Power sector debt: FPCCI urges government to negotiate with private power producers

KARACHI: The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has urged the government to prepare a better strategy for dealing with the circular debt of the power sector, instead of excessively burdening the consumers.

The FPCCI on Tuesday said that the government should negotiate with the power plants to increase the debt payment period to reduce the capacity component in the power tariff.

FPCCI President Irfan Iqbal Sheikh said that Pakistani households and businesses were facing mounting power prices, and NEPRA’s FY24 price forecast for power purchase revealed substantial financial burden. The forecast burdens the consumers with 68 percent of the costs fixed for capacity payments, which primarily benefits coal plants, Sheikh added.

Substantial fuel costs – particularly petroleum imports –potentially pose extreme volatility and strain on foreign exchange reserves, with no clear solution or governmental strategy in sight. As a result, consumer-end tariff has been increased and applicable with effect from July 1, 2023.

“FPCCI categorically and vociferously rejects the recent hike in electricity prices, because it is debilitating both for residential and commercial consumers; and inflation is already killing businesses and rendering them unprofitable and bankrupt,” Sheikh said.

The FPCCI chief added that, currently, residential consumers were unable to pay their electricity bills across the country.

On an average, residential and commercial consumers pay 15-20 percent extra in the form of uniform quarterly adjustment, fuel price adjustments and additional surcharges.

On top of that, residential consumers pay an extra 20-25 percent in the form of electricity duty, sales tax and income tax, and are subjected to pay Rs35.57/kWh for off-peak load and Rs41.89/kWh for peak load.

It is important to note that these charges exclude taxes, fuel cost adjustments, uniform quarterly adjustments and additional surcharges. Whereas, commercial consumers are also subject to further tax and extra tax in addition to electricity duty, sales tax and income tax.

In current bills, commercial consumers are paying 37-40 percent of the total electricity charges in taxes and duties.

Sheikh explained that a commercial consumer with electricity consumption of 5,000 kWh is subject to pay a hefty Rs381,785 in the electricity bill. It is astonishing to note that around Rs135,994 of this would go into the government’s kitty in the form of taxes and duties, not including additional surcharge and fuel cost adjustment.

He stressed that a better and more viable option should be explored to meet the International Monetary Fund’s requirement to curb circular debt and provide affordable electricity to consumers. An immediate solution to reduce the power tariff is to reduce the operational costs of all power distribution companies, i.e. withdraw the provision of free electricity to WAPDA employees; reduce transmission and distribution (T&D) losses and eliminate electricity theft.

“We urge the government to halt the imposition of sales tax for 6-8 months in order to reduce cost of doing business,” he said.

Sheikh maintained that businesses cannot survive with the provision of unaffordable electricity; economic growth would be jeopardised and many small and medium enterprises would shut down.

“Our profits are already marginalised as a reduction in sales due to record inflation in the country. The business community has always supported the government; but, at this juncture, we cannot continue to pay these hefty electricity bills,” he added.

The FPCCI also dissociated itself from the shutdown call given by the Ajuman-e-Tajran faction led by Ajmal Baloch on high power bills.

“The business community will not support any political parties or politically motivated call of shutter down,” Sheikh said, while urging the government to privatise the power distribution companies. The government needs to curb the smuggling of dollars to Afghanistan, stabilise the foreign exchange rate, and control inflation.