In a bid to counter potential revenue losses and stabilize the electricity sector, the government has submitted a proposal to the National Electric Power Regulatory Authority (Nepra) suggesting a possible rise of Rs3.55 per unit in the power tariff. The primary goal of this proposal is to recover the heightened amount within a span of six months.
The Central Power Purchasing Company (CPPA)-G had previously put forth a request for a larger increase of Rs5.40 per unit, accompanied by a three-month recovery period. However, concerns arose over the potential negative impact on electricity bill collections if such a substantial hike were to be passed on to consumers.
A public hearing, convened by the power regulator, unveiled the adverse consequences of the recent electricity rate surge. Notably, industrial consumers had been forced to shut down their businesses due to the significant escalation in electricity rates. Consequently, the demand from ex-Wapda distribution companies (Discos) experienced a substantial downturn.
To address this issue, officials from the Power Division presented their case during the public hearing, revealing that consumers had demonstrated resistance to paying electricity bills following a major tariff hike last year. In a bid to avoid a similar scenario, they urged Nepra to extend the bill recovery period to six months, rather than the initially proposed three months.
Furthermore, the Power Division officials argued that this change would not adversely affect the overall recovery of electricity bills. According to the CPPA-G’s petition, the increase was necessary to cover quarterly adjustments of Discos, driven by variations in Power Purchase Price (PPP) during the fourth quarter of the fiscal year 2022-23.
One significant component of this proposed recovery was the capacity payments, totaling Rs145 billion, aimed at consumers who have consistently paid their bills. These funds are intended to compensate power plants that remained non-operational during this period.
During the public hearing, CPPA-G representatives emphasized that Nepra had historically permitted the recovery of tariff hikes over a span of 12 to 15 months. However, they advocated for a reduced recovery timeline of six months, which would lead to a more modest increase of Rs3.55 per unit, owing to lower power consumption during the winter months. They reassured consumers that the impact on winter electricity bills would be less pronounced.
The CPPA-G officials also acknowledged the ongoing Rs1.24 per unit increase due to quarterly adjustments, scheduled to conclude in September. They proposed a phased recovery approach, suggesting Rs1.24 per unit to be recovered starting from September and an additional Rs2.31 per unit increase beginning in October. This staggered approach, they argued, would lessen the immediate impact on consumers’ electricity bills.
However, the public hearing shed light on certain concerning trends. The Discos had billed five billion units less than usual, signaling a significant reduction in demand during the review period. This decline was attributed to weather fluctuations and industrial closures prompted by the elevated power rates.
Nepra expressed serious reservations regarding the Discos’ inability to clarify the reasons behind the decreased electricity utilization. Furthermore, each Disco was found to be drawing 600MW to 700MW less electricity from the grid due to diminished demand.
Meanwhile, the regulator noted that approximately 350,000 connection cases were pending, suggesting that growth projections for the sector were overly optimistic. Despite having industrial units, the sale of electricity from certain distribution companies, such as Gepco and Lesco, had also decreased, raising concerns about the health of the sector.
Nepra cautioned against the potential impact on the cash flow of Discos and the accumulation of circular debt resulting from the proposed recovery of increased electricity bills over six months. It emphasized that such financial burdens should not be indiscriminately shifted onto consumers.
The regulatory body concluded by stating that the sector’s challenges could not be adequately addressed by simply provincializing Discos. Instead, they stressed the necessity for structural changes to foster long-term improvements within the power sector.
