The World Bank (WB) has asked the government to increase power tariff to offset the impact of Rs 24 billion additional burden on Wapda producing thermal power with higher furnace oil prices, sources told Business Recorder. Wapda is facing an unprecedented cost-overrun of around Rs 24 billion owing to purchase of power from IPPs because of lower hydel generation and skyrocketing oil prices in the international market.
"This is a conservative estimate, since it is based on current domestic fuel oil prices and the full impact of the increase in the international oil prices during the past 6-8 months has not been passed on to the consumers," sources quoted the Bank as saying in a report to the Finance Ministry.
The bank said that a clear plan was needed to deal with additional costs. It also asked the government to consider raise in power tariff to deal with the present situation.
The report said that the bank was working with the government on the appropriate subsidy policy which was a key input to the Financial Recovery Plan as it would help determine the actual price path that would be followed.
"Privatisation process of power sector requires clear subsidy policy as early as possible," the bank suggested.
Sources said that Finance Ministry had proposed that the draft subsidy policy would be ready by end-October but Power Ministry failed to finalise it mainly due to differences with Nepra on tariff determinations.
Sustainability of the power sector would require phasing out of some of the subsidy over a realistic timeframe, with a possible move to greater use of capital grants, specially relating to rural electrification, the bank added.
The bank observed that investment in the power sector was substantial, both in transmission and distribution systems. The estimate investment in transmission was Rs 34 billion for the next five years (to 2009) which includes investment for 500/220 kV transmission lines and sub-stations, evacuation lines for proposed power projects and strengthening of the system. In distribution the estimated requirement was Rs 96 billion for the same period.
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