Govt to save Rs300bn in electricity costs in three years: minister

ISLAMABAD: Blaming the PML-N government for leaving behind “landmines”, Planning and Development Minister Asad Umar on Monday claimed that the decisions taken by the PTI government would have a cumulative impact of more than Rs300 billion on electricity costs over the next three years (2021-23).

Speaking at a news conference, Mr Umar, who also heads the Cabinet Commit­tee on Energy (CCoE), said the addition of power generation capacity by the PML-N government would add about Rs1 trillion to circular debt over the next three years.

He said the capacity payment obligation which stood at Rs488bn in 2018 was projected to increase to Rs1.473tr by 2023 as system utilisation would stand at 55 per cent, compared to 84pc in 2018. He said the tariff increase to be required in 2023 due to Rs450bn base circular debt in 2018 was estimated at Rs4.09 per unit while another Rs8.09 per unit increase was estimated due to increasing capacity payment of Rs890bn, leaving a total gap of Rs12.18 per unit by 2023.

The minister said the PTI government had decided to get rid of the “centre of power” from the power division by introducing competitive tariff regime to ensure cheaper energy. He said the PML-N had substantially increased power generation capacity but loadshedding continued across the country, including in Karachi, in the absence of investment in transmission network.

Responding to a question, he said that even if about 20pc contraction in industrial activity over the last two years was taken into account, the capacity addition would not have been consumed by now as there were islands of power which could not be evacuated due to transmission constraints.

The minister said the generation capacity addition was done despite the fact that the then federal government agencies opposed the LNG- (liquefied natural gas) and coal-based power plants in Punjab. On top of that, the previous government contracted expensive LNG from Qatar and ensured that it was supplied to power projects in Punjab under a “must run and take or pay” to make it viable, he added.

Mr Umar said the PTI government was now introducing power sector reforms under which competitive tariff would become possible under a bulk power market when a competitive trading bilateral contract model recently approved by the National Electric Power Regulatory Authority (Nepra) would come into operation over the next 18 months and benefit the common consumers. He alleged that the previous arrangement had been benefiting politicians, bureaucrats and distribution companies and their officers because the price was being paid out of the consumers.

The minister said the government had taken major initiatives for reducing the cost of generation and decisions taken by the CCoE would lead to Rs300bn impact over the next three years. He said the reduction in the rate of return on equity of public sector projects approved by the CCoE on Sept 2 would result in a decline in the cost of generation by about Rs100bn during 2021-23.

Likewise, he added, memorandums of understanding signed with independent power producers would have an impact of Rs60bn during 2021-23. He said the adviser to the prime minister on finance was leading a committee to implement these MoUs.

Mr Umar said the CCoE’s decision to unlock ‘take or pay’ contracts of the LNG-based power plants in Punjab would have a cumulative saving of Rs136bn in 2022-23 through tariff reduction at the rate of 74 paisa per unit in 2022 and 66 paisa per unit in 2023. He did not agree that this burden had been shifted to gas companies, saying he had separately undertaken another initiative that would ensure consumption of LNG in other areas.

Moreover, he said, despite strong resistance from power sector bureaucracy, he had pushed through the closure of old and inefficient power plants in the public sector with a total capacity of about 3,600MW to replace Rs20 per unit energy cost with Rs9.5 per unit that would result in a reduction in circular debt build-up in 2021-23.

Also, the PTI government has introduced auction-based tariff for renewable energy which has brought down wind tariff from about Rs11 per unit in 2015-17 to Rs3.11 and solar tariff from Rs11.5 per unit to Rs3.66.

On top of these measures, he said, the government was now working on structural reforms to manage circular debt in future.

The minister said a committee had been constituted to manage mark-up payments on circular debt that would reduce circular debt by Rs479bn during 2021-23. Also, the resolution of K-Electric issues had become inevitable; otherwise its receivables and payables would add Rs421bn to circular debt, he added.

Mr Umar said the decision had been made at the cabinet level with the understanding of the AJK government under which Azad Kashmir would be charged Nepra-approved tariff and would be paid water use charges on the pattern of net hydel profit to the provinces. Since AJK is being supported on financial matters, the federal government will directly ensure its financing if there is still a difference after adjustment of water use charges against Nepra tariff.

He said solarisation of agricultural tube-wells, particularly in Balochistan, would have an impact of about Rs36bn on circular debt accumulation.

Responding to a question, he said the privatisation of LNG-based plants in Punjab had been put on hold after the Covid-19 pandemic and then the government decision to remove 66pc ‘take or pay’ clause from their contracts because the bidders wanted clarity about their profitability. Nonetheless, he added, the two LNG-based plants — 747MW Guddu power plant and 425MW Nandipur project — and two distribution companies were on the privatisation agenda.