• Fuel rates hiked by Rs30, power units priced Rs8 higher
• Petrol to be sold at Rs209.86, diesel at Rs204.15
• Miftah announces Chinese debt rollover at cheaper rates
ISLAMABAD: To strike a deal with the International Monetary Fund (IMF) on an urgent basis, the government immediately increased the prices of petroleum products by Rs30 per litre on Thursday and secured a determination from the power regulator for about Rs8 per unit increase in electricity rates for the next fiscal year starting July 1.
Speaking at a news conference, Finance Minister Miftah Ismail also announced that a tax amnesty scheme announced by former prime minister Imran Khan was also coming to an end on July 2 without any application from anyone to avail it.
He conceded that the inevitable decision would increase inflation and create problems for people but said he could not let the country go bankrupt because of the wrong decisions of the previous government as international prices were going up and the government was suffering about Rs120-130bn per month loss on petroleum subsidies, excluding taxes.
At new rates, the subsidy or loss on petroleum products would be reduced to about Rs25bn per month.
“I have to reach an agreement with the IMF. Shaukat Tarin and Imran Khan had tied our hands by signing agreements with the IMF and then violated it,” he said, adding that the new agreement would be signed with the IMF within June because they also wanted to see our budget and reform measures. “We cannot deviate much from earlier agreements that required Rs30 petroleum levy and 17pc tax. I would not impose taxes in June, but subsidy would be withdrawn,” he said.
Responding to a question, the minister said the IMF had set a very strict condition to end the subsidy and amnesty package announced on Feb 28 besides “other landmines laid by the previous government”, including the Rs42bn drawback on local taxes and levy (DLTL) approved by the State Bank.
However, the minister said he would not say at this stage if there could be more prior actions when the loan agreement was taken to the IMF board for approval along with its $2bn expansion in size and one-year extension.
An official said that based on existing international rates, the combined financial burden on petroleum and electricity consumers was estimated to go beyond Rs2.5 trillion by June 30, 2023.
The impact of adjustments to the national uniform electricity tariff determined by the power regulator for the next fiscal year is estimated at Rs893bn at an average rate of Rs7.91 per unit. The withdrawal of Rs5 per unit subsidy introduced on Feb 28 would work out at Rs565bn in 13 months at the rate of about Rs43bn per month.
The minister said the prices of all petroleum products had been increased by Rs30 per litre except Rs26.38 on kerosene, as a full Rs30 increase on this fuel would have involved an element of taxation, a step the government did not want to take at the moment.
The ex-depot price of petrol will now increase to Rs209.8 per litre from Rs179.8, of high-speed diesel (HSD) to Rs204.15 from Rs174.15, and of light diesel oil (LDO) to Rs178.31 from Rs148.31. The prices of these three products have been jacked up by Rs60 per litre since May 27.
On the other hand, the price of kerosene was fixed at Rs181.94 per litre instead of Rs155.56 at present, the minister said. Its price has gone up by Rs56.38 per litre since May 27.
He said the petrol, HSD and LDO prices still had a per-litre subsidy of Rs9, Rs23 and Rs8, respectively, whereas the subsidy on kerosene had been reduced to zero.
Mr Ismail confirmed that the National Electric Power Regulatory Authority (Nepra) had determined an increase in base national electricity tariff, which he had not seen yet but said its application would become due in the next fiscal year.
He, however, sidestepped a direct answer to the withdrawal of Rs5 per litre price cut announced by former prime minister Imran Khan on Feb 28 but said the next billing cycle would begin by June 12 — an indirect hint that this withdrawal would be notified over the next couple of days.
Chinese loan
The minister said China had withdrawn about $2.35bn loans (15bn renminbi) on March 25 and set tough conditions under which Pakistan could not utilise those funds, but a visit by foreign minister Bilawal Bhutto-Zardari and follow-up discussions by Prime Minister Shehbaz Sharif with Prime Minister Li Keqiang, the Chinese side had not only agreed to roll over the amount but at a cheaper interest rate of 1.5pc plus Shanghai Interbank Offered Rate (Shibor) instead of earlier 2.5pc plus Shibor.
“We have received the letter and funds would become available in a couple of days”,” he said, adding that this would strengthen the exchange rate and support foreign exchange reserves.
The minister said the government would continue providing Rs2,000 per month direct subsidy to 14 million families under the monthly income of Rs40,000 next year as well and also keep wheat and sugar prices unchanged at Rs40 and Rs70 per kilogram throughout the year besides providing Rs100 per kg subsidy on edible oil and ghee.
About four years of PTI’s rule had made records in all areas and witnessed the highest-ever fiscal deficits and lowest ever economic growth rate, he said, adding that 20 million people went down the poverty line and six million lost their jobs.
The minister did not agree to suggestions for withdrawal of subsidies to powerful sectors like textiles but said the industry and exporters would have to be kept competitive with other peers like India and Bangladesh even if some rates were to be rationalised given international prices.
Power tariff
Separately, Nepra forwarded its tariff determination to the government on Thursday. “The tariff has been determined for the 2022-23 fiscal year, which on national average is Rs24.82 per kilowatt hour (kWh), higher by Rs7.9078 per kWh than the earlier determined national average tariff of Rs16.91 per kWh”, the power regulator said in a statement.
The increase of Rs7.9078 per kWh is mainly due to an increase in fuel prices, capacity cost and the impact of rupee devaluation. The Nepra estimated the next year’s Energy Purchase Price (EPP) at Rs1.152 trillion and capacity charges, including transmission cost at Rs1.366tr.
The total revenue requirement of ex-Wapda distribution companies (Discos), including their profit margin and prior year adjustment, is projected as Rs2.805tr with projected sales of 113,001 gigawatt hour.
Under the determination, Mepco, Gepco, Hesco, Sepco, Qesco, Pesco and Tesco have been allowed an investment of around Rs406bn for their distribution investment programme for the five-year period.
The Discos’ average allowance for transmission and dispatch (T&D) losses has been reduced from 13.46pc to 11.70pc for the FY2022-23.
Nepra determined different consumer-end for each distribution company owing to their different revenue requirements and allowed different levels of T&D losses.
The determined tariffs have been intimated to the federal government. The federal government, as per Nepra Act, is required to file an application to determine a uniform tariff for all the Discos based on its subsidy priorities for various segments.
The uniform tariff so determined by Nepra after incorporating the amount of subsidy/surcharges recommended by the government is then formally notified in the official gazette before its actual application to consumers.
Published in Dawn, June 3rd, 2022
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