Planned debt surcharge to burden honest electricity consumers

Collected amount will be utilised to clear liabilities of power companies

ISLAMABAD: The government has decided to burden honest consumers who pay their electricity bills regularly with a debt servicing surcharge in an attempt to clear liabilities of power companies in the upcoming tariff adjustment.

In a meeting of the Economic Coordination Committee (ECC) in April, the Ministry of Finance suggested that the Ministry of Water and Power should service a proposed term finance facility of Rs25 billion for power distribution companies through the levy of a debt servicing surcharge at the rate of 3.2 paisa per unit.



“This levy is permissible under Section 31(5) of the Nepra Act and could be accommodated in the upcoming tariff adjustment,” the ministry said.

The ECC also approved the issuance of sovereign guarantees by the Ministry of Finance in respect of the syndicated term finance facility for the power companies.

These companies are encountering multiple financial problems in paying their long overdue bills to the Central Power Purchasing Agency (CPPA) primarily because of high distribution losses, accumulated subsidy arrears, low revenue collection and lower applicable tariff that does not cover the entire cost of services.

All these factors are affecting cash flow of the companies, limiting their ability to settle power purchase payments owed to the CPPA. Subsequently, the CPPA cannot fully pay the cost of power purchase to the independent power producers (IPPs) and state-owned generation companies, which disrupts the electricity generation process.



In the ECC meeting, the Ministry of Finance stressed that it was committed to releasing monthly subsidy claims of power companies.

In the 2015-16 budget, Rs118 billion was earmarked for the release of subsidies, but it is being enhanced to Rs125 billion to accommodate additional payments during the remaining period of the current fiscal year.

The ministry pointed out that spillover subsidy claims from previous years had piled up as these were not recovered from relevant consumers. These claims would be settled separately, it said.

The Ministry of Water and Power, on its part, told the ECC that power generation companies and the IPPs were being paid out of revenues generated by the distribution companies from the consumers including through fuel price adjustment as well as subsidies from the finance ministry.

Dues of power companies in terms of subsidies, current and accrued, stood at about Rs168 billion at the end of March 2016. The water and power ministry and the finance ministry were working on a settlement plan for these liabilities.

Owing to the limited fiscal space, the power distribution companies would have to arrange funds through borrowing from banks to clear the CPPA bills.



It was proposed in the meeting that a financing facility would be arranged for immediate liquidity injection into the power distribution companies.

Such financing would be arranged by Power Holding Private Limited through a syndicated term finance facility from a consortium of local commercial banks. The amount would be spent on clearing liabilities of the distribution companies.

Published in The Express Tribune, May 12^th, 2016.

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