Pakistan to hike power base tariff to qualify for next IMF programme

ISLAMABAD: The government is left with no option but to increase base electricity tariff from July 1, 2023, by Rs3.50 to over Rs4 per unit to qualify for the next International Monetary Fund (IMF) loan programme to be negotiated after elections.

To this effect, the top functionaries of the Power Division are having an eye on the GDP growth, rupee-dollar parity and inflation assumption in every quarter of the next fiscal as required by Nepra.

“However, the most worrying part of the base tariff is the capacity charges payments whose share in the base tariff has alarmingly increased to 63 percent in the next financial year from 57 percent in the outgoing fiscal. The end consumers are expected to pay Rs1.3 to 1.5 trillion just in the head of capacity payments in the financial year 2022-23 ending on June 30,” well-placed officials in the Power Ministry told The News.

Next year the volume of capacity payments, the officials said, is to surge by another Rs1 trillion, jacking it up to Rs2.5 trillion, and this is how the contribution of capacity payments alone in the base tariff would increase up to 63 percent. “The country’s installed capacity has surged up to 44,000 MWs, according to the officials but the economic survey for 2022-23 says it stands at 41,000 MWs. Next year about 1,500 MWs would be added and this is how more capacity charges end consumers will pay.”

The base tariff is the Nepra-determined tariff, which stands at Rs24.80 per unit for the financial year 2022-23. However, the government has notified it at Rs24 per unit. If the required increase is added, then the base tariff for FY24 will go up to close to Rs29 per unit. However, the base tariff doesn’t include surcharges, taxes, and duties as the imposition of taxes, duties, and surcharges is the sole prerogative of the federal government.

The power purchase price (PPP) constitutes 90 percent of the tariff out of which capacity charges payments share will be at 63 percent. At present, the power sector has virtually become unsustainable as its circular debt has swelled to over Rs2.5 trillion and the government is unable to pay the amount to powerhouses against the electricity that it purchases from them, high system losses, less recovery and inadequate budget subsidy.

While explaining the capacity charges payments, the official said that if a power producer does not sell even a single unit into the national grid, it will still be paid for the capacity charge (fuel charge will be zero in this case) that will eventually be included in the base tariff.

The depreciation of the Pak rupee and/ or increase in a domestic or foreign interest rate cause an increase in the capacity charge and the tariff as well. And if a new generation plant is installed, the overall revenue requirement for the capacity charge will increase.

If this new plant operates at 100 percent capacity and is able to sell every single unit it produces, the capacity charge in terms of Rs/kWh will remain unchanged. However, if it does not operate at full capacity, the capacity charge in terms of Rs/kWh will increase, and so will the end-user tariff.