Energy costs: Power tariffs for most consumers to rise by 39%

Lifeline users to remain exempt; another rise in prices expected next month.

ISLAMABAD:

Power tariffs are set to rise by an average of about 39% for most consumers throughout the country as the National Electric Power Regulatory Authority approved the increase requested by the power companies in order to account for their rising fuel costs.

The change will become effective in consumers’ bills from the month of March. The average rise in tariffs is expected to be Rs3.03 per kilowatt-hour, which is a 39% increase from the Rs7.83 per unit that the average customer of the eight state-owned power distribution companies currently pays. The average tariff after the increase will be Rs10.86 per unit.

The change will not apply to consumers in Karachi, who are served by the Abraaj Capital-owned Karachi Electric Supply Company and already pay a higher tariff than the rest of the country. It will also not apply to consumers in the rest of the country who use less than 50 kilowatt-hours per month, who are known as “lifeline” consumers and charged the nominal tariffs of Rs1.87 per unit.

The power tariff hike is meant to cover the rise in the cost of fuel since August 2011. Nepra has been delayed in allowing the tariff increases by litigation in several courts throughout the country, which issued stay orders against the regulator’s ability to raise electricity prices. In this particular case, Nepra had meant to raise the tariffs has far back as September 2011, but was prevented from doing so by a stay order issued by the Lahore High Court.

Nepra had calculated that the average cost of fuel to produce one unit of electricity that the eight state-owned power distribution companies had to pay to their generation companies had gone up from Rs3.60 per unit to Rs6.63, largely due to the fact that the country is now more reliant than ever on oil-fired thermal power plants, which use some of the most expensive fuel in the entire power grid. The Lahore High Court, however, had not been sympathetic to the regulator’s arguments until recently.

Even now, some cases are still pending in courts and have blocked Nepra’s ability to raise prices in some areas. Customers of the Lahore Electric Supply Company, which supplies to five districts in Punjab, who use less than 350 units per month, will also not see their tariffs go up because of orders issued by the Lahore High Court.

Nepra sources say they have not yet worked out exactly how much each category of users will see an increase in their tariffs.

As steep as the rise will be in the month of March, Nepra is not quite finished with raising tariffs. In April, the regulator is planning another Rs1.77 per unit increase, or about 16.3%, said officials familiar with the matter. Average power tariffs in most of the country will then be Rs12.63 per kilowatt-hour, reflecting the increased reliance on oil-fired thermal power generation.

Not all Nepra officials are happy with the decision. In a dissenting note written with the announcement, Shaukat Ali Kundi, the vice chairman, said that consumers were being forced to bear a higher price of electricity because the state-owned power generation companies were utilising their resources highly inefficiently, raising the cost of producing power. He also pointed to a culture of corruption that he alleges pervades the entire state-owned power sector and drives up operational costs.

“Malpractices in procurement of spares and execution of works in the [power] generation companies, pilferage of refined furnace oil, lubricants and other chemicals are also adding to the higher generation costs,” said Kundi in his dissenting note. “In my opinion, passing the inefficiencies of the generation companies and the National Transmission and Distribution Company to the consumers is in no way justified. Hence I differ with the decision of the authority.”

Published in The Express Tribune, March 1^st, 2012.