Discos’ unified base tariff hiked: Rs200bn impact calculated; IMF has no qualms

ISLAMABAD: The Federal Government on Thursday announced an increase in the unified base tariff of power Distribution Companies (Discos) of Rs 1.95 per unit across-the-board with the financial impact calculated at Rs 200 billion.

The government's decision was announced by Minister for Energy, Omar Ayub, along with Minister for Planning, Development and Special Initiatives, Asad Umar and SAPM on Power, Tabish Gauhar at a press conference.

National Electric Power Regulatory Authority (NEPRA) had determined an increase of Rs 3.34 per unit in tariff to generate a revenue of Rs 280-300 billion. Power Division will now approach NEPRA to incorporate the proposed increase in schedule of Discos's tariffs, after which the government would finalise the amount of subsidy to bridge the gap.

The International Monetary Fund (IMF) appears to have shown some leniency in agreeing to a meagre increase against the determined tariff of Rs 3.34 per unit but the quantum of the next increase in tariff may depend on pressure from the Fund.

Special Assistant to Prime Minister on Power Tabish Gauhar stated that this time the tariff of lifeline consumers, who were being provided electricity at Rs 2 or Rs 2.50 per unit, would be raised.

Omar Ayub said the additional financial impact of capacity payment, which according to him, is like land mines laid by the PML(N) government), was Rs 218 billion for one year. To recover this amount, an increase of Rs 2.18 per unit had been calculated but the government has decided to raise tariff by only Rs 1.95 per unit. He, however, did not share the estimated revenue impact of this increase and additional subsidy to be given to keep the tariff of lifeline consumers lower, saying that it would be known after NEPRA incorporates the proposed increase. The proposed increase is 15 percent.

As NEPRA sends back schedules of tariff, the Prime Minister may make changes to protect the vulnerable as the proposed increase in lifeline is 100 per cent.

Discos’ existing average tariff is Rs 14.94 per unit, of which Rs 13.35 per unit is base tariff whereas existing quarterly adjustment is Rs 1.59 per unit. The proposed average tariff was Rs 16.84 per unit, of which new base tariff will be Rs 15.25 per unit and existing quarterly adjustment Rs 1.59 per unit.

He further stated that the full financial impact of the “land mines” implied an increase by Rs 7 to 8 per unit due to expensive agreements with power producers made by the previous governments but the due increase has been withheld since 2017.

"The agreements inked by the previous government in the power sector were based on bad intentions and corrupt practices," he said, adding that "due to these agreements, the increase in electricity tariff in one year alone (2019-2020) on account of compulsory Capacity Payments would have been Rs 2.18 per unit but the present government decided to increase the rates by only Rs1.95 per unit in 2021."

The minister maintained that annual capacity payments to IPPs were of Rs 185 billion in 2013, Rs. 468 billion in 2018, Rs. 642 billion in 2019; Rs. 860 billion in 2020 and would reach Rs. 1455 billion in 2023.

Defending the decision to increase tariff, Omar Ayub said the PTI government does not have a “magician's rod” but it protected the people in a very difficult situation and the economy is picking up.

The SAPM said that to reduce circular debt and tariff, the government has taken a number of measures while more needs to be done. He said MoUs were signed with 53 IPPs, which are now in final phase and will be converted into agreements within the next few days. He said the financial burden of Rs 836 billion will be reduced in the next 20 years due to these agreements. Also, receivables of IPPs, which are about Rs 450 billion with ten per cent interest added on, will also be paid this year, which will also reduce payments to IPPs.

He further stated that the difference between the agreements signed with the IPPs in 2013 and 2021 is that payments in 2013 were made without pre-audit and no concession was sought. However, this time, IPPs have agreed to give a discount of 20-25 percent which is a big achievement of the incumbent government.

He maintained the government has reduced by 30-70 per cent the rate of return on government's own existing and in-pipeline power plants. The financial impact of this achievement will be seen in the years to come, he said, adding that the financial burden will be reduced by nearly Rs 6 trillion.

He said by clubbing the financial impact of agreements with IPPs and the government-owned power plants, electricity prices will be reduced by Rs 1-2 per unit in the next few years.

Referring to the “tsunami” of new 10,000MW capacity, he said the government has started negotiations in this regard, requesting the head power plants to stagger themselves so that there is a balance in generation and consumption so that a breathing space is provided to the power sector.

He said electricity demand has reduced in the last few years, adding that this factor has some links to the economy. There was shortage of electricity as well as it was expensive due to which industry shifted to its own generation. The industry was provided cheap gas for power generation for the plants which are inefficient. The reservoirs of cheap natural gas are depleting and industry is generating electricity on expensive LNG.

The Cabinet Committee on Energy (CCoE) has decided to disconnect gas to Captive Power Plants (CPPs) having electricity connections. The gas supply to CPPs which are supplying electricity to domestic consumers, will be disconnected on February 1 and those which are export-oriented will be given the March 1, 2021 deadline.

Discos have been bound to give connections to those industrial units by December 31, 2021, which intend to reconnect themselves to the national system. Applications for new connections of 3000MW at least are pending with the Discos, which will be expedited.

He said, the results of Industrial Support Package were encouraging in November and December and expressed the hope that this trend will continue in January as well. He said, there are inefficiencies in Discos and new Boards will play their due role in improving performance.

"Now the government will also start talks with the provinces to control theft and improve recovery. Discos' monopolies will be done away with in the next two years and consumers will have a choice to purchase electricity from multiple sources," he said, adding that work on CTBCM began 15 years ago and now it has been finalised during the ongoing tenure of this government.

Minister for Planning Asad Umar said that government was committed to taking action against those involved in the petrol crisis. He said a report had been submitted to the cabinet in this regard.

Umar acknowledged the increase in price of sugar and said that government had allowed import of sugar to stabilize its price.

He said that PTI government had inherited issues in energy sector and claimed there had been a continuous improvement in economic indicators. Umer added that there was an increase in exports by 14 per cent during December 2020 industrial production is rising and the economy is now on the right track.

The journalists noted that the “honeymoon” period of the government is over and the cabinet members should not hide behind the performance of previous governments. These remarks invited the anger of Omar Ayub, who replied that they became members of assemblies after contesting elections and that they were responsible to their people.

Minister for Planning, Development and Reforms, Asad Umar said he would continue to “expose” the opposition.

On a question by this correspondent as to what would be the impact of an increase of tariff on inflation, he said that there are weightage of different inputs in the inflation basket, hence it would be difficult to calculate the impact of only electricity prices.

Copyright Business Recorder, 2021