The federal government is under tremendous pressure
from the donor agencies to revise upward the gas and electricity tariff
as has been committed by the Military Government as a part of reform
agenda. The political set up is however, feel concerned about the
backlash from the public.
According to the sources a serious debate is going on
in the Ministry of Finance on how to minimize the impact of such
off-budget measures that effect adversely the poor as well as the
industry. These sources claimed that price adjustments for the energy
sector were due ahead of the budget, but delayed due to political
considerations. The government was required to take a firm position on
the subject by mid-June 2003 to remain on track with the International
Monetary Fund (IMF). The government had agreed with the Fund to follow a
market-based pricing mechanism for the petroleum, gas and power sector.
In the case of gas and electricity prices, the formula was not being
implemented consistently, despite the establishment of the regulatory
The government has committed massive increase in
power tariff in the Financial Improvement Plan (FIP) for WAPDA,
submitted to the International Monetary Fund (IMF). The FIP, evisages
following actions to be taken till 2004 to improve the financial
position of WAPDA:
— Full and timely implementation of the fuel
adjustment clause and, in case of any delay, adjustment will be
accounted for in the next adjustment to make up for the expected revenue
— The "automatic" fuel adjustment clause
mechanism would be revised so that any reduction on account of lower
fuel prices would take place only if the structural tariff is consistent
with the revenue targets agreed under the FIP.
— The growth of WAPDA's administrative expenses
would be in line with performance improvement plan (15 per cent
year-on-year) increase in administrative expenses in fiscal year 2002
over the last year essentially to accommodate revised pay scales
introduced during the year and no more than 10 per cent per year during
2003 and 2004.
— WAPDA would achieve the target of reduction of
technical and non-technical losses by 1.5 per cent each year to reach a
level 21.6 per cent by end 2004.
— The volume of average receivable from all
consumers would not be more than two months or 16 per cent of average
billion for 2003 and 2004.
— Ghazi Brotha Hydropower Project (GBHP) would be
in line during 2004, starting commissioning of the first generation
units from July 2003.
According to the FIP, WAPDA's projected financing gap
is Rs.27.4 billion in 2002 billion, Rs.28.2 billion in 2003 and Rs.16.9
billion in 2004. The plan is based on the following assumptions:
— The stock of arrears from the public sector at
the end of 2002 will decline by Rs.6.5 billion with respect to the
beginning of 2002.
— The stock of arrears from the public sector will
decline by Rs.7 billion in 2003.
— Oil prices, which have a strong bearing on
Independent Power Producers (IPPs) energy purchase costs, will be at the
level of December 2001.
WAPDA is reported to have expressed its doubts about
the implementation of FIP. The authority maintains that it could wipe
out its losses without increasing the tariff provided the government
reduces by 50 per cent its Petroleum Development Levy (PDL) on the
purchase of furnace oil consumed by the authority for generation of
electricity. It blames the high rate of taxation in the form of PDL —
an input cost of electricity generation — for the high tariff.
The government collects almost Rs.100 billion
revenues just by taxing the POL products. This includes Rs.45.6 billion
PDL, 15 per cent GST and other excise and customs charges as announced
by the Central Board of Revenue. In addition, there is 3.5 per cent
commission charge for the oil marketing companies 4 per cent charge for
the dealers commission and inland freight charges. This makes the
petroleum a major revenue spinner for the state.
On every one liter of motor gasoline 87 RON, there is
Rs.9.5 rupee PDL, for HOBC the rate is Rs.11.2 per liter, for kerosene
Rs.3.35 per liter, for high speed diesel Rs.3.5 per liter, for light
diesel oil Rs.1.2 per liter and for JP-4 the rate is Rs.3 per liter. On
top of all other levies, the federal government charges 15 per cent
sales tax, which helped achieve over 29 per cent growth in the GST
revenues during the first three quarters of the year.
According to the Household Integrated Economic Survey
(HIES) expenditures on fuel had become the third largest head on
domestic consumption, after food items and housing. It cost almost 8 per
cent of average monthly income, with even higher share in the low-income