AFTER the Punjab government has announced a relief of Rs14 per unit (including taxes) for electricity consumers using 201 to 500 units per month, questions loom over the sustainability of this Rs45 billion relief beyond September and whether the International Monetary Fund (IMF) will raise concerns regarding the funding of this initiative.

While experts generally view the provincial government’s move as a positive step to help consumers with their electricity bills, many also believe that the IMF may seek detailed explanations from the government about the finances allocated or arranged for this relief.

“People need relief as electricity bills are making life extremely difficult, particularly for the middle class, which is not covered by most social safety nets,” said economist Dr Sajid Amin.

Dr Amin, however, described the measure as a short-term fix aimed at cutting bills during the summer, which consumes a significant portion of people’s income. The government appears to be banking on a reduction in electricity bills from October due to the decreased use of air conditioners. “We may see another relief package for winter with some adjustments in unit rates,” he speculated.

Experts term Punjab govt’s move ‘positive’, but believe Fund may seek explanation on source of funding

He said the high price of electricity has become a chronic problem in Pakistan. While these relief measures may temporarily help the poor and middle-income groups, he stre­ssed that the government needs a long-term strategy to reduce energy prices through efficient production and distribution models. “We have yet to see how the funds for this relief have been arranged and how the IMF will respond,” he added.

The Punjab government has written to all four Punjab-based power distribution companies and one in Islamabad — namely Lahore Electric Supply Company (Lesco), Faisalabad Electric Sup­ply Company (Fesco), Multan Electric Supply Company (Mepco), Gujran­wala Elec­tric Power Company (Gepco), and Islamabad Electric Supply Company (Iesco).

Iesco also covers several cities and towns in Punjab, including Rawal­pindi. The relief will also apply to consumers in Islamabad.

“We have written letters to all five distribution companies in Punjab to determine how much funding is required to provide this relief to consumers using 201 to 500 units per month. We expect to sign MoUs with these companies within the next couple of days,” explained a senior Punjab government official.

According to a letter from Punjab Secretary for Energy Dr Naeem Rauf to Lesco, the government says that given the escalating electricity bills and high inflation, it has undertaken a “significant and unprecedented” initiative to alleviate the financial strain on middle-class households.

The letter noted that the government has decided to provide targeted relief of Rs14 per unit (including taxes and duties) on electricity bills for consumers using between 201 and 500 units per month. This will be applicable for August and September 2024.

“To ensure smooth implementation of this initiative, it is requested to provide the estimated amount required to fund this financial relief for the consumers of Punjab and Islamabad,” the letter said. “This estimate will enable the government to arrange the necessary funds on time and make advance payments to Lesco,” it said, requesting the Lesco management to respond by Monday (today). Similar letters have been sent to the CEOs of Iesco, Mepco, Gepco and Fesco.

Benefit for 12m users

Data available with Dawn reveals that some 11.7 million consumers will benefit from this relief, including 2.9m consumers within Lesco’s service areas (Lahore, Kasur, Okara, Sheikhupura and Nankana Sahib). Lesco ranks highest among all distribution companies in terms of electricity consumption, while Mepco is the largest in terms of the number of consumers and service areas.

Lesco has a total of 6.5m consumers, including 4.9m domestic users. Of the domestic consumers, 1.9m fall under the protected category (using up to 200 units, including lifeline consumers using 50 units). The number of consumers using 201 to 500 units has been calculated at 2.9m.

Some 2.8m consumers of Iesco will also benefit from this relief. The number of consumers in Mepco, Gepco and Fesco who use 201 to 500 units is currently being calculated and is estimated to be around six million.

“I take it as a good step by the Punjab government, and other provinces should follow suit to provide relief to people,” said Syed Wajid Ali Kazmi, former CEO of Lesco and Iesco.

“This relief is separate from the tariff and will not be considered part of it. It will be clearly mentioned on the bill as relief provided by the Punjab government,” Mr Kazmi said, expressing confidence that the IMF will not object since the funds are being sourced from a reduction in Punjab’s development budget.

However, Mr Kazmi questioned how the government would address consumers with single-phase and three-phase meters. “Consumers with single-phase meters get bills that include detailed information about slabs, but those with three-phase meters don’t receive such information, as their units are charged based on off-peak and peak hours,” he noted, adding that distribution companies would need to develop a method to distinguish between consumers using 201 to 500 units with three-phase meters.

Speaking to Dawn, Dr Abid Qaiyum Suleri, an expert on political economy and sustainable deve­lopment, noted that the IMF expects the government to recover the cost of electricity generation from consumers by all means to prevent an increase in energy circular debt. “The Rs45 billion reportedly taken from Punjab’s annual development programme is intended to fund the Rs14 per unit relief without adding to the circular debt,” Mr Suleri explained. “Let’s see how IMF takes this.”

According to Mujahid Pervaiz Chatha, former Lesco CEO, the relief will reduce bills by up to 25 per cent for those using 201 to 500 units. “The total per unit cost being charged to consumers currently ranges between Rs50 and Rs60, including taxes. Excluding taxes, the rate is around Rs30 to 32, including fuel price adjustment and quarterly tariff adjustments,” he explained.

He said one thing was clear that the relief provided by the provincial government is independent of the tariff. “If a bill is Rs5,000, it will be reduced to Rs3,500, with a note stating that Rs1,500 has been provided as relief by the Punjab government,” he said.

Published in Dawn, August 19th, 2024