ECC okays 'subsidy-free' winter power relief

ISLAMABAD:

The government on Tuesday approved a fixed electricity tariff of Rs26.07 per unit for 25% incremental consumption under the winter electricity package. The scheme will apply for three months and comes with strict eligibility conditions for consumers.

The Economic Coordination Committee (ECC) of the Cabinet approved the proposal regarding the winter demand initiative for domestic consumers of over 200 units' consumption, industrial, commercial and general services consumers, according to the finance ministry.

The ministry stated that the winter package would enable optimal use of system generation capacity besides reducing gas demand due to shifting of favourable demand towards electricity.

A tariff of Rs26.07 per unit will be charged to all eligible consumers on the respective incremental consumption, above the benchmark consumption in the corresponding months, stated the ministry.

Prime Minister Shehbaz Sharif announced the package but its formal approval was given on Tuesday in the ECC meeting chaired by Finance Minister Muhammad Aurangzeb. The package has been approved only for three months after the International Monetary Fund (IMF) turned down Pakistan's request to extend the package for six months' period (December-May 2024-25).

There is no subsidy involved in the package, which suggests that the actual cost of electricity generation is Rs26.07 per unit, while the government charges up to Rs52 per unit, excluding taxes.

Interestingly, the incremental package will be applicable up to only 25% units over the reference benchmark consumption for the respective months. If the additional consumption increases over 25%, the residential consumer, being under impression of availing the reduced Rs26 per unit rate, will in fact be paying the normal notified rates of up to Rs52 per unit, excluding taxes.

The package will not be applicable to net metering and wheeling consumers or consumers having defective electricity meters for the applicable month, according to the ECC decision. Tough benchmark conditions have also been set for the time-of-use meter consumers, where their consumption will be calculated based on the peak and off-peak consumption related conditions.

The ECC approved issuance of guidelines to the National Electric Power Regulatory Authority (Nepra) for approval of the winter package and its inclusion in the regulatory framework. Nepra was also requested to extend the package to K-Electric consumers without compromising its distribution and profit margins.

The negative fuel cost adjustment will not be applicable to the additional consumption but if the fuel price is higher than the reference price, it will be recovered from the consumers. The government has assumed the Rs300 per dollar exchange rate to work out the fuel price, further reducing the intended benefits.

The ECC also approved the additional allocation of imported gas to the power sector to the extent of the additional electricity generation requirement. In case, the Petroleum Division remains unable to provide the additional 50 mmcfd imported LNG per month, the consumers would be charged for higher fuel cost.

The government admitted that due to a surge in the electricity prices and challenging economic conditions, the electricity demand decreased by 8% during the winter months of the last fiscal year. The reduction was over and above the 6% lower demand in the preceding fiscal year.

During recently-held unscheduled IMF talks, the Fund had asked about the incremental increase in the electricity demand because of the winter package but the Power Division did not have a firm answer.

On an average, the electricity consumption in winters is about 11,000 megawatts less than the summer season in Pakistan, which results in higher idle capacity payments to the power producers.

The ECC was informed that the Industrial Support Package did not positively contribute to the increase in the electricity demand during the last two fiscal years, although there was a double-digit increase in the demand during the first two years of the package.

The finance ministry stated that the winter package would remain applicable for a three-month billing period – from December 2024 to February 2024. The benchmark consumption will be higher of either the relevant month's consumption in FY2024 or the historical consumption over the past three years for the relevant months, based on a formula and terms and conditions laid before the ECC, it added.

The ministry said that the winter relief package was a subsidy-neutral interim relief initiative worked out by the Power Division as being timely and relevant in view of the recent surge in electricity tariffs and the reduced demand across various consumer categories.

The ECC was told that the implementation of the winter demand initiative would require additional RLNG allocation for the power sector. The Petroleum Division has promised to provide the additional RLNG. But the ECC was told that in case the Petroleum Division did not provide additional imported gas to the consumer, the price will be higher than Rs26.07 per unit on the incremental increase.

The incremental consumption will be considered against either the higher consumption in the same month of the last year or for the last three-year average. In case the last year's similar month's consumption will be lower than the last three years' average, the government will treat the last three years' consumption.

In cases where only one year's data is available, the government would take 50% benchmark consumption of 2024 and the remaining 50% will be assumed based on certain other factors. In case there is no data available of the previous three years, the government will take higher levels of the Maximum Demand Indicator for the relevant month or the sanctioned load factor of the particular consumer category.

The ECC also considered a proposal submitted by the National Disaster Management Authority (NDMA) for transfer of Rs3.14 billion balances of erstwhile Emergency Relief Cell (ERC) into NDMA Fund to carry out its inland as well as overseas rescue and relief operations in line with the statutory mandate of the authority.

The proposal was discussed and approved with the proviso that since the balances in the ERC were made up of public donations and were granted for the purpose of relief, rescue and rehabilitation of floods and earthquake victims, NDMA would spend these balances for the stated purpose.