Consumers to face Rs7.63 per unit additional fuel costs for Feb

ISLAMABAD: Flabbergasted by the non-compliance of its orders and the rising fuel costs, the National Electric Power Regulatory Authority (Nepra) on Thursday expressed concern that the impact of fuel costs for February consumption actually meant a Rs7.63 per unit tariff increase, instead of the Rs5 per unit sought by power companies in their petitions.

At the same time, the regulator advised the government to restructure its tariff regime, under which industrial sector was paying about Rs8 per unit higher rate to provide about Rs244 billion annual subsidies to domestic consumers.

“It is frustrating… We raise red flag,” said Nepra Chairman Waseem Mukhtar, adding that industry has to drive economic growth.

He urged the government and power companies to analyse potential restructuring measures that could stimulate electricity demand and economic activity.

Nepra urges restructuring of tariff to ease industry rates; calls for collaborative economic growth analysis

Nepra Member Rafique A. Shaikh observed that the power system — Ministry of Energy, Central Power Purchasing Agency (CPPA), distribution companies (Discos), and the National Transmission Company — had stopped listening to the regulator and its advices about an analysis of demand growth, including an end to revenue-based load shedding, had fallen on deaf ears at the Ministry of Energy and CPPA for many months.

He said the capacity payments and energy price payments had gone up because of 26-80pc variation in coal, LNG, solar and other fuel prices when compared to benchmark, resulting in higher foreign exchange losses, particularly in power plants where utilisation factor was low. The consumers were forced to pay for 70pc unutilised capacity. On average, he said the thermal plants had 35pc utilisation, and 65pc of their capacity was paid for both in energy and capacity purchase price.

Nepra Member Mathar Niaz Rana noted that power companies were seeking an additional Rs4.99 per unit in fuel cost adjustment (FCA) for electricity consumed in February, but another Rs2.63 per unit of the same factor would go to quarterly tariff adjustments (QTA) for capacity purchase prices.

The net increase would be Rs7.63 per unit for additional fuel cost, which would be impossible for the industry to absorb such shocks on continuous basis. This meant the consumers would have to bear over Rs53bn additional burden next month for consumption in February instead of Rs34bn claimed by power companies.

“This is very alarming,” he observed adding that many of the efficiency and capacity-related costs were 30-35pc according to global benchmarks, but capacity payments in Pakistan ranged between 62-70pc.

Mr Rana urged the Ministry of Energy, CPPA and Nepra teams to sit together and examine how international best practices could be attained without disturbing legal contracts with power producers.

CPPA representatives Rehan Akhtar conceded that all fuel costs were almost the same as benchmarked in reference tariff, as prices of all fuels remained stable, but the higher FCA was due to a variation in energy mix — lower hydro, higher LNG, and 12pc dip in energy consumption — thus needing some expensive plants for system stability.

Power Division’s Joint Secretary Mehfooz Bhatti also conceded that decline in demand was mainly because of expensive supply and resultant shift to alternate energy, but ultimately, the whole subject boiled down to planning issue. He disagreed with Nepra’s suggestion to stop commercial-based load shedding for a couple of months, stating that he could not let financial losses to go up while lower recoveries were haunting the sector.

The additional FCA demanded by the CPPA, 113pc higher than the pre-fixed fuel cost of Rs9.42 per unit already charged to consumers in February, calls into question the capabilities of the power sector bureaucracy to forecast fuel costs even for six-seven months.

The additional FCAs have remained over 80pc higher in recent months than the pre-determined fuel costs notified at the start of the current fiscal year. This increase in FCA is on top of about 26pc increase in annual base tariff and another 18pc hike under the quarterly tariff adjustment currently in place. As a result, the consumers would continue to pay excessive bills despite lower consumption, while over 77pc share of electricity came from local cheaper resources.

In a petition, the CPPA, acting as commercial agent of Discos, demanded an additional FCA of Rs4.99 per unit in the billing month of April for electricity consumed in February. It claimed that the reference fuel cost for January was set at Rs4.43 per unit but the actual fuel cost more than doubled to Rs9.425 per unit.

The data showed declining consumption trends. The consumption in February was also 8.5pc lower than the same month (7,516GWh) of last year, while it was about 14pc lower than the corresponding month of January when consumption stood at 7,938 GWh. The Rs4.99 per unit FCA for this February is almost five times greater than 85 paise for the same month last year.