‘Govt must hike power tariff by Rs6 per unit’
The government will have to increase electricity rates by Rs6.06 per unit in a bid to clear the backlog of circular debt in the financial year 2023, the Power Division has told the federal cabinet.
In a recent briefing, the Power Division said the circular debt base case stood at Rs450 billion in financial year 2018 that went up to Rs850 billion in financial year 2020. It is expected to rise to Rs1.6 trillion in financial year 2023.
It said the government had funded Rs177 billion in the financial year 2020, injected Rs125 billion in power sector through tariff increase and Rs12 billion due to improvement in power distribution companies (DISCOS). These measures resulted in reducing circular debt base case to Rs538 billion.
It said the government would fund Rs134 billion in financial year 2023; inject Rs166 billion through tariff increase and Rs12 billion would be generated through improvement in DISCOS. These measures would result in reducing circular debt base case to Rs1.29 trillion.
The Power Division said the circular debt would be reduced to Rs621 billion in 2023 against Rs1.29 trillion through reforms.
The government is currently negotiating with the Independent Power Producers (IPPs) to reduce the rate of return. These negotiations would help to reduce circular debt by Rs87 billion.
Rs69 billion will be generated through establishment of new power plants; Rs9 billion through closure of generation companies (Gencos) while the K-Electric will also pay Rs160 billion.
The Power Division said it would also save Rs38 billion through elimination of Azad Jammu and Kashmir (AJK) subsidized tariff, Rs108 billion through losses and recovery improvement and Rs173 billion through conversion of the Power Holding Private Limited (PHPL) and old stock to public debt.
These all measures would result in reducing circular debt to Rs621 billion and the government would require to increase the power tariff by Rs6.06 per unit to clear it in financial year 2023.
The Power Division also submitted an action plan before the policymakers to reduce the circular debt addition. It said the government would shut down all Gencos. It said it would increase capacity utilization and reduce return on equity on generation projects.
It said it would take measures to improve recoveries and reduce transmission and distribution losses of DISCOS. It pledged to resolve the K-Electric disputes, eliminate the AJK subsidy, solve Quetta Electric Supply Company (Qesco) agriculture tubewell payments and reduce losses.
The Power Division said it would move from non-targeted to targeted subsidies in the power sector. At present, all consumers using 300 units per month are given subsidies.
The government is conducting a survey to give targeted subsidy to the deserving consumers. It would also move interest cost from power tariff to public debt which includes old stock and the PHPL loans.
The government is also working on restructuring the power sector. It is also working on competitive trading bilateral contracts market (CTBCM), restructuring of the Power Division, restructuring of DISCOS board and market based appointment of chief executive officers (CEOs) of power sector entities.