The campaign to revisit the Power Purchase Agreements with the Independent Power Producers was supposed to be the backbone of the federal government’s attempt to cut the power tariffs, but that effort seems to have dissolved into silence. The Power Division had recently stated that the revisions would mean a saving of Rs 3.5 trillion in capacity charges, and the government was relying on this for savings of Rs 7 per unit for the consumers. However, that cut apparently still lies in the future. Instead, the increase in the petroleum levy, to maintain the petroleum price where it is, despite the fall in the international price, is to be used to cut tariffs across the board by xs 1.71 from April to June. This has been done by increasing the Tariff Differential Subsidy. The result is that the benefit of falling oil prices has not been transferred to the fuel consumer, but the electricity consumer. Further, it depends on the trajectory of international oil prices whether the benefit will continue.
The cut will mean that the period when consumers have historically rioted against the distribution companies, the hot weather before the monsoons, will be covered. There should also be some benefit from a reduced fuel adjustment charge. It will mean more to the industrial consumer than the domestic, for it will come at a time when the bill naturally goes up. Industries, especially export industries, operate on the thinnest of margins, and thus even this reduction will be meaningful. To impress the domestic consumer, the government will have to cut the tariff by a considerable amount more, like that which it originally proposed, and has not given up on entirely.
The biggest hurdle seems to be IMF permission. It goes without saying that the IMF has little interest in a tariff reduction, and seems to take the attitude that the consumers are used to paying these bills, and the money gained should go to the circular debt. It should not be forgotten that recent financial arrangements on the circular debt require another surcharge to be added to the electricity tariff. However, even what reductions in the power tariff that have already been made have led to a fall in the inflation rate, which would indicate that a more substantial cut in the tariff would further lower inflation.
