Monday December 05, 2022

Power Division proposes govt to freeze power tariff

March 28, 2020

ISLAMABAD: In a bid to ward off negative impact of coronavirus on consumers, the Power Division has proposed to the government to freeze electricity tariff for next six months with effect from April to September 30, 2020, The News has learnt.

Top official sources confirmed to The News on Friday that the Power Division estimated that there would be built up of Rs150 billion on account of decision of freezing Fuel Price Adjustment (FPA) of Rs73 billion and Rs77 billion because of non-materialisation of Quarterly Tariff Adjustment (QTA).

With decision to freeze FPA and QTA, it will result in piling up of circular debt to the tune of Rs150 billion, said one top official of Power Division on the condition of anonymity. It is yet to see how the government is going to satisfy the IMF and other multilateral creditors but the top official hoped that in the aftermath of eruption of coronavirus, the International Financial Institutions (IFIs) could be convinced to freeze power tariff in the wake of severe slowdown of the economy and inability of consumers for facing immense pressures on their paying capacity.

“We might explore possibility to bridge the gap of Rs150 billion on account of avoiding circular debt through seeking assistance from the multilateral creditors,” said one top official of government.

Another official said that the government would have to explore possibility to convince IPPs (Independent Power Producers) to slash their return on equity for next six months keeping in view extraordinary situation. It’s wish of the government but it is not yet known how the private sector will be convinced to reduce their profit at a time when they are already facing difficult situation. However, the sources said that the IPPs had earned lofty profits and now time had come when they would have to pay back something out of their earned profits by agreeing to reduce their return on equity.

The ministry will have to convince IPPs to postpone any increase in generation cost of electricity for the next six months. The government will ask public sector power plants to reduce their returns on equity first and then this proposal will be floated before the IPPs.

Although the prices of POL products and furnace oil reduced substantially in international market but these contracts were done on the basis of three-month prior basis. It is yet to see how the government will absorb this difference for the purpose of keeping electricity unchanged for next six months period.

This calculation might hit negatively because of recent spike in exchange rate as the rupee nosedived against dollar in inter-bank market during this last week that will have negative impact on all imported items including furnace oil so the government will have to keep all these facts in mind before taking any final decision to its wish for freezing electricity prices with effect from April 1 to September 30, 2020. If proper homework is not done, it can prove damaging for the consumers so early spadework is necessary to convert wish into a reality, the sources concluded.