Pakistan Must Renegotiate IPP Contracts to Solve Electricity Crisis
Pakistan's installed generating capacity is about 20,000 MW. It exceeds current demand of 17,000 MW and actual supply of just 10,000 MW. The capacity utilization is only 50% mainly because the producers do not buy sufficient fuel and choose to operate at only 50% of capacity and still enjoy soaring profits. A third of the installed generating capacity is owned by the independent power producers (IPPs). The current IPP contracts guarantee payments and profits with no requirement for fuel efficiency.
Most private investors have built oil-powered inefficient plants because of their low construction costs and short lead times, and the oil price has skyrocketed since these plants were built in 1990s. The result is 18-20 hours of load shedding across most of Pakistan in the scorching summer heat in spite of the fact the taxpayers have shelled out billions of dollars in subsidies to the power sector since 2008.
According to an AP report, the Pakistan's government has assumed $3.6 billion of the power industry's debt. The government-owned power grid owes another $2.5 billion to private-sector generators, even as the government, according to Finance Ministry figures, spent at least $7.4 billion on electricity subsidies during the 2008-2010 period.
Here's Arif Habib Securities investment analysis of the IPPs sector:
All power companies from Arif Habib Limited research coverage witnessed surprising growth (36-58%) in net profitability. HUBC led the flock with 58% YoY jump in profit after tax, attributable to the growing indexation factors and ROE component. On the other hand, lower payables to fuel supplier and resultantly lower penal interest provided major support to KAPCO, pushing the net profitability up by 36% YoY. As far as Nishat group companies are concerned, rising fuel cost magnified the impact of fuel efficiency, which combined with O and M savings further improved the profitability. However, dividend from KAPCO and NPL disappointed the optimistic investors. Arif Habib Limited believes the dividends to rise in 2HFY13 for these companies, providing investor with greater value at the financial year end.
Pakistani government buys electricity from IPPs at a rate of Rs. 12.50 per KWhr while the consumers pay an average of Rs. 9.00, leaving a short-fall of Rs 3.50 per unit which is subsidized by the taxpayers. It adds up to hundreds of billions of rupees a year. Power subsidy target for FY 2012-13 was set at Rs 185 billion, 60 percent lower than the actual subsidy provided during FY12. The subsidy provided year-to-date (YTD) is Rs 311 billion, already having exceeded the target by 68 percent, according to PakTribune.
A significant part of the problem is the IPP contracts which guaranteed a 12 to 15 per cent annual return (indexed in dollars, not rupees), gave tax breaks and paid interest on private funding – more expensive for the government than providing the funding itself. In addition, there are no incentives for the private power producers to produce power efficiently.
In a blog post published in Financial Times, Dr. Kamal Munir of Cambridge University's Judge Business School blames the IPP contracts signed as part of the power privatization in 1990s.
“The 1994 privatization of the energy sector offered investors generous returns and created pricey overcapacity,” he told Financial Times. “This created an expensive legacy which is the real problem of today’s energy crisis.” Unless that problem is dealt with, he sees no light at the end of the energy tunnel.
He says Pakistan’s government, helped by the World Bank, “sweetened” its energy privatisation with attractive conditions, fearing it wouldn’t be able to attract investors otherwise. It guaranteed a 12 to 15 per cent annual return (indexed in dollars, not rupees), gave tax breaks and paid interest on private funding – more expensive for the government than providing the funding itself. ”The deal was too good to be true for investors,” Munir says.
Munir says the model turned out to be badly constructed in terms of creating value for the government and people of Pakistan. Even in an environment of economic growth and efficient energy generation, it would have been hard for the government to finance the plan. But since both have been absent, it became nearly impossible to pay for privatised energy.
Since there were no incentives to be fuel-efficient, most private investors chose to build plants using furnance oil as fuel because of their low construction costs and short lead times. This backfired as the oil price has trebled since the 1990s. Variable costs, and therefore prices to consumers, are at unsustainable levels. “No wonder many consumers can’t afford to pay their bills,” Munir says.
To make things worse, the government neglected to step on the brakes when its generous conditions attracted too many investors. Assuming economic growth would continue, it allowed too much capacity to be built and guaranteed the same return on that extra capacity, whether it was used or not.
Munir says the government should develop new power plants using cheaper fuels, and that this shouldn’t be a problem in a country with an abundance of coal, waterways and sun.
But Pakistan must first escape its vicious payment cycle.
“We need to get out of the the current deals,” says Munir. But at what cost, and does this imply default? “Your guess is as good as mine,” the academic admits.
