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New power tariff regime likely from July

The federal government is contemplating introducing a new electricity tariff regime from July this year with an aim to provide only a subsidy targeting the vulnerable segment of the society, official documents showed.

Under the current regime, almost all categories of power consumers are enjoying the subsidy, which negates the concept of targeted subsidies and promotion of conservation and efficiency.

But as per the proposed regime, tariff slab benefits will be accrue to only the lower slab only, meaning that the subsidy will be provided only to lifeline consumers. The government is also expected to redefine ‘lifeline’: from the current 50 units a month to 100 units. The new tariff regime is proposed to be applicable from July 1, 2012.

A uniform tariff of categories for consumers is also to be evolved, which will cover the collective revenue requirements of all distribution companies.

According to an official document prepared for the Economic Coordination Committee (ECC) of the Cabinet, under the existing tariff regime, lifeline consumers receive 10 percent of total subsidies while the largest chunk of goes to 40 percent of the richest households.

Lifeline consumers are getting a subsidy of Rs9.95 per unit; those consumers who use 100 units are getting a subsidy of Rs7.28 per unit while those who use 300 units per month are getting a subsidy of Rs4.96 per unit. The richest consumers who use between 301 and 700 units are getting a Rs1.17 per unit subsidy.

The document revealed that 300-unit slab consumers consume 22 percent of total electricity produced, which is the highest amongst all the categories of power consumers. The annual impact of subsidy for this category of consumers stands at Rs87.41 billion. Total subsidy given to lifeline consumers is Rs 27.6 billion while the amount of subsidy paid to those who use 100 units is Rs52.24 billion. Another Rs5.85 billion go in subsidies to the 700 unit-plus consumers in just one month.

Under the new regime, the National Electric Power Regulatory Authority (NEPRA) will determine the base revenue requirement on the principle of full cost recovery for all distribution companies for each financial year and actual gains or losses in revenues will be adjusted in subsequent tariff determinations.

According to the document, to offset the higher losses borne by the distribution companies having inefficient transmission and distribution networks, Nepra’s methodology for determining the transfer price for power delivered on the basis of revenue requirement of each distributing company will need to be revised.

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