The federal government has formally requested the National Electric Power Regulatory Authority (NEPRA) to approve a Rs1.71 per unit reduction in electricity tariffs. This move follows the International Monetary Fund’s (IMF) endorsement of a partial tariff cut through a subsidy mechanism. NEPRA is set to review the proposal in a hearing scheduled for April 4, according to Express News.
If approved, the reduced tariff will apply to all power distribution companies, including K-Electric, and will be implemented from April to June 2025.
IMF’s Role in Power Tariff Reduction
The proposal comes shortly after the IMF suggested that Pakistan could lower electricity prices by Rs1 per unit by utilizing revenues from the Rs791 per unit levy imposed on gas consumed for in-house power generation by industries. However, this adjustment would translate to only a 1.5% reduction in electricity bills, while industries relying on gas-generated power would face a 23% rise in their gas expenses.
Mahir Binici, the IMF’s Resident Representative, stated that the revenue collected from captive power plants could be redirected to reduce electricity costs for consumers. However, the Islamabad High Court has already suspended the off-grid gas levy for five weeks, putting the implementation of this plan in question.
Uncertainty Over IMF Board Decision
While Pakistan and the IMF have reached a staff-level agreement for the release of the second tranche of a $1 billion loan, the final decision by the IMF’s executive board remains uncertain. The proposed Rs1 per unit reduction suggests the government expects to generate Rs110 billion to Rs120 billion through the off-grid gas levy.
Broader Efforts to Lower Power Costs
Prime Minister Shehbaz Sharif has long emphasized the need to cut electricity prices by at least Rs6 to Rs8 per unit. However, the Power Division has yet to formulate a plan that meets the IMF’s approval for a more substantial reduction.
Pakistan has been in discussions with the IMF to allow electricity price reductions through various fiscal adjustments, including additional petroleum levy revenues, lower taxes, and downward revisions in fuel cost and quarterly tariff adjustments. Despite these efforts, the IMF has shown reluctance to permit tax cuts on electricity bills. It has also not confirmed whether the government can allocate an additional Rs180 billion from the recent Rs10 per litre increase in petroleum levy towards reducing electricity prices.
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Frequently Asked Questions (FAQs)
1. How much is the government proposing to reduce electricity prices?
The government is seeking NEPRA’s approval for a Rs1.71 per unit reduction in power tariffs.
2. When will the reduced tariff be implemented?
If approved, the revised tariff will be in effect from April to June 2025.
3. Why is the IMF involved in Pakistan’s electricity pricing?
The IMF oversees economic reforms tied to Pakistan’s loan agreements, ensuring fiscal adjustments align with its recommendations.
4. What impact will this have on industries?
Industries using in-house gas power generation will see a 23% rise in gas costs, offsetting the minimal electricity price reduction.
5. What other measures is the government considering to lower electricity costs?
The government is exploring adjustments in petroleum levies, tax reductions, and fuel cost revisions to achieve a more significant reduction in power tariffs.