Still, he felt it was time to make his point. “I’m not defending people who don’t pay bills and I’m not promoting government subsidies to keep prices low,” Munir says. “But why isn’t anyone talking about the policy that led to this situation to begin with?”
The key to solving the problem is to renegotiate the old IPP contracts with new terms that reward lower fuel costs and higher efficiency. In addition to that, Pakistan's incoming government of Prime Minister Nawaz Sharif's has to explore multiple fuel options to meet the nation's growing energy needs. Some of the fuel options are as follows:
1. Developing its shale gas reserves estimated 51 trillion cubic feet near Karachi in southern Sindh province. The US experience has shown that investment in shale gas can increase production quite rapidly and prices brought down from about $12 per mmBTU in 2008 to under $2 per mmBTU recently. Pursuing this option requires US technical expertise and significant foreign investment on an accelerated schedule.
2. Increasing production of gas from nearly 30 trillion cubic feet of remaining conventional gas reserves. This, too, requires significant investment on an accelerated schedule.
3. Converting some of the idle power generation capacity from oil and gas to imported coal to make electricity more available and affordable.
4. Utilizing Pakistan's vast coal reserves in Sindh's Thar desert.
5. Hydroelectric and other renewables including wind and solar. Several of these projects are funded and underway but it'll take a while to bring them online to make a difference.
In my view, the newly-elected government should pursue all of the above options with options 1, 2 and 3 as a priority for now. Its best interests will be served by developing its own cheap domestic shale gas on an accelerated schedule with Saudi investment and US tech know-how.
Related Links:
Haq's Musings
Comprehensive Energy Policy for Pakistan
IPP Contracts in Pakistan
Pakistan Needs Shale Gas Revolution
US Census Bureau's International Stats
Pakistan's Vast Shale Gas Reserves
US AID Overview of Pakistan's Power Sector
US Can Help Pakistan Overcome Energy Crisis
Abundant and Cheap Coal Electricity
US Dept of Energy Report on Shale Gas
Pakistan's Twin Energy Crises
Pakistan's Electricity Crisis
Pakistan's Gas Pipeline and Distribution Network
Pakistan's Energy Statistics
US Department of Energy Data
Electrification Rates By Country
CO2 Emissions, Birth, Death Rates By Country
China Signs Power Plant Deals in Pakistan
Pakistan Pursues Hydroelectric Projects
Pakistan Energy Industry Overview
Water Scarcity in Pakistan
Energy from Thorium
Comparing US and Pakistani Tax Evasion
Most private investors have built oil-powered inefficient plants because of their low construction costs and short lead times, and the oil price has skyrocketed since these plants were built in 1990s. The result is 18-20 hours of load shedding across most of Pakistan in the scorching summer heat in spite of the fact the taxpayers have shelled out billions of dollars in subsidies to the power sector since 2008.
According to an AP report, the Pakistan's government has assumed $3.6 billion of the power industry's debt. The government-owned power grid owes another $2.5 billion to private-sector generators, even as the government, according to Finance Ministry figures, spent at least $7.4 billion on electricity subsidies during the 2008-2010 period.
Here's Arif Habib Securities investment analysis of the IPPs sector:
All power companies from Arif Habib Limited research coverage witnessed surprising growth (36-58%) in net profitability. HUBC led the flock with 58% YoY jump in profit after tax, attributable to the growing indexation factors and ROE component. On the other hand, lower payables to fuel supplier and resultantly lower penal interest provided major support to KAPCO, pushing the net profitability up by 36% YoY. As far as Nishat group companies are concerned, rising fuel cost magnified the impact of fuel efficiency, which combined with O and M savings further improved the profitability. However, dividend from KAPCO and NPL disappointed the optimistic investors. Arif Habib Limited believes the dividends to rise in 2HFY13 for these companies, providing investor with greater value at the financial year end.
 |
| Source: IMF Pakistan |
Pakistani government buys electricity from IPPs at a rate of Rs. 12.50 per KWhr while the consumers pay an average of Rs. 9.00, leaving a short-fall of Rs 3.50 per unit which is subsidized by the taxpayers. It adds up to hundreds of billions of rupees a year. Power subsidy target for FY 2012-13 was set at Rs 185 billion, 60 percent lower than the actual subsidy provided during FY12. The subsidy provided year-to-date (YTD) is Rs 311 billion, already having exceeded the target by 68 percent, according to PakTribune.
In a blog post published in Financial Times, Dr. Kamal Munir of Cambridge University's Judge Business School blames the IPP contracts signed as part of the power privatization in 1990s.
