Govt mulls incentives to boost industrial power demand

ISLAMABAD: Amid the request for a 25 per cent increase in annual tariff rebasing, the government on Thursday hinted at offering an incentive package to the industrial sector as part of other power sector reform interventions to revive electricity demand and support economic growth.

This emerged at a public hearing, presided over by National Electric Power Regulatory Authority (Nepra) Chairman Waseem Mukhtar, when representatives from various industrial and consumer groups, mostly from Karachi, bewailed the proposed further tariff hike, saying they were already on a shutdown path.

The hearing was held on 25pc increase in power purchase price (PPP) for national electricity tariff rebasing effective from July 1, 2025 to secure revenue requirement of about Rs4 trillion in FY25 for power companies.

Under seven different scenarios, presented by the Central Power Purchasing Agency (CPPA) of the power division on behalf of power companies, annual average tariff has to see an increase of Rs4.40 to Rs6.51 per unit in the overall PPP for FY25.

Plan is part of reform interventions to revive economic growth

The representatives from CPPA and Power System Operator, while explaining various factors necessitating tariff rebasing, said the government was currently in the process of various reform interventions, including an incentive package for industry to revive power demand that had increased by only 1pc during the current fiscal year.

A participant said the special industrial tariff would target cross-subsidy factor that cost the industry about Rs434bn during the current fiscal year. “This reform package may be unveiled within a week or so,” another official said. They expressed their inability to go into other reform measures at this stage.

Waseem Mukhtar said the reference power purchase price was 90pc of overall tariff and tariff rebasing for next year should be realistic to keep price shocks minimal in the shape of subsequent fuel price adjustments and quarterly tariff adjustments. “It should not suggest that tariff rebasing was done foolishly”, he said.

While the representatives of Karachi Chamber of Commerce and Industry, Korangi Association of Trade and Industry and steel producers bemoaned power costs, Nepra and CPPA officials were almost unanimous that high energy costs were affecting electricity demand and consumption was declining and industrial and business activities were suffering because of poor purchasing power of the consumers. Besides, affordability factor was forcing consumers out of the system, further aggravating the situation.

One of the businessmen claimed that more than 2300 industrial units had been closed down in Karachi and others were on verge of shutdown as their consumers had lost capacity to pay, while productions costs had gone up. They pleaded that the industry should be charged only the actual average tariff and should not be subjected to cross subsidize other consumer categories.

It was reported that unlike claims of more than 6000MW of solar panel imports, the total net-metered capacity was no more than 1900Mw of which about 1000MW capacity increased over the last one year, although the net-metering solar policy has been in place since 2015.

A Nepra expert reported that more than 85pc solarisation was taking place behind the meter or off-grid and net metering was no more than 15pc, as some industrial units and most of the cement plants had set up their own small solar independent power plants, moved out of the network and were providing to others as well.

The CPPA, acting as commercial agent of the power sector, has presented seven different scenarios for electricity to be sold during FY25. Under these estimates, sale of 131,000 to 139,000 gigawatt hours (GwH) electricity is expected next year on demand growth ranging 3-5pc on the basis of 3.5pc GDP growth rate estimated by the IMF.

The minimum increase under one estimate works out to be Rs4.40 per unit in PPP and goes up to Rs6.50 to Rs27.11 per unit. On average, the CPPA has sought an increase of Rs6.80 per unit in PPP or more than 25pc based on annual revenue requirement of about Rs3.6tr or an average PPP rate of Rs32.75 per unit when compared to Rs26 per unit (Rs2.87tr) during the current year.

After additional of about Rs385bn distribution margins of Discos (distribution companies) and about Rs80bn of prior-year adjustment, the average sale rate for next year works out to be Rs37 per unit on the basis of Rs4.07tr against Rs29.78 per unit or Rs3.3tr for the current year, an increase of 25pc. The major increase of almost 50pc has been sought on account of energy purchase price (EPP), including variable operations and maintenance cost. The EPP for the next fiscal year is claimed to be Rs1.16-1.26tr against Rs840.5bn this year. Therefore, per unit EPP works out to be Rs11.45 per unit next year against Rs7.63 during the current year, showing an increase of Rs3.8 per unit.

Another 16pc increase has been projected in the capacity payment price (CPP) to Rs19.8 per unit from Rs17 per unit at present, up Rs2.8 per unit. This means the total capacity payments would get close to Rs2.2tr when compared to Rs1.87tr in the current fiscal year.

The exchange rate for the next fiscal year is assumed to range between Rs275 and Rs300 per dollar, while local inflation at 12.20pc and US inflation at 2.4pc, besides 21.37pc of Karachi interbank offered rate (Kibor) and 5.3pc London interbank offered rate (Libor).

Published in Dawn, May 24th, 2024