ISLAMABAD: Karachi Electric (KE) has sought an increase of Rs 3.45 per unit in its tariff under monthly Fuel Cost Component (FCA) for September 21, 2021.
KE, in its request to National Electric Power Regulatory Authority (Nepra) has stated that it spent additional Rs 6.639 billion on fuel in September, which would be recovered from the consumers whereas some portion of it would be picked by the Government of Pakistan as per its subsidy policy for consumers using up to 300 units monthly.
Nepra will conduct a public hearing on the request of KE on November 3, 2021.
Meanwhile, KE on Thursday appeared reluctant to supply electricity to industrial consumers at Rs 12.96 per unit under Industrial Support Package-2 (IPS-2), demanding that difference of marginal cost of generation and proposed rates be picked up by the federal government as subsidy.
This was the crux of a public hearing on Federal Government’s request on extension of incremental consumption package for KE industrial consumers. The Authority comprising Chairman Tauseef H. Farooqi, Vice Chairman Rafique Ahmad Shaikh, Member Balochistan Rehmatullah Baloch and Member KP Engineer Masqood Anwar Khan quizzed both the officials of Power Division and KE team on the data presented in support of motion.
Power Division’s team was headed by Joint Secretary (Power Finance) Mahfooz Ahmed Bhatti, who presented the case.
However, none of the representatives of Karachi’s business community was part of the public hearing except a representative from Amreli Steel.
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Power Division; however, claimed that power utility’s marginal cost calculations are not reliable, requesting Nepra to verify marginal cost of KE for this purpose and provide appropriate mechanism to incorporate this marginal cost in determined tariff.
The government recently announced a concessional package of Rs 12.96 per unit on incremental consumption for KE till October 2023. ECC considered Power Division’s summary on August 16, 2021 regarding continuation of discount on incremental sales post June 2021.
Power Division, in its motion also requested Nepra to verify marginal cost of KE for this purpose and provide appropriate mechanism to incorporate this marginal cost in determined tariff.
Power Division proposed that industrial consumers should be supplied electricity at Rs 12.96 per unit instead of Rs 14.61 per unit and the government would provide subsidy of Rs 1.65 per unit. The estimated subsidy would be Rs 11.20 billion.
KE explained that ISP with respect to discount on incremental sales was initially announced for the period November 2020 to June 2021. Based on relevant approvals provided by Power Division, Nerpa on December 1, 2020 allowed charging of discounted rate for incremental sales for industrial consumers during November 2020 to June 2021 with reference period of March 2019 to February 2020.
Discounted rate for incremental sales for KE’s industrial consumers were as follows: (i)
B1, B2 and B3 - discount of Rs 4.96/ kWh from the relevant applicable rate and for B3 &B4, discounted rate of Rs 12.96/ kWh.
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According to KE, Nepra in its decision of December 1, 2020, stated: “The Authority has considered the request of the Ministry of Energy and agrees with the proposal regarding Special rate for industrial consumers on incremental consumption. However, keeping in view the fact that K-Electric tariff structure is different from Discos’ whereby, as per para 19.9 of the K-Electric’s MYT MLR decision of October 9, 2017, the risk of sales, whether positive or negative lies with K-Electric; therefore, the discount of Rs.4.96/kWh for B1, B2 & B3 industrial consumers from the base rate & difference regarding rate of Rs. 12.96/kWh for B4 & B5 Industrial Consumers, for incremental sales would be picked up by the Government of Pakistan (GoP) as tariff differential subsidy.”
The incremental consumption period would be based on the consumption period applicable from February- March 2020.
KE officials argued that the new incremental consumption package would not have any impact on industrial consumers of Karachi.
KE officials further noted that growth in consumption was recorded at 14 per cent from July 2020 to November 2020 whereas growth registered an increase of 18 per cent. Chairman Nepra remarked that the industrial support package was a mini revolution as Pakistan achieved 3.94 per cent growth in GDP against IMF’s assumption of 1 per cent.
CFO KE, Aamir Ghaziani explained that marginal cost of KE has increased from estimated rate of Rs 14.61 per unit due to higher prices of furnace oil and RLNG, adding that normal cost of generation was Rs 18 per unit in September 2021, which implies marginal cost will be much more.
CFO KE dispelled the impression given by Chairman Nepra that KE is not consenting to supplying electricity at concessional tariffs, saying that KE is ready to supply electricity to its industrial consumers at Rs 12.96 per unit but is requesting subsidy at actual marginal cost of power utility.
The Authority also conducted a separate hearing for the winter package on incremental consumption for domestic, commercial and general consumers from November 1, 2021 to February 2022.
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The package of Rs 12.96 per unit will be applicable to consumers who use over 300 units monthly. For this purpose, a subsidy of Rs 1.30 billion has been earmarked for Karachi Electric under the package. The government wants the consumers to use electricity for heating in winter instead of natural gas.
During the hearing, the officials of Power Division stated that the government thought it appropriate that a package should be offered to the consumers in the current circumstances. “We have surplus power and have the capacity to transmit it to the consumers,” said Power Division officials. During the hearing, Chairman Nepra maintained that when surplus electricity is available then why it should not be supplied to the consumers.
Nepra members feared that with this package the government may also operate expensive power plants. Power Division officials stated that if electricity consumption is increased, the LNG demand would also increase, adding that a strategic plan is being formulated in consultation with Discos. Chairman Nepra stated that privatisation is the only option to improve performance of Discos. Vice Chairman Nepra also observed that Discos are investing in expansion of their new schemes but not for improvement old feeders.
“If power system has not improved during the last 70 years, then we have to look where the fault is,” he said. KE team also conveyed to the Authority that due to increase in consumption, the power utility has to operate expensive power plants.
Copyright Business Recorder, 2021