“The 1994 privatization of the energy sector offered investors generous returns and created pricey overcapacity,” he told Financial Times. “This created an expensive legacy which is the real problem of today’s energy crisis.” Unless that problem is dealt with, he sees no light at the end of the energy tunnel.
He says Pakistan’s government, helped by the World Bank, “sweetened” its energy privatisation with attractive conditions, fearing it wouldn’t be able to attract investors otherwise. It guaranteed a 12 to 15 per cent annual return (indexed in dollars, not rupees), gave tax breaks and paid interest on private funding – more expensive for the government than providing the funding itself. ”The deal was too good to be true for investors,” Munir says.
Munir says the model turned out to be badly constructed in terms of creating value for the government and people of Pakistan. Even in an environment of economic growth and efficient energy generation, it would have been hard for the government to finance the plan. But since both have been absent, it became nearly impossible to pay for privatised energy.
Since there were no incentives to be fuel-efficient, most private investors chose to build plants using furnance oil as fuel because of their low construction costs and short lead times. This backfired as the oil price has trebled since the 1990s. Variable costs, and therefore prices to consumers, are at unsustainable levels. “No wonder many consumers can’t afford to pay their bills,” Munir says.
To make things worse, the government neglected to step on the brakes when its generous conditions attracted too many investors. Assuming economic growth would continue, it allowed too much capacity to be built and guaranteed the same return on that extra capacity, whether it was used or not.
Munir says the government should develop new power plants using cheaper fuels, and that this shouldn’t be a problem in a country with an abundance of coal, waterways and sun.
But Pakistan must first escape its vicious payment cycle.
“We need to get out of the the current deals,” says Munir. But at what cost, and does this imply default? “Your guess is as good as mine,” the academic admits.
Still, he felt it was time to make his point. “I’m not defending people who don’t pay bills and I’m not promoting government subsidies to keep prices low,” Munir says. “But why isn’t anyone talking about the policy that led to this situation to begin with?”
 |
| Fuel Cost per million BTU |
1. Developing its shale gas reserves estimated 51 trillion cubic feet near Karachi in southern Sindh province. The US experience has shown that investment in shale gas can increase production quite rapidly and prices brought down from about $12 per mmBTU in 2008 to under $2 per mmBTU recently. Pursuing this option requires US technical expertise and significant foreign investment on an accelerated schedule.
2. Increasing production of gas from nearly 30 trillion cubic feet of remaining conventional gas reserves. This, too, requires significant investment on an accelerated schedule.
3. Converting some of the idle power generation capacity from oil and gas to imported coal to make electricity more available and affordable.
4. Utilizing Pakistan's vast coal reserves in Sindh's Thar desert.
5. Hydroelectric and other renewables including wind and solar. Several of these projects are funded and underway but it'll take a while to bring them online to make a difference.
In my view, the newly-elected government should pursue all of the above options with options 1, 2 and 3 as a priority for now. Its best interests will be served by developing its own cheap domestic shale gas on an accelerated schedule with Saudi investment and US tech know-how.
Related Links:
Haq's Musings
Comprehensive Energy Policy for Pakistan
IPP Contracts in Pakistan
Pakistan Needs Shale Gas Revolution
US Census Bureau's International Stats
Pakistan's Vast Shale Gas Reserves
US AID Overview of Pakistan's Power Sector
US Can Help Pakistan Overcome Energy Crisis
Abundant and Cheap Coal Electricity
US Dept of Energy Report on Shale Gas
Pakistan's Twin Energy Crises
Pakistan's Electricity Crisis
Pakistan's Gas Pipeline and Distribution Network
Pakistan's Energy Statistics
US Department of Energy Data
Electrification Rates By Country
CO2 Emissions, Birth, Death Rates By Country
China Signs Power Plant Deals in Pakistan
Pakistan Pursues Hydroelectric Projects
Pakistan Energy Industry Overview
Water Scarcity in Pakistan
Energy from Thorium
Comparing US and Pakistani Tax Evasion
Comments
....A three-member bench, headed by Chief Justice Iftikhar Muhammad Chaudhry and including Justice Chaudhry Ijaz Ahmed and Justice Gulzar Ahmed, noted on Tuesday that there could be a genuine problem, “but now it seems that there was an involvement of artificial factors, particularly the high inefficiency of the Pakistan Electric Power Company (PEPCO) (Private) Limited and the National Transmission and Despatch Company (NTDC) Limited officials”.
The court said that production of power plants below their capacity could be one of the reasons of severe load shedding in the country.
The court was informed that the Guddo Thermal Power Plant’s total capacity was 1,650MW, but it was presently producing 775MW, while the Jamshoro Thermal Power Plant had a capacity to produce 1,000MW, but it was generating only 300MW.
