ISLAMABAD: The Finance Ministry is said to have agreed to extend subsidy of Rs 1.094 trillion for the financial year 2024-25 for the power sector against the Power Division’s demand of Rs 1.250 trillion, well-informed sources told Business Recorder.
Of this, Rs 174 billion will be earmarked for K-Electric for next fiscal year, however, details of remaining allocations will be finalized once increase in electricity tariff through re-basing is approved by the National Electric Power Regulatory Authority (NEPRA). The government had earmarked Rs 970 billion subsidy for the power sector in 2023-24.
According to sources, stakeholders are discussing proposed impact of rebasing of power tariff which will be finalized soon so that allocation for different segments is incorporated in the budget documents.
Increase in power sector subsidy: Hamstrung by grim lack of fiscal space, FD says ‘no’
The sources said there will be no change in tariff in May and June, however with rebasing from next fiscal year, tariff will increase up to Rs 5 per unit. However, the impact of increase will decide the future of FTAs and QTAs.
Power Division and NEPRA officials, sources said, are closely coordinating with each other to finalise the figure of rebasing, adding that Power Division does not want allocation of subsidy’s amount to a level which can further increase circular debt.
Currently, stock of circular debt is about Rs 2.6 trillion which is expected to be reduced to some extent after release of subsidy of about Rs 125 billion recently approved by the federal government to be paid to the Chinese IPPs prior to the Prime Minister’s visit to China scheduled for June 5, 2024.
However, for the first time, Power Division has acknowledged that it would not be able to close circular debt stock at Rs2.350 trillion despite commitment with the International Monetary Fund (IMF) and World Bank.
Power Division, source said, is disturbed due to massive increase in solarization by the paying consumers, ie, domestic and industry due to which there has been a massive recorded reduction in sales of Discos. This is the main reason that government is unable to meet the target of circular debt stock of Rs 2.350 trillion.
“On the one hand there is impact of higher tariff on revenue but on the other solarisation has destroyed all assumptions of FY 2023-24,” the sources said, adding that 25/30 percent portfolio of power sector has been disturbed.
The sources further stated that solarization reached 2036 MW till April 30, 2024 as compared to 963 MW in June 2023 which implies that solar system of 1,073 MW has been installed in the country.
“Current trend of solarization indicates that every month an IPP (Independent Power Producer) is installed in the country. If this trend continues, who will consume generation from power plants?” the sources queried.
Replying to a question, sources said there is no shortage of generation in the country, however Discos are executing load shedding plans as per their revenues. Power Division has directed Discos to relax their load shedding schedules to provide relief to consumers in the scorching heat across the country.
The government is also facing a catch 22 situation with respect to generation plan. On one hand generation from hydel sources increased due to early melting of snow whereas on the other, it has to operate must run plants.
Copyright Business Recorder, 2024