Karachi energy prices: Reduced bills spark delight among users

More reductions expected as oil price declines take effect


Our Correspondent January 26, 2015
The decrease in tariff is due to a drop in the fuel surcharge, the component of the electricity tariff that covers the cost of furnace oil and gas used to generate thermal electricity. PHOTO: KE.COM.PK

KARACHI: As lower oil prices bring down the cost of power generation, consumers in Karachi are finally beginning to see an impact on their electricity bills for December 2014.

The reductions for some consumers have been so dramatic that some thought that K-Electric, the utility that supplies electricity to Karachi, may have made a mistake. In many cases, consumers have not seen such low bills in more than five years. “I just said wow to myself when I saw that it come down to Rs3,000 from Rs7,500 last month,” said a resident of Clifton. “Then I thought this could be a mistake and paid the bill immediately, lest they correct it.”

In a random sample of a dozen household electricity bills collected by The Express Tribune, it emerged that the decrease is due to a drop in the fuel surcharge, the component of the electricity tariff that covers the cost of furnace oil and gas used to generate thermal electricity.

The average price of furnace oil has dropped by nearly 50% since July 2014, from Rs64,064 to Rs32,500 per tonne, in large part due to declining global prices.

The mismatch between the timing of the global oil price drop and the reduction in the fuel price surcharge has to do in part with the complex procedure used by Nepra to determine tariffs.

Every month K-Electric (KE)submits a detail cost-sheet to Nepra for deciding by how much the tariff should be changed for the following month. But the process takes months to complete and results in a lagging effect of fuel cost adjustments.

For instance, the December 2014 bills, received by consumers in January 2015, are based on Rs0.81 per kilowatt-hour (kWh) decrease as calculated for May 2014. A KE official said that ideally fuel cost adjustment should immediately be done in the bills of the following month. "But the process is too slow."

Safeer Hussain, Nepra's registrar, says power tariff is determined on the basis of furnace oil price as invoiced by importers. “There is the first-in first-out effect on the equation as well. It is possible that power producers were carrying stocks of furnace oil bought at a higher price in previous months,” he said.

This explanation is in line with the cost details of the last notified tariff. Global oil prices may have started declining in June 2014, but as far as books of Pakistani power producers are concerned, furnace oil costs saw a steep plunge only in November 2014 when it was quoted at Rs54,936 per ton. That is also the month when the cost at which KE buys electricity from national grid dropped by 31.4% to Rs4.815 per kWh.

Published in The Express Tribune, January 26th, 2015.

 

COMMENTS (2)

pk | 9 years ago | Reply Farcical happened with selective audience maybe but in my bill 720 was deducted on account of oil adjustment at a rate of Rs 0.88 per unit for the month of May 2014.
SKN | 9 years ago | Reply

This nation needs relief from all quaters. We have been hard done by so many issues. Anything positive would be welcomed.

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