Moreover, Muzafargarh plant’s capacity was 1,100MW, but it was presently producing only 700MW.
PEPCO Managing Director Zargham Ghulam Ishaq Khan informed the court that the deterioration in production was due to faults in the machines and that spare parts had to be changed.
The court was informed that after several steps, about 975MW had been added to the current system, which would reduce the intensity of load shedding in the country.
He told the court that the technical audit of some of the thermal plants had been carried out and the machines shall be made functional to their full capacity.
He maintained that during the last couple of days, power generation had dropped drastically due to various technical reasons.
He informed the court that due to the non-availability of oil and gas to the power sector, the current power crises had gotten worse. He said that arrangements had been made for the supply of furnace oil to the plants, adding that natural gas would also be supplied to the companies so that maximum output was generated.
About the hydroelectric power plants, the MD said 60% to 70% of their capacity had been increased, and they were presently generating 3,900MW. The generation capacity could further be increased if discharge from Tarbela, Mangla and glacier melting was increased, he added.
PEPCO engineer and consultant Raziuddin, who appeared voluntarily, told the Supreme Court that the company and the NTDC needed a fulltime managing director rather making makeshift arrangements. He said that PEPCO had sufficient capability to make the units functional. He said the Gudu Power Plant had the installed capacity of 1,650MW, while it was currently generating 775MW due to fault in various machines, which needed to be fixed. He gave the example of a machine, stating that only fixing of one machine could add 100MW of electricity to the system.
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The PEPCO MD replied that they had already completed the audit of all the machines and they had also fixed machines number 5 and 7 at Gudu, adding that the current output of the plant was 835MW and not 775MW.
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He said that Jamshoro Power Plant, after necessary repair work, was ready to generate 750MW. The CJ asked why were they not generating 750MW from Jamshoro, on which the MD said that due to the deficiency of furnace oil, they could not go ahead with the new additional capacity. He further added that power generation addition would be about 975MW after the new steps by the PEPCO
http://www.dailytimes.com.pk/default.asp?page=2013%5C05%5C22%5Cstory_22-5-2013_pg1_1
The feedback suggests that the power market is being deliberately manipulated by a few to make a lot of money at the expense of millions of Pakistanis.
It reminds me of the Enron scandal in US which caused load-shedding in California because of market manipulation. Enron falsely blamed it on gen capacity constraints cause by tough environmental regulations in California. Several Enron executives were convicted and jailed.
I hope that Pakistani media and judiciary will investigate and expose such a scandal in Pakistan. It will be great service to the entire nation.
Pakistani stock market surged by over 500 points today to a record high of 21,500 points on heavy buying by overseas investors, amid reports government plans to sell treasury bills worth USD 5 billion to pare debt.
The Karachi Stock Exchange's benchmark 100-share index closed 2.59 per cent, or 542.86 points, higher at 21,501.72.
"The market was buoyed by reports today that the new government plans to sell USD 5 billion in treasury bills to pay off a chain of debt that has led to power crisis and is affecting the economy," Sohail Ahmed, a market analyst, said.
The new government is planning to pay off the debt within the first 100 days in power as it believes the economy will only be lifted and foreign investments will grow if the power shortage crisis is dealt with immediately, said experts.
In Lahore, Pakistan's Prime Minister-designate Nawaz Sharif pledged that the incoming PML-N government would make efforts to overcome power problem as soon as possible.
The stock market rally came after two straight days of decline.
On the previous two trading days, the stock market saw profit-booking after a wave of massive buying saw investors betting big that the crisis-ridden economy would revert back to high growth under Sharif, set to become premier for an unprecedented third term.
The Pakistani rupee also remained stable on Tuesday ending in the market on 98.43/98.49 against the US dollar.
Sharif, himself an industrialist and co-owner of diversified multi-million dollar conglomerate Ittefaq group, has said that revival of economy would be among his top priorities. He is seen by many in Pakistan as someone who can fix the country's bleeding economy.
There are only 569 listed companies on the Karachi Stock Exchange, as against about 5,000 in the Indian stock market, where total investor wealth is close to Rs 70 lakh crore.
The number of companies listed on KSE has come down in the past few years, from more than 650 in 2009, as the country's economy has been struggling amid a turbulent political scene.
However, a clear mandate in the just-held historic polls is expected to revive the economic activities and therefore the stock markets as well.
http://www.business-standard.com/article/pti-stories/pakistan-stock-markets-zoom-to-record-high-of-21-500-113052801027_1.html
Mr. Sharif hasn't commented publicly on the reasons for retaining the defense and foreign-affairs portfolios. A spokesman for his party, Tariq Azeem, declined to comment.
