Treasure Magazine

Treasure Magazine

K-Electric subsidy reduced from Rs 59.5bn to Rs 25.5bn in budget 2020-21

3 min read
Power

Federal government silently permits K-electric to enhance price of electricity for domestic and industrial consumers

ISLAMABAD: The federal government has been claiming that they will not increase burden on poor masses who are already facing unemployment owing to COVID-19 pandemic in Pakistan, but it has reduced subsidy for K-Electric from Rs 59.5 billion to Rs 25.5 billion for the fiscal year budget 2020-21.

Instead of asking K-Electric to reduce electricity per unit price because of low oil prices in the international market, the Federal Minister Hammad Azhar, in its budget speech, has given permission to enhance its electricity charges for their consumers again.

According to the budget documents, the federal government has proposed to cut the K-Electric subsidy to Rs 25.5 billion for the next fiscal year and the K-Electric will now have pretend to increase the per unit price for domestic and industrial units.

Nowadays, K-Electric is already receiving previous fuel adjustment charges of 2016-19 from the domestic and industrial consumers and if this power distribution company again enhanced per unit cost, it will touch Rs 20 per unit for domestic consumers and above Rs 30/commercial units.

The federal government on Friday placed a cut on subsidies by 23 per cent as it presented the second budget of its tenure to provide some relief for the consumers of energy and commodities.

According to the budget document, the subsidy release had been estimated at Rs 271.5 billion for the current fiscal year 2019-20, which was 55.4% and 6.5% higher than the budget and revised estimates for 2018-19.

However, government has allocated Rs 209 billion subsidy for next financial year 2020-21 which is 23.02% and 40% less than the budget and revised estimates for 2019-20. The major cut has been placed on subsidy for power sector.

In FY 2019-20, the government initially expected to disburse Rs 271.5 billion in subsidy, but later the projection went up to Rs 349.5 billion due grant of subsidy to power distribution companies (Discos), subsidy on sales of essentials, corona stimulus and fertilizer plants subsidy for Engro and Fatima fertilizer.

In budget, 2020-21, the allocation for subsidies to Wapda-Pepco forms the major component which is 59.33 per cent of total allocation followed by subsidy to Naya Pakistan Housing Authority with share of 14.36 per cent, K-Electric with share of 12.2 per cent and Passco with share of 3.35 per cent.

With the fresh allocation, the government expects to provide some cushion for the consumers of electricity, sugar, wheat, corona stimules and Ramzan package. However, it remains unclear whether the state will be able to keep itself within the ceiling or overshoot the target as happened in the outgoing year.

According to the budget documents, Rs 124 billion has been set aside for subsidising power companies, excluding K-Electric. An amount of Rs 191 billion had been allocated for outgoing financial year but it went up to Rs 201 billion in revised budget estimates due to decrement in electricity bills due to corona. The impact of electricity bills deferment is Rs 10 billion.

Of total allocation for next financial year 2020-21, Rs 162 billion will cover tariff differential claims of power distribution companies compared to Rs 105 billion for ongoing financial year. For the outgoing year, Rs 162 billion had been earmarked for the tariff differential claims and these claims remained within budget ceiling in revised estimates.

Separately, the subsidy agricultural tube wells in Balochistan has been reduced to Rs 3 billon for next fiscal against Rs 8 billion for the current financial year.

Wapda will get a subsidy of Rs 10 billion in next financial year to pick up receivables from merged districts of KPK compared to Rs 18 billion for ongoing financial year 2019-20. It will receive Rs 1 billion on account of tariff differential for AJ&K compared to Rs 3 billion for ongoing financial year.