Govt okays hike in K-Electric tariff

Maintains its 3-month-old decision; turns down energy ministry’s request for review

ISLAMABAD:

The federal government on Friday maintained its three-month-old decision to increase power tariff for K-Electric consumers by 22.5% from July, turning down a review request by the Ministry of Energy due to a heightened political temperature in the metropolitan city.

The Economic Coordination Committee (ECC) of the cabinet “discussed the issue of quarterly adjustments for K-Electric Limited for the period from July 2016 to March 2019 and affirmed its previous decision of March 26, 2020,” said a statement issued by the Ministry of Finance after the meeting.

The average per unit tariff for K-Electric consumers will go up from Rs12.82 to Rs15.71, an increase of 22.5%.

The ECC put off decision on another summary that sought recovery of Rs74 billion from industrial and commercial consumers of gas on account of expensive imported liquefied natural gas (LNG) supplied to domestic consumers. Its discussion suggested recovery of the amount but the ECC decided to delay the decision for first building a political consensus.

The ECC also relaxed the condition of observing provincial quotas for cash distribution of Rs12,000 among the labourers affected by the partial lockdown in the country. The ECC had to relax the condition as only 2.45 million people applied for the facility against the government’s expectation of six million people availing the PM’s package for daily wagers.

The Ministry of Energy on Friday brought the summary of increase in electricity tariffs for K-Electric consumers despite the fact that the ECC had given its decision in March this year.

The ECC asked about the reason for bringing the summary despite its approval three months ago. The newly appointed power secretary is said to have told the ECC that he was asked to present the summary afresh.

“Recommendations of a committee constituted by the ECC in its meeting on March 4, 2020 to settle the issue of quarterly adjustments for K-Electric Limited for the period from July 2016 to March 2019 were approved with the instruction that the same would be effective after three months,” according to the finance ministry statement.

In March this year, the ECC had given three months’ time to the Ministry of Energy to lay the ground for increasing the power tariffs. However, Power Minister Omar Ayub could not build political consensus and his ministry on Friday sought more time, which the ECC declined to give.

The Nepra has determined an increase in power tariff for K-Electric consumers by Rs4.87 per unit or 38% on account of previous years’ adjustments. Total revenue impact of the tariff hike of Rs4.87 per unit is nearly Rs106 billion.

Instead of passing on the full impact, the government has decided to increase tariffs by 22.5% and would give Rs25.5 billion in subsidy in the current fiscal year to bear the loss on account of remaining Rs2 per unit.

Since its privatisation, K-Electric has been struggling to provide uninterrupted power supply to its consumers. The company has not been able to make full equity investment as per the privatisation deal and it undertook some expansion projects by taking loans, which would eventually be recovered from the consumers.

Package for daily wagers

The ECC approved Rs29.72 billion for providing cash assistance of Rs12,000 per beneficiary to 2.45 million applicants irrespective of the provincial, regional and district quota under the Ehsaas Emergency Cash Programme.

It allowed the Benazir Income Support Programme (BISP) to spend Rs29.72 billion from its allocated budget of Rs200 billion for 2020-21 for cash transfer to 2.45 million applicants with the instruction that any additional requirement for regular operations of the BISP would also be provided during 2020-21.

The decision came after the Poverty Alleviation and Social Safety Division told the ECC that 3.151 million applicants, who had applied for assistance through SMS, were found eligible under the approved criteria but these applicants could not be provided assistance on account of provincial/district quotas.

The ECC was told that the Punjab government had already agreed to provide assistance to 700,000 applicants identified through SMS, leaving 2.451 million eligible applicants, who could be provided cash assistance of Rs12,000 at a total cost of Rs29.72 billion.

RLNG

The ECC took up a proposal for policy guidelines with respect to the sale price of RLNG. The ECC was told that given the ring-fenced nature of RLNG and indigenous gas pricing, the sale of RLNG to domestic gas consumers at weighted average domestic tariff/gas sale price on Sui Northern Gas Pipelines (SNGPL) network had resulted in an accumulative tariff differential/RLNG revenue shortfall of Rs73.84 billion for the period July 2018 to April 2020.

The ECC was further told that this revenue shortfall had occurred after the adjustment of RLNG impact on a cost-neutral basis as per the policy whereby SNGPL sold indigenous gas as RLNG to its consumers and recovered some of the revenue shortfall whenever the surplus system gas became available.

The ECC was also briefed that the issue of RLNG revenue shortfall had arisen mainly because of the price differential in domestic gas as 91% of the domestic gas consumers had been paying an average monthly bill of Rs121 which was many times less than the price of imported RLNG supplied to domestic consumers in the winter months.

The ECC considered the proposal and asked the Oil and Gas Regulatory Authority (Ogra) to review it, especially the RLNG revenue shortfall as worked out by the SNGPL, and report back to ECC.

The ECC also decided to further discuss the issue in a small group in order to develop a consensus-based solution to the issue for a policy decision at the government level to avoid the creation of a circular debt situation in the RLNG sector.

The ECC also took up a proposal by the Ministry of Industries and Production which submitted that as per the data furnished by National Fertilizer Development Centre (NFDC), the national inventory for urea fertiliser would be below the buffer stock level of 200,000 metric tonnes in the months of December 2020 to February 2021.

The ECC decided that in order to cover this gap and maintain the buffer stocks at the required level, gas at rate of Rs756 per mmbtu be provided to two shutdown plants at SNGPL networks, namely Agritech and Fatima Fertilizer, for three months wef; July-September. This would involve the government of Pakistan’s share at Rs959 million much less than the revenue spent previously on using these plants to produce the urea fertiliser to cover up the shortage.

Published in The Express Tribune, July 4^th, 2020.

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