An aide to Mr. Sharif, however, offered this explanation: "When Nawaz Sharif was in power in the past, there were misunderstandings between the prime minister and the army," he said. "This time there will be a direct link."
The thinking in the Sharif camp went, the aide added, was that, "with the withdrawal of international troops from Afghanistan in 2014, foreign and defense ministries are going to be working very closely together."
Mr. Sharif has frequently said he wants to improve relations with India, and has accused the army—then headed by Gen. Pervez Musharraf—of undermining his peace initiative toward India in the late 1990s. The traditional justification for retaining an army of more than 500,000 men, which eats up about 20% of Pakistan's budget, is the long history of hostilities with India. The two neighbors have fought three wars since partition in 1947.
The current army chief, Gen. Ashfaq Parvez Kayani, has differentiated himself from many of his predecessors by repeatedly stating his commitment to democracy. A spokesman for the military didn't return calls seeking comment.
Whether the shift will sap power from the army remains to be seen. Putting so much weight in one man's hands could backfire, some analysts said. "One of the reasons why people voted for Nawaz Sharif was that they thought he had the best team," said Aasiya Riaz, joint director of Pildat, an Islamabad-based think tank. But ministries require full-time "strong and effective fully fledged ministers" to enforce civilian control, she said.
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The foreign ministry will be run by two Sharif appointees: His former foreign and finance minister, 84-year-old politician Sartaj Aziz, has been named adviser on national security and foreign affairs, and will have the rank of minister; Tariq Fatemi, a former ambassador to Washington, has been named a special adviser, and will serve as a deputy minister, with the rank of minister-of-state.
Mr. Chaudhry, the ministry spokesman, said both men were "very experienced."
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The new finance minister, Ishaq Dar, was set to unveil an emergency budget on Wednesday.
The issue of tackling the country's energy shortage is in the hands of lawyer and former banker Khawaja Asif. The ministry of petroleum and natural resources went to entrepreneur and engineer Shahid Khaqan Abbasi.
Mr. Sharif won praise for not trying to grab control of the provincial governments in two violence-plagued western provinces, Baluchistan and Khyber Pakhtunkhwa.
In the latter, he deflected coalition entreaties from Islamists and allowed the party of former cricket star Imran Khan, which won a plurality of provincial legislature seats, to form the provincial administration.
In Baluchistan, where a low-level separatist insurgency has been waged for nearly a decade, Mr. Sharif—whose party won the most seats in the provincial legislature—last week decided to support the leader of a nationalist party, Abdul Malik Baloch, as the new chief minister.
Mr. Baloch is a middle-class professional—unusual in a province where both the government and the armed rebellion have long been led by tribal chiefs.
"Baluchistan is on fire today," Mr. Baloch said in his first address to the provincial parliament Sunday. "If the federal government and the militant organizations help the provincial administration, there will be no difficulty in finding a solution to all festering issues of the province."
http://online.wsj.com/article/SB10001424127887324904004578539070809811726.html
Pakistan is at least 5,000MW short of what it is needs to support the country this summer, the Water and Power Development Authority (WAPDA) reported. On one day in May, the national power grid generated 9,200MW, 7,000MW short of demand, UPI reported.
The acute energy crisis has taken its toll on industry, agriculture and the job market, costing millions of Pakistanis their jobs over the past 10 years, according to economists.
"The energy crisis has reduced GDP growth by 2.5-3% [per year], and it directly affects the 2.5m new job seekers who enter the market every year," Dr. Ashfaq Hassan, an economist, told Central Asia Online, adding that millions of Pakistanis lost their jobs because of the crisis in the last decade.
Pakistani energy potential
It is not a matter of lacking energy resources, but rather it is a matter of properly tapping into Pakistani potential, Hassan said.
The country has large potential for economic growth and employment if exploited carefully, he said.
Pakistan in a few years could overcome the energy crisis and massive unemployment, and the GDP growth would be higher if load shedding vanished, economist A. H. Nayyar said.
The country's power potential is 59,208MW for hydropower; 100,000MW for coal; 7,500MW for wind; 2,000MW for solar; and 25,031MW for thermal, WAPDA spokeswoman Farhat Jabeen told Central Asia Online.
Projects boost energy production
The energy crisis seems to be worsening day by day, but the power generation projects are now increasing hope and the country's future is not as dark as it once seemed.
Several stakeholders are involved and the authorities are trying hard to contain the power shortage and load shedding in Pakistan, Jabeen said.
Construction is progressing on 17 small- to medium-size dams and other power-generating projects, and some of them should be ready within a few months, she said.
