Identifier
Created
Classification
Origin
09ISLAMABAD2381
2009-10-02 12:46:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Islamabad
Cable title:
PAKISTAN RAISES ENERGY TARIFFS IN STEP TO REDUCE
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UNCLAS ISLAMABAD 002381
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: PGOV EFIN ECON EAID ENRG PK
SUBJECT: PAKISTAN RAISES ENERGY TARIFFS IN STEP TO REDUCE
SECTOR DEBT
REF: A. ISLAMABAD 2139
B. ISLAMABAD 1983
UNCLAS ISLAMABAD 002381
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: PGOV EFIN ECON EAID ENRG PK
SUBJECT: PAKISTAN RAISES ENERGY TARIFFS IN STEP TO REDUCE
SECTOR DEBT
REF: A. ISLAMABAD 2139
B. ISLAMABAD 1983
1. (SBU) Summary: The GOP raised electricity tariffs 6
percent, in accordance with its commitments to international
financial institutions. However, lower fuel costs and higher
hydropower generation simultaneously pushed tariffs down,
reducing the immediate impact on consumers, and hence public
outcry against the hike. Nevertheless, we should commend the
GOP for taking an important first step in ensuring tariff
collections are in line with energy sector generation and
distribution costs. End Summary.
2. (SBU) On October 1, Prime Minister Gilani announced a 6
percent increase to Pakistan's energy tariff, the first of
three price hikes agreed to with the World Bank and Asian
Development Bank (ADB) and blessed by the IMF. Later in the
day, NEPRA, Pakistan's energy tariff regulator, announced a
4.75 percent tariff decrease to reflect cheaper power
production costs due to falling fuel oil prices and higher
hydropower generation. The effective tariff increase for
October is therefore 1.25 percent.
3. (SBU) Public reaction to the increase has been muted, met
with some criticism in the media but not by public protests
as was the case last fall. However, there could be a more
active response at the end of the month when energy bills are
sent out with the increase. But the larger concern would be
if fuel prices rise, and the population feels the full pinch
of the price hike.
4. (SBU) Business groups, including Pakistan's lead textile
association and the Islamabad Chamber of Commerce, have
publicly criticized the hike, noting that it significantly
raises the cost of doing business. For example, textile
producers claim that power already accounts for well over 30
percent of production costs in spinning and weaving. But as
one leading industrialist told us privately, business leaders
realize what is bad for their companies is good for Pakistan.
5. (SBU) As reported Ref B, the October 1 increase is the
first of three tariff hikes that should bring revenue
collection in line with energy production and distribution
costs. The GOP agreed to further raise the tariff 12 percent
on January 1, 2010 and 6 percent on April 1, 2010.
Successfully implemented, the tariff hikes will ensure that
inter-corporate and bank debt does not build up in the energy
sector, spurring capital investment and improved energy
delivery.
6. (SBU) Comment: It is a happy coincidence that the
mandated tariff increase coincided with lower energy
production costs, reducing the burden on consumers -- and the
political cost -- in the immediate term. Nevertheless, we
should commend the GOP for taking this first step and
continue to bolster their commitment to tariff reform,
especially as a larger and potentially more politically
fraught tariff increase looms in January.
FEIERSTEIN
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: PGOV EFIN ECON EAID ENRG PK
SUBJECT: PAKISTAN RAISES ENERGY TARIFFS IN STEP TO REDUCE
SECTOR DEBT
REF: A. ISLAMABAD 2139
B. ISLAMABAD 1983
1. (SBU) Summary: The GOP raised electricity tariffs 6
percent, in accordance with its commitments to international
financial institutions. However, lower fuel costs and higher
hydropower generation simultaneously pushed tariffs down,
reducing the immediate impact on consumers, and hence public
outcry against the hike. Nevertheless, we should commend the
GOP for taking an important first step in ensuring tariff
collections are in line with energy sector generation and
distribution costs. End Summary.
2. (SBU) On October 1, Prime Minister Gilani announced a 6
percent increase to Pakistan's energy tariff, the first of
three price hikes agreed to with the World Bank and Asian
Development Bank (ADB) and blessed by the IMF. Later in the
day, NEPRA, Pakistan's energy tariff regulator, announced a
4.75 percent tariff decrease to reflect cheaper power
production costs due to falling fuel oil prices and higher
hydropower generation. The effective tariff increase for
October is therefore 1.25 percent.
3. (SBU) Public reaction to the increase has been muted, met
with some criticism in the media but not by public protests
as was the case last fall. However, there could be a more
active response at the end of the month when energy bills are
sent out with the increase. But the larger concern would be
if fuel prices rise, and the population feels the full pinch
of the price hike.
4. (SBU) Business groups, including Pakistan's lead textile
association and the Islamabad Chamber of Commerce, have
publicly criticized the hike, noting that it significantly
raises the cost of doing business. For example, textile
producers claim that power already accounts for well over 30
percent of production costs in spinning and weaving. But as
one leading industrialist told us privately, business leaders
realize what is bad for their companies is good for Pakistan.
5. (SBU) As reported Ref B, the October 1 increase is the
first of three tariff hikes that should bring revenue
collection in line with energy production and distribution
costs. The GOP agreed to further raise the tariff 12 percent
on January 1, 2010 and 6 percent on April 1, 2010.
Successfully implemented, the tariff hikes will ensure that
inter-corporate and bank debt does not build up in the energy
sector, spurring capital investment and improved energy
delivery.
6. (SBU) Comment: It is a happy coincidence that the
mandated tariff increase coincided with lower energy
production costs, reducing the burden on consumers -- and the
political cost -- in the immediate term. Nevertheless, we
should commend the GOP for taking this first step and
continue to bolster their commitment to tariff reform,
especially as a larger and potentially more politically
fraught tariff increase looms in January.
FEIERSTEIN