Interprovincial Differences in Power Sector Subsidies and Implications for the NFC Award

Power sector subsidies constituted 83 percent of the federal government’s total subsidies of PRs 558 billion in 2012. The tariff differential subsidy (TDS) amounted to PRs 464 billion (including arrears of PRs 312.8 billion from previous years). The TDS is provided to distribution companies (DISCOs) to cover the difference between the tariff schedules approved by the National Electric Power Regulatory Authority (NEPRA) (which can differ across DISCOs) and the uniform tariff schedule (by consumer group) notified by the Ministry of Water and Power (MoWP) for all regions of the country. The NEPRA-approved tariff takes account of DISCOs’ revenue requirements and various elements of cost. In calculating the average tariff, NEPRA also takes into account companies’ transmission and distribution (T&D) losses. Both revenue requirements and T&D losses differ across DISCOs, which are duly reflected in NEPRA-approved tariffs. The fact that NEPRA approves different tariffs across DISCOs while the MoWP sets uniform tariffs (by consumer group) implies that each DISCO receives a different TDS from the federal government. This translates into different subsidies for each province. By aggregating the TDS by consumer group across all DISCOs, we can also calculate the aggregate subsidy by consumer group.