Rs136bn grant sought to reduce power tariff by Rs5/unit

ISLAMABAD: Power Division has reportedly sought supplementary grant of Rs 136 billion to slash electricity price by Rs 5 per unit (both in base rate and FCA) for four months of current fiscal year (March-June 2022) to be applicable to commercial and domestic consumers of Discos and KE sans consumers having Time of Use (ToU) meters and lifeline consumers, sources close to Minister for Energy told Business Recorder.

According to PM relief package, which may have raised concerns within IMF, World Bank and ADB, Fuel Charges Adjustment (FCA), will be capped at Rs 3.0966 for four months for eligible consumers of PM package.

Hammad Azhar was all set to unveil PM Relief Package on Friday but he cancelled the scheduled press conference due to Peshawar terrorist incident, which claimed lives of over 60 during Friday prayers at the mosque.

Prime Minister Imran Khan on February 28, 2022, made a public announcement regarding the relief package of reduction in electricity prices from March 2022 to June 2022. Pursuant to the announcement, clarification was sought from the PM Office and it was conveyed telephonically that the electricity charges base-rate will be reduced by Rs 5 per unit for the relief period.

Power Division has also been conveyed that in addition to reduction in base-rate, the Fuel Charges Adjustments (FCAs) will be capped at Rs 3.0968 per unit for relief period (March-June 2022) which will be reflected in the electricity bills in February, 2022. The amount of FCA over and above the quoted rate of Rs 3.0968 per unit will be absorbed by the government.

‘Rs5 power tariff cut will be adjusted through budgetary reallocation’

The financial impact of the PM’s relief package will be borne by the federal government by way of additional subsidy. The relief package will be applicable to commercial consumers and domestic non-ToU (Time of Use) consumers with consumption upto 700 units per month excluding lifeline consumers.

The uniform tariff determined by NEPRA and notified by GoP through SRO 182 to 191(1) 2021 of February 12, 2021 as modified from time to time, provides for the monthly FCA mechanism to account for adjustment with respect to variation in fuel cost component of power purchase price.

FCA is passed on to the consumers with two month lag i.e. in billing month of March-22, FCA of January-22 (on the basis of units consumed in January) would be passed on to the consumers.

According to Power Division, Rs 5 per unit will be provided by way of reduction in consumer bill for consumers eligible for PM relief package which will be worked out based on the applicable notified Schedule of Tariff (SoT).

Further, the FCA for Jan-22 to be charged in March-22 is expected to the tune of Rs 5.95 per unit which is required to be capped at Rs 3.0968 per unit, will eventually result in a subsidy requirement of Rs 2.86 per unit. The sources maintained that financial impact of subsidy requirement of base rate reduction as well as capping FCA at Rs 3.0968 per unit for eligible consumers is approximately Rs 136 billion.

The projected impact of PM relief package is based on estimated consumption during the relief period and assumptions developed for FCA projections.

FCA for Jan: Govt mulling hiking power tariff by Rs6.1/unit

The variation in factors such as change in demand, change in consumer mix, change in generation mix, hydel availability, imported coal price, LNG and crude oil prices, economic parameter variation, resource availability, change in Commercial Operation Date (COD) of upcoming power plants etc., will have major implication on projections and accordingly will have impact on the subsidy requirements for PM relief package, which will be taken on actual basis if need arises.

Power Division argued that cash flow requirement for PM relief package is required to be budgeted and released on timely basis as the power sector is facing liquidity crisis which has worsened due to current prices of imported fuels. The receivables position as on February 28, 2022 for IPPs was Rs 1.428 trillion and private power plants are pressing hard to maintain fuel supply chain.

According to Power Division hike in fuel price requires timely injections of cash flow to manage the liquidity needs of the power sector.

Power Division, in its summary has submitted the following proposals to the Federal Cabinet; (i) consider and approve “Discos and K-Electric’s all commercial consumers and domestic non-ToU consumers having monthly consumption upto 700 units ( excluding lifeline consumers) as eligible for PM relief package; (ii) consider and approve PM’s relief package of Rs 5 per unit by way of reduction in consumer bills for eligible consumers’ which will be worked out based on the applicable notified SoT for the relief period of four months ( March to June 2022); (iii) approve that the FCA of Jan-April 2022 (to be charged in March-June 2022), notified by NEPRA be capped at Rs 3.0968 per unit for eligible consumers for PM relief package. The additional cost will be borne by the Federal Government; (iii) approve Rs 136 billion Supplementary Grant in the head of TDS including additional cost of FCA and release it to Power Division relief package; and (iv) authorise Power Division to notify PM’s relief package.

Copyright Business Recorder, 2022