Pakistan: 24% Power Tariff Hike for 2010

The Government of Pakistan has promised the International Monetary Fund, ADB and the World Bank that power tariffs will be raised by 24 per cent in three phases during the current financial year, which concludes on 30 June 2010. The government already raised the tariff by about six per cent hike last October and 12 per cent at the beginning of this year. A further six per cent increase in the base tariff from April 2010 has also been announced.

As a result, consumers estimate that the cumulative increase in the average electricity bills is estimated to amount to more than 50 per cent in the for January. The tariffs have been raised as part of the phasing out of the massive energy subsidies under the $11.3bn standby deal with the IMF; and have been the basis for growing discontent with the government's decision in 2008 to seek multilateral assistance. It is interesting to note however, that costlier electricity is only in part the outcome of IMF conditionalities.

Pakistan's Dawn newspaper reports:

"...consumers are also being charged excessively due to a government decision to pass on the rise in international oil prices to them. In the bills these charges appear under the head of “fuel adjustment charges”.

On top of that, the consumers are paying the government almost 22 per cent tax in accordance with the power they consume. This is something that the government has tried to conceal from the public for fear of the political fallout."

The government's decision to maintain taxes on electricity usage is unsurprising given Pakistan's weak fiscal position, as data for the first half of the financial year indicates that total tax collection for the initial five months of the current financial year has been approximately 3% below the targeted amount.

Raising electricity tariffs could help the government meet its budgetary targets, provided that power theft, which has plagued electric supply companies for decades, does not grow as a result of higher rates.

Another issue that the government will have to contend with as a result of rising electricity costs is inflation. Last month's Consumer Price Inflation number of 10.3% indicated that inflationary pressures had decreased relative to previous years; the 2008-09 average was 23.5%. Increases in electricity tariffs could undo measures taken by Pakistan's central bank to limit liquidity, as well as steps taken by the government to address food supply issues.