Power Division stresses caution on hefty power taxes

Says high taxes and capacity payments are contributing to rising circular debt

ISLAMABAD:

The Power Division has called for rationalisation of heavy taxes in the power sector, which have pushed the electricity prices higher and added to the burden of the consumers.

Due to the high rates of electricity, power theft became rampant as the tariff was not affordable for the consumers. In addition, the bleeding power distribution companies of Sindh, Balochistan and Khyber-Pakhtunkhwa (K-P) also largely contributed to the ballooning circular debt.

Officials say that provincial governments are responsible for taking action against those involved in losses. They said that provinces should give subsidy to the consumers if they are unable to control these losses through local administration.

Sources told The Express Tribune that the Power Division informed further that there were several other factors like heavy taxes and capacity payments, which were piling up circular debt. Therefore, the Power Division could not deal with these issues alone and it urged all stakeholders to play their due role in addressing these issues. It informed the cabinet that there are several factors including taxes and capacity payments that have led to increase in electricity rates.

In a recent meeting of the cabinet, the Power Division told members that excess payment of General Sales Tax (GST) worth Rs85 billion have been paid to the Federal Board of Revenue (FBR). It further said that GST billed by independent power producers (IPPs) stood at Rs117 billion whereas the GST billed to the consumers stood at Rs202 billion.

The Power Division said that the total impact of this amount on consumer tariff was Rs0.85 per unit. In addition to it, the government was collecting Rs22 billion tax on fuel adjustment charges. The total amount of fuel adjustment charges with taxes stood at Rs383 billion where it comes to Rs361 billion without taxes and duties from the consumers. Keeping in view this heavy burden, the Power Division has called for rationalisation of GST and other taxes in power sector to reduce the price of electricity.

Stranded furnace oil IPPs

There are 11 stranded furnace oil IPPs with generation capacity worth 3,300MW and 5% average annual dispatch factor. The fuel cost amounts to Rs13 per unit.

However, consumers were paying Rs60 billion a year on account of ‘take or pay’ capacity charges, the impact of which on consumer tariff was Rs0.6 per unit. The consumers will be paying Rs450 billion in aggregate on account of capacity charges over the remaining average seven years of their contracts.

Potential solution

The Power Division proposed early termination and buyout of these oil-based IPPs at a discounted value that amounts to Rs150 to Rs200 billion via PIBs sukuk. It will result in taking out Rs0.6 per unit from the overall consumer tariff going forward, alongside taking out the unused oil-based IPP capacity.

The Power Division also called for allocating full budgeting and timely release of complete subsidy requirement. It further said that the PHPL debt should be converted into a public debt.

The Power Division said that the new wind and solar IPPs will be auctioned under the hybrid system, which means that wind and solar will be installed at the same location model. This will help continuous supply of renewable energy from combined sources of solar and wind.

Cause of circular debt

The electricity theft in the power sector of Pakistan continues to hit the entire energy chain in the current financial year 2020-21, leading to the worst energy crisis.

The higher rate of electricity theft is the major reason for the rising circular debt that has touched Rs2.3 trillion in January this year. This has been projected to touch the Rs2.5-trillion mark by end of June this year.

The power distribution companies K-P and Sindh are still bleeding from the highest rate of electricity theft. Peshawar Electric Supply Company (Pesco) in K-P recorded 35.10% losses in financial year 2020-21. Hyderabad Electric Supply Company (Hesco) faced 28% and Quetta Electric Supply Company (Qesco) 22.60% losses. Islamabad Electric Supply Company (IESCO) faced 8.80% losses.

The average rate of electricity theft is 17% in the current financial year 2020-21.

Meanwhile, recovery of electricity bills stood at 89.6% in the year 2013, which went up 94.1% in 2016-17. However, it again dropped to 90.1% in the 2018 when the Pakistan Tehreek-e-Insaf (PTI) government came into power. It has remained at 90.3% during the present government. However, it also wants to enhance recovery in the coming years to 96% with different planned measures.

Published in The Express Tribune, May 2^nd, 2021.

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