Karachiites may get Rs6.62/unit extra relief

Karachi power consumers may receive an additional relief of Rs6.62 per unit in their electricity bills, over and above the government's announced tariff cut.

The indication came on Wednesday as NEPRA concluded proceedings on a petition seeking a tariff reduction under the February 2025 fuel cost adjustment.

If approved, the petition will allow K-Electric (KE) consumers to benefit from a total reduction of approximately Rs6.662 billion. KE reiterated its stance on partial adjustment, citing accumulated costs – a position that met with opposition from industrial stakeholders.

KE's argument for partial adjustment rests on the principle of creating a financial cushion for consumers during the peak summer months, when both consumption and billing typically increase.

Responding to a query about the petitioner bearing the cost of independent verification, KE's chief executive officer, Moonis Alvi, said that such a requirement aligns with global practices.

He explained that applicants are routinely responsible for costs related to feasibility studies and risk assessments, including environmental evaluations during loan applications for new projects.

On the issue of capacity payments in the generation tariff, NEPRA officials clarified that such payments are calculated based on availability and have always been part of the tariff structure.

Previously, consumers only saw a one-rate tariff; under new regulations, the tariff is broken down into components for greater transparency.

Tanveer Barry, Vice President of the Karachi Chamber of Commerce and Industry (KCCI), stressed the importance of timely data sharing by NEPRA to allow stakeholders to raise concerns without delay.

NEPRA officials, however, stated that there were no delays on their end in fulfilling Service Level Agreements (SLAs), providing a detailed timeline to support this claim.

Clarifying whether the proposed relief was part of the government's broader tariff cut, NEPRA said it was an additional benefit being extended by KE to its consumers.

The authority has reserved its decision, which will be announced after reviewing the data and arguments presented by KE during the hearing.

Stakeholders decry 'burden of rupee depreciation'

During the hearing, industrial stakeholders also urged NEPRA to expedite approval of the multi-year tariff to provide stability for industrial planning and forecasting.

Rehan Javed, an industrial representative, said that building production plans around provisional numbers hinders productivity and growth, ultimately affecting the country's economic trajectory.

Industrial stakeholders criticised the government for negotiating an agreement with bagasse-based Independent Power Producers (IPPs) that would shift the burden of rupee depreciation onto consumers.

During the public hearing, it was disclosed that consumers would shoulder 70% of the actual rupee depreciation when it comes to payments made to these IPPs.

According to the amendment, "foreign O&M: PKR/USD depreciation shall be allowed only to the extent of 70% of the actual depreciation per annum. In case the PKR appreciates against the USD in a year, then 100% of such appreciation shall be passed on to the consumers."

Participants noted the historical trend of rupee depreciation and argued it was unfair to place 70% of that burden on consumers. They contended that the sugar industry was already generating substantial profits, and bagasse-based IPPs were yielding additional profits.

A representative from the power ministry responded by noting that consumers had previously been paying 100% of the depreciation cost, and the revised structure actually offers partial relief.

Regarding a separate agreement with nine IPPs, it was revealed that consumers would benefit from a relief of Rs1 per unit.

The Power Division, in its petition, sought to revise the fuel cost component of the tariff effective October 1, 2021. It proposed Rs4,500/ton as of October 1, 2021, with a 5% annual indexation.

The FCC would be calculated at a calorific value of 7,000 BTU/kg. The working capital component would be reduced by 50% for all bagasse IPPs, except for Shahtaj, whose tariff does not include the WCC component.

The petition further proposed a fixed return on equity (ROE) and return on equity during construction (ROEDC) at Rs168/USD, with no future USD indexation.

The indexation of local O&M would be allowed at the lower of either 5% per annum or the actual average national consumer price index (NCPI) for the preceding 12 months for all bagasse IPPs.

Moreover, IPPs may be allowed to sell electricity to bulk power consumers (BPCs) subject to amendments in their generation licence (GL) and energy purchase agreement (EPA), provided they commit to paying compensation to the central power purchasing agency (CPPA-G) for each unit supplied.

The cap for insurance during operation would be 0.7% of the EPC cost for Chiniot Power Ltd., aligning with other bagasse-based IPPs. The reference O&M component for Chiniot Power Ltd. would also be reduced by 10%, bringing it in line with other similar IPPs.

The petition also called for a revision in the sharing mechanism beyond the net annual plant factor for all bagasse-based IPPs, excluding Shahtaj.