 18 percent to ensure uniform gas price across the country. According to Ogra’s gas price determination, tariff for the lowest slab (50 cubic metres per month) of domestic consumers would go up from Rs 80.65 to Rs 95.20 per mmbtu and for the second slab (50-100 cubic metres) from Rs 84.45 to Rs 99.65 per unit.
The rates for the third slab (100-200 cubic metres) would rise from RS. 153.73 to Rs 181.40 and for the fourth slab (200-300 cubic metres), it would jump from Rs 325.48 to Rs 348.07 per mmbtu. The domestic gas rate for the fifth slab (300-400 cubic metres) would increase from Rs 423.42 to Rs 499.64 per unit, for the sixth slab (400-500 cubic metres) from Rs 550.44 to Rs 649.52 per unit and the last slab (over 500 cubic metres) from Rs 730.17 to Rs 861.60 per mmbtu.
The gas rate for places of worship, educational institutions and armed forces and Roti Tandoors would also increase like the first four slabs of domestic gas consumers and for commercial consumers and ice factories from Rs 324.30 to Rs 382.67 per unit and for the CNG stations from Rs 427.15 to Rs 504 per mmbtu.
The gas price for the power stations of the Water and Power Development Authority (Wapda) has been allowed to raise from Rs 333.98 to Rs 394 per unit and for Liberty Power Project from Rs 1,060.4 to Rs 1,251.26 per mmbtu. Likewise, the gas price for independent power producers would increase from Rs 282.88 to Rs 332.62 and that of captive power plants from Rs 324.30 to Rs 382.67 per mmbtu. Mission chief for Pakistan at the IMF Adnan Mazarei has recently told journalists in Washington that there are significant challenges that remain.
“Significantly, the budget needs to be managed better. There is a need to fully reverse the first quarter fiscal outturn and slippage, and avoid future overruns to keep inflation low, build economic confidence and ensure that resources are available for poverty reduction, assisting internally displaced persons and boosting social spending.
“The budget deficit target for the fiscal year, ending in June 2010 is 4.9 percent of the GDP, including spending on IDPs financed by foreign grants. The overall target for the first quarter, which means end of September, was 0.3 percent of the GDP. The shortfall was 0.3. And the fiscal deficit should have been roughly 1.2 percent of the GDP, and it was 1.5,” he said.
According to the IMF, the government’s programme targets a reduction in the budget deficit to more sustainable levels. The programme seeks to achieve this reduction by raising revenues and restraining expenditures in 2008-09, including by phasing out fuel and electricity subsidies and better prioritising development spending.
The Fund staff is more concerned about aggregate spending and the revenue targets than their detailed composition. However, given the importance of adequate funding for priority development projects in Pakistan, the Fund-supported programme includes adjusters’ allowing for higher than projected development spending if external assistance turns out to be higher than envisaged in the programme. The programme also makes specific provisions to ensure an appropriate level of poverty-related spending in 2008-09 and the future.
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