More than 400MW will be added to the national grid this month, and another 4,000MW in the next five years, she added.
Three dams are nearing completion and two others are scheduled to be finished in 2015, official records reveal.
Improving job market and alternative energy
Besides helping to ease the energy crisis, the projects will boost employment.
The dam projects, for example, have directly employed 19,200 workers in the past five years, the WAPDA dams director said.
The energy development sector has provided more than 100,000 jobs in various projects over the past eight years, official records reveal.
Energy development projects are already denting the unemployment rate. There are also expectations that the increased employment will trickle down to industry and agriculture.
Development activities like those in the energy sector always have a positive effect on other areas of the economy, Nayyar said, noting more job opportunities will come to cement and other industries.
Alternative energy plans on tap, too
The government is not only encouraging the dams as energy sources but also promoting solar, wind, nuclear and other means. It initiated projects in this direction as well.
The Alternative Energy Development Board initiated wind, solar and other projects that will add 500MW to the national grid within two years, Chief Executive Arif Alauddin told Central Asia Online.
But the potential for such projects is much greater as these sectors are attracting huge investment, he said.
http://centralasiaonline.com/en_GB/articles/caii/features/pakistan/main/2013/06/13/feature-02
Pakistan has asked the Manila-based Asian Development Bank to help finance two coal-fired power units at the Jamshoro thermal power station in Sindh, a senior official of Pakistan's Water and Power Development Authority told Kyodo News this week.
Zafar Umar Farooqi, chief engineer at the authority, said Pakistan had initially sought a $433 million ADB loan for one 600-megawatt unit but the bank has now been asked to consider a loan for two units.
He said the size of ADB loan will be decided after consultations with the bank, but he indicated the total cost of Jamshoro project would be around $1.5 billion.
The government-owned WAPDA operates an 850-MW oil-gas fired thermal power plant at Jamshoro at less than 40 percent of its capacity because of a shortage of fuel oil and gas.
The ADB loan will be used to convert the existing plant to coal and set up an additional coal-fired plant at the site, increasing installed capacity at Jamshoro to 2,050 MW.
The government has already invited expressions of interest from consultants to oversee construction at Jamshoro, which is about 150 kilometers northeast of Karachi and uses water from the Indus River for cooling.
Pakistan has long examined setting up coal-fired power plants to use its own lignite coal, but efforts have been unsuccessful because of the high ash content in the coal.
Ismail Khan, senior external relations officer for the ADB for Pakistan, said the new units at Jamshoro would be designed to use mixed local and imported coal, most probably from Indonesia.
Farooqi said separate tenders will be invited for conversion of existing Jamshoro plant from oil-gas to coal.
Pakistan has an acute power shortage and the new government of Pakistan Muslim League (N) has given top priority to increasing power generation.
http://www.globalpost.com/dispatch/news/kyodo-news-international/130620/pakistan-seeks-adb-loans-coal-fired-power-plants
A meeting presided over by Finance Minister Ishaq Dar decided to make the payment to IPPs to clear a major part of the Rs506bn circular debt with four major conditions for which a fresh memorandum of understanding (MoU) will be signed on Friday morning, followed by immediate disbursements, finance ministry spokesman Rana Assad Amin told Dawn.
In return, the IPPs will commit in writing in the MoU to achieve their maximum generation capacity and provide 1,700MW to the national grid before Ramazan.
The Hubco, Lalpir, Pakgen and Saba plants, having almost 1,800 megawatts capacity, will make a commitment to convert to coal-based power generation within 16 months.
All IPPs have also agreed to reduce their interest rate on receivables by two percentage points from the existing Kibor (Karachi Inter-Bank Offer Rate) plus four per cent and increase their credit period from 45 to 60 days to ease the payment pressure on distribution companies.
Since the two relaxations would require amendments to the existing power purchase agreements, the IPPs would initially sign an MoU, Mr Rana said. Subsequently, the National Electric Power Regulatory Authority and Private Power and Infrastructure Board would approve an addendum to the agreements, he said.
He said the IPPs and the government had agreed to resolve through arbitration their dispute over Rs23bn outstanding amounts currently pending before the Supreme Court.
http://beta.dawn.com/news/1021183
Since Pakistan’s biggest electricity company was privatized, its headquarters has been looted, its employees kidnapped and its boss nearly arrested by the government.
Despite all of that, it is regarded as a roaring success.
Power cuts lasting 12 hours a day or more have devastated the Pakistani economy. The loss of millions of jobs has fueled unrest in a nuclear-armed nation already beset by a Taliban insurgency.
