One of the additional reasons why Republic Day is being anticipated is because Prime Minister Shehbaz Sharif is expected to announce a cut in the electricity tariff. It transpires that the cut will be applicable from April, though it is still not clear if the cut will apply from the next billing month, or the next calendar month. Even if the benefit is postponed for a month, it has been learnt that the relief will be substantial, Rs 8 per unit. With the average domestic tariff over Rs 60 per unit, this decrease will be meaningful coming just before summer, and the turning on of fans and other cooling devices. This will also prove a fillip to industry, for which electricity is a major input cost. However, the input cost contains a temporary component. Rs 1.30 per unit, which is being given in lieu of a price reduction in the price of petrol. This relief is to be given for only one month, and will be removed when the world price of oil goes up.
Rs 4.73 per unit is to be a permanent reduction, achieved by renegotiating their Power Purchase Agreements with the IPPs. The rest will depend on international oil prices. This means that the price of fuel can be expected to stay where it is, with the government increasing the petroleum levy whenever the price goes down. The effect of reducing oil prices on the economy will have to be balanced against the effects of decreasing the power tariff. Both are all-pervasive in the economy, both having multiple knock-on effects. The IMF apparently has a veto, because it was only after its go-ahead that the tariff decrease was approved. The IMF must not be underestimate: it prevented the removal of the excise duty, well as the sales tax, though it was kind enough to agree to the removal of the PTV licence fee, which was tacked on to the electricity bill some years back.
Once this decrease goes through, this government will not be able to do more with the tariff. It will have to hope that this reduction will act as a brake on inflation, and if it does not bring any prices down, it will at least slow their going upwards. The government will have to look now towards job creation, and towards the solarization transition, for the remainder of its term.
