PKR slide vs USD: Nepra indicates more hike in power tariffs

ISLAMABAD: The country’s power sector regulator on Wednesday indicated more increase in electricity tariff through Quarterly Tariff Adjustment (QTA) after the rupee plunged to over Rs225 to the US dollar against its estimates of Rs200 to the dollar.

This indication came from Nepra Chairman Tauseef H Farooqi during a public hearing on government of Pakistan’s motion with respect to increase in base tariff by Rs7.91 per unit, to be raised in three phases - Rs3.5 per unit in July, 2022, Rs3.5 per unit in August-September and Rs0.91 per unit from October onward. With this increase, the cumulative tariff of consumers will touch Rs40 per unit including taxes and surcharges from existing Rs27 per unit. The revised Schedule of Tariff (SoT) for distribution companies and K-Electric will be applicable after issuance of notification.

“We are in a catch 22 situation these days. The biggest problem is that the electricity consumers are troubled due to higher bills and others are concerned about the non-availability of electricity. Damned if we do, and damned if don’t” Chairman Nepra said adding that the country is passing through an “emergency” situation.

He further argued that fuel cost has increased by eight times and the rupee has touched Rs222 per dollar mark which are the main reasons for the increase in tariff.

“If the rupee value is reduced to half and fuel cost increased 8 times, then the cost of electricity generation increased by 16%. The country should not have opted for power generation on imported fuel,” he said adding that everyone knows what blunders Pakistan made with respect to power generation strategy.

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“If you ask me, I would say, we have committed a fundamental blunder. We should not have opted for imported fuel projects,” he maintained.

The regulator came under fire from consumers’ representatives, KCCI and media for being a “rubber stamp” with respect to passing on the proposed increase in tariff without raising any questions.

A Power Division team, headed by Joint Secretary, (Power Finance) Mahfooz Ahmed Bhatti, informed the authority that the government will extend a subsidy of Rs220 billion to the lifeline and protected category of consumers. He said that about 42% of total consumers are protected as no increase has been proposed for them. Nepra, in its determination of June 6, 2022 approved a revenue requirement of Rs2.584 trillion for FY2022-23 but the government decided to extend a subsidy of Rs220 billion to domestic consumers falling in the category of lifeline and protected, he added.

“Almost 50% of domestic consumers will not face a price shock due to the proposed increase of Rs7.91 per unit,” Bhatti maintained.

Naveed Ahmad from CPPA-G informed the authority that the government has also protected lower middle class consumers using 1-100 units per month and will pick up a subsidy of Rs11 per unit. The consumers using 101-200 units will be given a subsidy of Rs10.97 per unit.

Chairman Nepra inquired if the impact of the proposed increase of Rs0.91 per unit from October 1, 2022 will be offset by a drop in the existing QTA of Rs1.66 per unit, the representative of CPPA-G responded that the rationale is that with a drop of QTA of Rs1.66 per unit the impact will be reduced by Rs0.75 per unit in October 2022.

Nepra Director Tariff Mubashir Bhatti, further clarified that Rs7 per unit will be increased in July, August and September. However, the impact of Rs0.91 per unit will be offset with a drop of QTA of Rs1.66 per unit.

Joint secretary (Power Finance) Power Division said that revenue requirement was due from July 1, 2022 and now economic assumptions have further changed and which are changing every day.

Chairman Nepra forced Power Division’s team to make a categorical statement before the Authority that the former was not responsible for any delay in notification of tariff increase as reported in the press.

The representative of CPPA-G who initially confirmed that the amount of proposed increase of Rs7.91 per unit from July 1, 2022 could have been less if QTA of Rs1.66 per unit and two month FCAs were notified on time, later bowed down to pressure and backed out from his statement after Chairman Nepra sarcastically commented “you were eager to become hero.”

He also opposed the implementation of differential tariffs in different distribution companies as per their losses and recovery saying that the regulator does not want riots in the country.

Rehan Jawed suggested that the government should immediately divert 200 mmcfd of captive power plants to RLNG-fired plants, which will reduce electricity tariff by Rs3 per unit. He added that per unit cost will be Rs44 per unit whereas industries by getting cheap gas are generating electricity at Rs13 per unit, which begs the question of how the former can compete with the latter. He requested the government to consider his proposal and divert 200 mmcfd cheap gas to government-owned RLNG power plants.

Tanveer Barry, Chairman KCCI Sub-Committee on public sector utilities, ie, power and gas said that with an increase of Rs7.91 per unit in base tariff, national average base tariff will rise from Rs16.91 to Rs24.82 and after including 17% GST, the tariff will be Rs29.034 per unit. With FCA adjustment and other charges the tariff will be between Rs45-50 per unit.

How will industry survive with the proposed massive increase in base tariff? he questioned. Barry further stated that industrial consumers were previously being provided Industrial Support Package (ISP) by the government that allowed them to consume electricity during peak hours at the same rates as off peak hours.

ISP was allowed until June 2022 and accordingly with no further extension is granted, peak rates would now be applicable on industrial consumers as well.

Similarly, zero rated industries were being provided electricity at a fixed rate of 9 cents per unit, which was applicable till June 2022 and which has also ended. Now these industries will be charged as per applicable tariff rate on normal industrial consumers, he maintained. “KCCI requests the authority not to allow any increase in base tariff as inflation is already high and will rise further with the raise in tariff,” he said.

Arif Bilwani, a representative of consumers raised the issue of cross subsidization, asking why was there a huge difference in rates between consumers of Time of Use (ToU) as compared to non-ToU meters). He also criticised the government for not taking decisions based on future projections of fuel prices.

Copyright Business Recorder, 2022