The only city bucking the trend is the violent metropolis of Karachi, Pakistan’s financial heart — and that is thanks to Tabish Gauhar and his team at the Karachi Electricity Supply Co.
“It has consumed every ounce of my energy,” Mr. Gauhar, 42, said in an interview. “But we have helped millions of people.”
The new government of Prime Minister Nawaz Sharif won an election in May partly because it had promised to fix the power cuts. Now many are wondering whether the Karachi utility’s successful privatization will be repeated elsewhere.
Pakistan’s power companies share similar problems. Workers are often corrupt, and influential families rarely pay bills. The government sells power below the cost of production but pays subsidies late or not at all. Plants cannot afford fuel.
At the state-run Peshawar Electricity Supply Co., the majority of workers are illiterate, most new hires are relatives of existing staff members, and 37 percent of the power generated was stolen, according to a 2011 audit funded by the U.S. Agency for International Development.
Karachi Electricity Supply had all the same problems when the Dubai-based private equity firm Abraaj Capital bought a controlling stake in 2008. Mr. Gauhar and his Abraaj team decided to slash the work force by a third, cut off nonpayers and destroy illegal connections.
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Many in the populist pro-labor government vilified the power company. Later, legislators tried to arrest Mr. Gauhar on charges that he had not attended subcommittee meetings in the capital.
After the protests dissipated, Karachi Electricity Supply’s next problem was making customers pay. More than a third of the company’s electricity was stolen in 2009. Those who got bills often ignored them.
One wealthy patriarch said he could not possibly start paying because his colleagues would think he had no influence left.
Karachi Electricity Supply started cutting off those who did not pay their bills. When a transformer burned out in an area with high theft, the company asked for two months’ worth of payment from the area’s residents before replacing it.
The company divided up the city of 18 million. Areas where 80 percent of people pay bills now have no regular power cuts. Areas with high loss — often crime-ridden, sweltering slums — have long power cuts. Karachi Electricity Supply is widely hated in such places.
Muhammed Fayyaz, who works as a driver, says his neighborhood often has as much as 10 hours of cuts per day. Summer temperatures top 40 degrees Celsius (104 Fahrenheit), and protests are frequent.
“People block the main road and throw stones at passing vehicles,” he said.
Mr. Fayyaz lives in a high-theft area. Stealing power is easy. Makeshift wires with metal hooks festoon Karachi Electricity Supply’s lines in the sun-baked streets. Some lead to roadside businesses. Others head into the distance atop lines of makeshift bamboo poles.
“We clean them up, but in five minutes they are back again,” said Muhammad Siddiq, a manager at the utility.
http://www.nytimes.com/2013/07/02/business/global/turning-on-the-lights-in-pakistan.html?_r=1&
The investment, planned under the new Country Partnership Strategy (CPS) 2015-19 estimated at $5.1 billion, is expected to be effective from early next year, with 41% of the financing focusing in the energy sector alone, according to finance ministry officials.
With the country facing debilitating energy infrastructure, the new investment will be allocated for transmission, distribution, grid connectivity, hydropower generation and import of gas, according to the draft CPS.
However, Pakistan will be required to take hard decisions aimed at increasing power tariffs, reducing line losses and shifting the energy mix. These conditions to funding are being described as in line with the government’s 2013 National Power Policy.
The multilateral lender hopes that the over $2 billion investment in the power sector in the next three years will allow the government to withdraw electricity subsidies. It is also discussing the condition of reducing line losses and bringing them in line with the benchmark approved by National Electric Power Regulatory Authority (Nepra), according to the draft CPS.
The strategy and the government’s power policy are also aimed at achieving zero load-shedding by 2018, a goal that seems overambitious.
Lack of transparency
While the ADB paints a rosy picture of the country’s power sector five years down the line, it has also highlighted the grave situation faced by the energy sector. The draft document of the CPS states that the private participation in the energy sector has been curtailed because of “chronic concerns about payment to power suppliers, unclear investment policies and lack of transparent payment practices”.
It is the first time that an international lender has highlighted the issue of lack of transparent payment practices in a policy document.
“There were concerns raised on the payments to the IPPs (Independent Power Producers) not being based on merit,” according to the draft CPS. The draft document did not elaborate who raised these concerns.
The issue of favouritism in power payments shot into the limelight in June last year when the government cleared Rs480 billion circular debt. There were allegations that the government made out of turn and excessive payments to a Lahore-based industrialist due to his close proximity with the ruling party.
http://tribune.com.pk/story/779095/benchmark-adb-to-earmark-2-billion-loan-for-energy-sector/
Addressing a press conference here, the minister said that the energy projects would be completed in two phases.
