It is official. The electricity price reduction for domestic consumers for April over the previous month is Rs4.32/unit for unprotected and Rs3.41/unit for protected categories. Nepra’s approval of the government’s petition seeking an additional Tariff Differential Subsidy (TDS) was always going to be a matter of routine and has now expectedly been notified as prayed. A reduction of Rs1.71/unit in this regard for three months ending June 2025 is now notified.
The question everyone is asking is whether the electricity price reduction is temporary or permanent. The government insists a large part of it will be permanent, but there is little evidence to support the claim. More downward revision on account of Quarterly Tariff Adjustment (QTA) is widely anticipated for 3QFY25, the petition of which has not been submitted yet, but the Ministry expects the hearing to be held in the ongoing month.
As per the Ministry’s clarification, the expected relief without taxes amounts to Rs5.98/unit – of which Rs4.51/unit is already in the field via TDS of Rs1.71/unit, FCA retention of Rs0.9/unit, and 2QFY25 QTA of Rs1.9/unit. The authorities now anticipate a close to Rs1.5/unit negative adjustment in lieu of 3QFY25, to be heard and decided in April and possibly implemented in retrospect.
If the additional Rs1.5/unit in lieu of 3QFY25 QTA sails through, the gross impact would be close to Rs6/unit, whereas the net impact would be close to Rs2.52/unit, as the FCA adjustment is lower than that of March 2025. Even if both QTAs get implemented simultaneously, the cumulative Rs3.4/unit would not last beyond June 2025. Same is the fate of the TDS of Rs1.71/unit unless the government, in its annual rebasing exercise due in July 2025, finds ways to permanently incorporate it.
Negative QTA revisions are largely a result of savings resulting from concluded negotiations with the IPPs, of which the impact of 5 was reflected in 2QFY25. A similar number is being thrown for 3QFY25, as the regulator has heard more petitions from the IPPs. As per the numbers thrown in by the government, cumulative savings of Rs3.6 trillion are anticipated on this account spread over 15 years – which translated into an average Rs246 billion savings per annum, i.e., Rs2/unit. After the 4QFY25 QTA, which would also likely include savings from IPP negotiations and from the non-utilization of Neelum Jhelum. Beyond that, the QTA revisions are expected to normalize, as all potential savings and revised terms with IPPs will likely be made part of the Power Purchase Price (PPP) in the annual rebasing exercise.
All this while, the Debt Service Surcharge at Rs3.23/unit will continue. On the face of it, there is no additional surcharge, but if the Minister’s words are to be believed, this could continue for nearly 5 to 6 years –to service the debt and make principal repayments amounting to over Rs2 trillion. Recall that an additional PHL surcharge was levied in 2023, aimed at servicing the loan parked in PHL and managing the flow of circular debt.
Now, there is another attempt to clear the circular debt, and the consumer will continue to be burdened with close to Rs380 billion annually for the next five to six years to manage and clear the flow of circular debt. Billions in stock payments have been paid over the years, but the surcharge kept increasing. So, while the government at one hand may claim hundreds of billions of rupees saved through IPP negotiations, which is a valid claim and the effects will be seen in future annual rebasing – the net impact would not be that much as the clearance of circular debt and servicing cost is envisaged via continuous financing of the same by consumers for the foreseeable future.
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