ISLAMABAD: Pakistan Business Council (PBC) has floated proposals to slash electricity tariff up to Rs 6.5 per unit through different measures including renegotiation on tenor of debts of CPEC IPPs.
The proposal titled “framework for optimising power sector costs and foreign currency outflow” backed by calculations has been shared by Chief Executive Officer (CEO) PBC Ehsan Malik with Major General Tabassum Habib, Director General, Special Investment Facilitation Council (SIFC).
PBC, in its proposal, explained that Pakistan suffers from the highest electricity costs in the region. The competitiveness of industry, and its capacity to create employment and generate exports is impeded by the burden of unutilised generation capacity, inefficiencies in transmission, theft, non-recovery and cross-subsidies to residential consumers.
APTMA seeks ‘competitive’ electricity tariff
High electricity tariff promotes theft and increases the reluctance of domestic users to switch out of less efficient, under-priced, and fast depleting gas.
To make matter worse there is substantial reliance on imported fuel for generation and the transmission system is inadequate to maximise the use of cheaper renewable and coal power from the South. Until a rail link is created to transport coal from Thar reliance on imported coal will continue.
The objective of reforms should; therefore, be on reducing reliance on imported fuel, renegotiating the tenor and terms of Chinese debt to Independent Power Producers (IPPs), making power more competitive by giving incentive to consumption of unutilised generation capacity, addressing inefficiencies, theft and under-recovery in distribution and making transmission more stable and reliable.
According to the proposals, the financial impact of reduction in transmission, distribution and recovery losses of Discos amounting to Rs 185 billion will reduce tariff by Rs 1.25 per cent.
As per the Nepra Report (2021-22) T&D losses of all Discos excluding K-Electric were 17 per cent verses Nepra’s target of 13 per cent and the recovery rate was 90 per cent as compared to target of 100 per cent. In contrast KE’s T&D losses were 14 per cent and the recovery rate was 96 per cent.
In the short run, it should be possible to achieve at least an improvement of 2 per cent in T&D losses and 4 per cent recovery, i.e., a total of 5 per cent.
PBC maintains that a 5 per cent savings translates into approximately Rs 175 billion per annum or Rs 1.25 per unit.
PBC also assumed that restructuring of tenor and cost of Chinese IPPs debt will generate savings in forex out flows of $ 1.7 billion per annum whose impact on power tariff has been calculated at Rs 7 per unit for power from CPEC projects equivalent to Rs4 per unit on national mix.
Clarifying its claim, PBC stated that there are currently 17 power projects with approximately 11,000-MW dependable generation capacity funded by Chinese debt.
The estimated foreign debt borrowed to finance these projects is $ 15 billion. Most of this debt is priced on commercial terms, which at current LIBOR rate amounts to approx. 10 per cent per annum, with a repayment term of 10 years. This currently results in debt servicing obligations of $ 2.4 billion per annum over the remaining period of their original 10 years.
PBC argues that as 100 per cent of this debt is backed by GoP guarantee, efforts should be made to convert t into a G2G loan with a 30-year repayment term concessionary rate of 2 per cent which would reduce annual payments to around $ 700 million (half from extension of tenor and half from reduction in interest cost) thereby saving $l.7 billion aggregate in foreign exchange payment every year for the unexpired period of the original 10-year term of plants. Resultantly, capacity payment to these plants will reduce by Rs 7 per unit which translates to approximately by Rs 4 /KWh on a full basket basis.
PBC maintains that the cost of making industry competitive will be Rs 180 billion, which will be offset by positive impact on higher exports, imports, jobs, etc. Its impact on tariff will be Rs 1.29 per unit.
To strengthen this idea, PBC has suggested to the government to reduce industrial tariff from Rs 37 per unit or Cents 13 per unit (likely to increase) to a regional average of Cents 9 per unit to generate jobs, exports, tax revenue and to reduce import reliance.
PBC further contends that tariff for industry is burdened with inefficiencies of generation, transmission and distribution companies. Additionally, cross subsidy is loaded on the industrial tariff. Overseas customers of Pakistani exporters cannot be expected to pay for this, nor can domestic manufacturing compete with imports.
PBC has proposed to the government to reduce industrial tariff by Rs 11 per unit to Rs27 (or Cents 9) to make industry competitive, on the assumption of 25 per cent of total current demand being from industry, the gross cost of which would amount to Rs 385 billion (140,000 Gwh x 25 per cent x Rs 11=Rs 385 billion).
However, this will partly be offset by increased demand. Assuming 1,500 MW increase in off take, the incremental capacity charge recovery will amount to Rs 208 billion (1,500x 365= 13,000 Gwh x Rs 16 =208 billion). So the cost will be around Rs 180 billion which will be offset by benefits of increased exports, lower imports, more jobs and higher tax revenue through improved competitiveness of industry.
PBC further requested the government to expedite south-to-north transmission through private sector investment. Its cost benefit has been calculated at Rs 200-275 billion, to be translated into Rs 1.4 or Rs 1.9 per unit.
Another proposal is related to price incremental power in winter months at discount rate to be offered to optimise capacity usage. Its approximate impact will be of Rs 17.5 billion which will translate into Rs 0.1 per unit.
PBC has also suggested conversion of three imported coal-fired power plants on local Thar coal initially in a 20 per cent blending; and in 2 to 4 years to 100 per cent Thar coal replacement. The impact of 20 per cent blending will be 0.14 per unit whereas 100 per cent local coal conversion will have impact of Rs 0.48 per unit on tariff.
Copyright Business Recorder, 2023
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