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Power Division proposes 'further hike' in electricity base tariff

12 Jan, 2022
The proposed base tariff will be Rs 18.09 per unit in FY 22 and Rs 18.37 per unit in FY 23. File
The proposed base tariff will be Rs 18.09 per unit in FY 22 and Rs 18.37 per unit in FY 23. File

The Power Division is said to have proposed further increase in electricity base tariff by over Rs 2 per unit to raise it to Rs 18.37 per unit by 2023 from existing base rate of Rs 16.44 per unit in accordance with understanding with the IMF, well informed sources told Business Recorder.

The revision has been proposed in the revised Circular Debt Management Plan (CDMP) for 2022 and 2023, tailored on basis of projected exchange rate PKR 171/ US Dollar, and Consumer Price Index of USA and Pakistan.

The proposed base tariff will be Rs 18.09 per unit in FY 22 and Rs 18.37 per unit in FY 23. An increase of up to Paisa 93 per unit (average Paisa 59 per unit) is also on the cards under the guise of a power sector subsidy reform plan for non-protected category of consumers, which is already under implementation.

“The annual rebasing of Rs. 2.17/ unit is mainly due to addition of new capacity in the system,” the sources quoted Power Division claiming in its revised CDMP to be presented before the CCoE on Thursday(tomorrow).

The circular debt was projected at Rs 2.280 trillion in FY 21, Rs 1.890 trillion in FY 22 and Rs 1.526 trillion in FY 23. Of this, Power Holding Limited (PHL) stock would be Rs 930 billion in FY 21, Rs 800 billion FY 22 and Rs 1.526 trillion in FY 23. The debt stock of CPP-G has been estimated at Rs 1.350 trillion in FY 21, Rs 1.090 trillion FY22 and Rs 890 billion in FY 23. Discos’ payables to IPPs are estimated at Rs 1.250 trillion in FY 21, Rs 990 billion FY 22 and Rs 789 billion in FY25, and Gencos’ payables to fuel suppliers will be around Rs 100 billion till FY 23.

The uncertainty of assumptions developed for formulation of base case has implications on forecasting accuracy. Fuel price volatility, economic parameter variation, resource availability, change in Commercial Operation Date (COD) of upcoming power plants, etc represent major sources of uncertainty. For instance, ± Rs 10 variation in exchange rate could result in (0.75)/unit to 0.69/unit change in consumer-end rates. Change in demand, change in consumer mix, change in generation mix, KIBOR, local inflation, hydel availability, imported coal price, LNG and crude oil prices also will have major implications on power purchase companies.

Federal Cabinet on recommendations of CCoE approved CDMP on March 15, 2021 covering targets for FY 2020, 2021 and 2023. The CDMP was framed according to the targets set for the power sector and consequently the circular debt flow in FY 21 was reduced to Rs 130 billion as compared to Rs 538 billion in FY 20. In accordance with the approved CDMP, CCoE regularly reviews and tracks the performance on each initiative to contain the circular debt flow on a monthly basis.

The CDMP approved in March 2021 was formulated on the basis of the prevailing market conditions including notification of QTAs and rebasing, PKR/ USD exchange rate, inflation, applicable fuel prices and estimated Commercial Operation Date (COD) of upcoming power plants, etc. Based on latest assumptions, a new iteration for forecasting of power purchase price has been carried out. Aligning the CDMP with latest forecast is a continuous process for accurate monitoring.

Following changes with respect to notification of QTAs and annual rebasing has occurred from the CDMP approved in March 21.

For instance, QTA Q1&Q2 of FY 21 was anticipated at Rs 0.92 per unit in April 2021 but Rs 0.90 per unit was notified in October 2021. An increase of Rs 0.07 per unit was notified in October 2021 against Rs 0.24 per unit in May for QTA Q3 of FY21. For QTA Q4 of FY 21, Rs 0.06/unit was anticipated in August 2021. However, actual/ projected raise was Rs 0.24 per unit in November 2021 which is yet to be notified. Remaining annual rebasing of FY 2020 was anticipated in June 21, which was notified in October 2021 and anticipated annual rebasing 2021 was Rs 2.21/ unit in July 2021 but only Rs 0.63/ per unit was notified in February.

These changes, along with other factors, have resulted in divergence of Rs 448 billion in circular debt flow assumptions for FY 2022. Considering changes in assumptions and to recalibrate the CDMP Power Division has updated the CDMP with revised CD stocks projections of Rs 1.890 trillion and Rs 1.526 trillion at the end of FY 22 and FY 23, respectively. In the previous CDMP, it was estimated to be Rs 1.442 trillion and Rs 1.123 trillion, respectively. The circular debt flow before stock payments for FY 22 and FY 23 is projected at Rs 167 billion and Rs 96 billion, respectively, which shows a declining trend with respect to circular debt flow for the FY 2019 and before.

The CDMP focus is on reducing the increase of CD flow. The plan also envisages measures to reduce the stock of circular debt. The gap in consumer reference rate and projected cost of supplying power will be mitigated through timely tariff increases, Discos’ collections and reduced losses planned to improve to 95.25% by FY-22 and 15.58% by FY-23, respectively. The plan also assumes that GOP subsidies will be budgeted properly and released in timely manner. KE will contribute Rs 95 billion to the circular debt.

Pursuant to Prime Minister’s directive, a three-phase subsidy reform plan is already approved by the Cabinet. Existing net subsidies for unprotected groups should be phased out over the next 5 years.

It has been observed that against allocation of Rs. 330 billion for power subsidy, Power Division has released Rs 113.654 billion which is 24.45% of the total allocation; therefore, any subsidy claims of CFY 2021-22 pending till December 2021 should be processed immediately. Power Division has requested Finance Division to process the pending subsidy claims on priority to avoid liquidity crunch faced during winters.

The story was originally published in Business Recorder on January 12, 2022.