Moratorium on gas schemes imposed: Rs1.39/unit raise in power base tariff announced

ISLAMABAD: The Federal Government on Friday announced to increase electricity base tariff by Rs 1.39 per unit across the country including KE from November 1, 2021 and impose moratorium on ongoing and new gas schemes for domestic consumers till finalisation of new gas pricing mechanism.

This was formally announced by the Minister for Energy, Hammad Azhar and Minister of State for Information and Broadcasting, Farrukh Habib at a joint press conference. The announcement of increase in tariff has been made after getting approval of Federal Cabinet on a summary moved by Power Division.

Minister for Energy stated that domestic consumers who use up to 200 units monthly will be exempted from the increase of Rs 1.39 per unit. Power Division will send a request to make the approved increase in tariff slabs, after which notification will be issued. Last year Nepra had determined an increase of Rs 3.34 per unit in tariff, of which Rs 1.95 per unit was passed on to consumers from January this year but did not pass on Rs 1.39 per unit in June despite written assurance to the World Bank.

Energy Minister said 46 percent of domestic consumers using less than 200 units will not be affected by this increase. He said the raise in tariff will also not have any impact on industrial package.

When Hammad Azhar was reminded that Minister for Finance Shaukat Tarin pledged a day earlier - on October 14, 2021 in Washington DC while attending the annual meeting of IMF/ World Bank - that electricity tariff will not be increased for the time being he replied that he had not seen his statement.

Gas pricing decisions

"I had discussion with Finance Minister and World Bank President via video link on October 14, at 6 p.m. wherein I informed the World Bank Chief that we are going to increase power tariff by Rs 1.39 per unit," Azhar categorically stated.

As in the past Energy Minister laid the blame on the need to raise tariffs three years into its tenure on the PML(N) administration for establishing expensive imported fuel based projects due to which the government has to pay capacity payments.

He further contended that capacity payments, Rs 85 billion in 2013, are now over Rs 750 billion and will touch Rs 2.5 to Rs 3 trillion by 2030 which is the result of expensive plants with a capacity more than the requirement.

Azhar said circular debt flow of Rs 450 billion per year has now been reduced to Rs 130 billion and efforts are afoot to bring it to zero.

He said, the incumbent government has already decided to establish new projects on International Competitive Basis (ICB) adding that a ban has been imposed on imported fuel-fired projects.

The Minister maintained that there will be no change in concessional industrial tariff of Rs 12.96 per unit on incremental consumption.

He further stated that losses and recovery have improved due to which Nepra has slashed loss targets from 15 per cent to 13 per cent adding that the share of losses and recovery are only 10 to 15 per cent of total circular debt.

Azhar also stated that the impact of quarterly tariff adjustment of previous quarter is projected to be negative 15 to 24 paisa per unit, which will be passed on to the consumers using above 200 units which implies that the real increase will be around Rs 1.10 per unit (an incorrect statement as quarterly adjustment is for one quarter whereas increase in base tariff is forever).

‘Govt increased average power tariff by over 40pc in 3 years’

Gas-- Minister for Energy, Hammad Azhar also announced that the government has decided to impose moratorium on all ongoing and future schemes of domestic consumers until new gas pricing mechanism which will comprise of a mix of national gas and imported RLNG. He said the new pricing mechanism which will be approved very soon will be based on weighted average price of both domestic gas and RLNG.

Azhar further contended that prices of LNG have increased manifold globally due to Covid and at the same time gas availability has also shrunk. He said, Russia's gas flow has massively reduced which has also impacted on prices.

However, in Pakistan impact is not that much, he said adding that Pakistan has booked 10 LNG cargoes for November and December 2021 as compared to 11 cargoes last year, which implies Pakistan is short of just one cargo. He said, international market is fluctuating due to which traders were shy of offering bids.

"We have locked LNG cargoes at weighted average rate of $ 12 or $ 13 on long term and spot basis whereas presently spot cargo' s price is $ 30 and $ 35 per MMCFD," he maintained.

He claimed that procurement of LNG quantity in the system is the same as was last year and is being injected in the pipeline.

He said that key issue is that Pakistan's domestic gas reserves are depleting very fast, adding that Pakistan's local gas has been depleting by 9 per cent per annum for the last 15 years. In 2010, the flow of of SNGPL was 2000 MMCFD which has reduced to 800 MMCFD from both the Sui Companies during the last one year.

He said, presently only 28 per cent people are using gas due to which availability of gas for fertilizer and industry is being reduced.

Minister said that Pakistan's existing gas pipeline infrastructure can only transport 1200 MMFCD LNG or maximum 1300 MMCFD.

The new pipeline will be operational in 2030.

He maintained that if imported gas is supplied through the pipeline, it will not be feasible as in previous years, the loss was recorded at Rs 35 to 40 billion. He said, this year prices of LNG have also increased, which will have a further impact.

"Now we are going to change price mechanism according to which imported gas will be injected in the pipelines and Sui Companies will not inflict financial loss of Rs 40 billion or Rs 50 billion," he said.

With the new mechanism, the price of imported gas will also be billed to domestic consumers as present law does not allow gas companies to do this.

"We are going to amend the law which is called weighted average cost of gas. We are imposing moratorium on all ongoing gas schemes until new mechanism is in place," Mr. Azhar maintained.

He said, the PTI government will promise supply of gas to the consumers only if gas is available and the cost is recovered. Azhar maintained that the PTI government does not want huge circular debt in gas sector as is in electricity sector.

In a tweet he said "local gas reserves depleting at a rate of 9 per cent per annum. Government does not have legal mechanism to collect costs of imported gas from consumers. We have forged a consensus on new pricing mechanism but till its legislation, government is halting all expansion in domestic gas network."

Copyright Business Recorder, 2021