Islamabad: After warnings from the IMF on subsidies in the energy sector, the government should approve the restructuring of the billing system for electricity to increase revenues while protecting low-and middle-income groups against the effects of rate increases. Sources with the Ministry of Water and Power said Dawn that a proposal would be submitted to the Government requesting the removal of subsidies for high-end users by failing to provide the lowest rates for consumers using the slab more than 300 units. "It is more cost effective to provide grants to all and instead the government to provide targeted support," one official said, adding that electricity purchased from Pepco RS9 more per unit, but the rate for households with a maximum of 100 units was Rs4.2, Rs6.34 between 100 and 200 units to 300 units and Rs10.24. At a recent meeting Pepco said the electricity sector has been facing a shortage annual profits by 48 percent, amounting to about Rs180 billion.
The finance ministry has suggested that the subsidies applicable to lower slabs should be abolished for the high-end users.
“This way the indirect subsidy being utilised by all those who can afford it, including ministers, ambassadors and rich people, would be eliminated and the subsidy to targeted consumers will continue,” the official added.
The government has allocated a subsidy of Rs84 billion in the budget for 2010-11 that includes Rs40 billion for interest payment of Terms Financing Certificate (TFC), Rs10 billion for Fata and Rs30 billion for life consumers using up to 50 units per month but the tariff differential of Pepco accounts to more than Rs180 billion.
“Practically it is not possible to increase power tariff to this extent,” said a senior official of the finance ministry, adding that it would be a difficult decision for the government.
The government is under tremendous pressure from the IMF to abolish the power of support and reduce the gap between electricity prices and the price. Official told business leaders in March to try to persuade the International Monetary Fund, that an increase in power rates in these circumstances it was not possible.