"During the first phase the energy projects of 10,400 MW electricity worth of $15.5 will be completed while in the second phase different projects of 6600 MW electricity will be concluded ", he said adding development of energy infrastructure and up-gradation of system of transmission lines was also included in the agreements.
Ahsan Iqbal said that energy projects of 9000 MW would be completed by 2018 which would mean that the government would be able to eliminate power load-shedding in the country during its tenure.
The minister said that coal-based power plants would generate 7500 MW and the cost per unit of electricity would be about 10 cents which would be far cheaper than that of oil.
He said that under the Corridor, 1000 MW of the largest solar park would also be established in Cholistan while hydal based energy projects would be of 1600 MW.
Giving details about Thar Coal Projects, the minister said that in the first phase two projects of 2000 MW would be developed from Thar Coal while under the agreements with China overall 6600 MW Thar Coal projects would be completed
He said that a package of $650 million was also included in the agreements for development of Gwadar sea port and airport.
Iqbal further said that 1736 kilometers of railway track would be upgraded which would not only help to ease out transportation system of goods and coal but it would also help improving transportation facility for the passengers.
The Minister strongly condemned Pakistan Tehreek-e-Insaf (PTI) Imran Khan's statement against Chinese development assistance to Pakistan under "China-Pakistan Economic Corridor" and said that Pakistan and China are closest friends and enjoy time tested all weather friendship.
"At a time when international investors were shying away from Pakistan due to security environment in the region, decision of Chinese and Pakistani leadership during PM Nawaz Sharif's visit to Beijing to take Pak-China relations to new heights in economic field through China Pakistan Economic Corridor Project is a milestone", he added.
The most critical energy and infrastructure sectors related projects will infuse new life into Pakistan's economy, he added.
He said the projects are in IPP mode as investment projects and rejected Imran Khan's assertion that these projects were being financed through borrowing.
Iqbal said that these projects were coming under the energy policy which was open for all investors from any part of the world.
http://www.brecorder.com/top-news/108-pakistan-top-news/204294-16600-mw-projects-under-pak-china-economic-corridor-to-help-overcome-energy-crisis-ahsan.html
The auditor general of Pakistan (AGP) has found embezzlement, misappropriation and irregularities of around Rs980 billion in the accounts of Water and Power Development Authority (Wapda) and other power companies working under the Ministry of Water and Power in the audit year 2013-14 and has asked the president to order investigations into specific cases.
The amount is equal to nearly one-fourth of the Rs4 trillion federal budget for fiscal year 2015-16 and can explain why the government has to inject huge subsidies out of taxpayers’ money every year to clear the circular debt that keep emerging again and again. Over the past five years, the federal government is estimated to have injected more than Rs2 trillion into the power sector, besides increasing consumer tariff by about 200 per cent.
On top of that, the AGP has also made observations over Rs4.2 trillion in an unsettled audit backlog from the past few years.
The audit pertained to Rs414 billion of expenditure and Rs898 billion of revenue for fiscal year 2012-13.
In its report to the president of Pakistan — as mandated under Article 171 of the Constitution — the AGP has put together seven broad categories of findings from an audit of the accounts of Wapda, four generation companies (Gencos), 10 distribution companies (Discos) and the National Transmission and Despatch Company (NTDC).
Wapda’s Directorate General of Audit — a specialised wing empowered to look after power sector accounts — said it had ignored the instances of misappropriation, fraud and other irregularities amounting to less than Rs1 million. In FY2012-13, the directorate said, an audit found 184 cases of irregular expenditures or unjustified payments and rule violations amounting to Rs368.65 billion.
Another 88 cases, worth Rs572.63 billion, pertained to non-recoveries and overpayments; 18 cases to accidents and negligence that cost around Rs19.5 billion; Rs5.8 billion was linked to cases where there were weaknesses in internal control systems; and transactions of around Rs11.8 billion were called into question over non-production of record. Another nine cases, worth around Rs350 million, were related to embezzlement of public money through theft and misuse of funds.
However, at the instance of audit, only Rs31.9 billion could be recovered and the AGP pointed out that it was beyond their capacity to carry out a “100 per cent” audit of these entities.
But the AGP pointed out that the internal control mechanisms in Wapda and its corporate entities did carry out complete audits, which also included consumer service offices, and also carried out physical examinations.
The AGP said that the recurrence of frequent irregularities “cast a shadow of doubt on the effectiveness of this internal control system”. The internal controls, it said, were deteriorating gradually as there had been an increase in cases of unauthorised extension of load, non-implementation of equipment removal orders, theft of material and electricity and violation of procurement rules as well as the Nepra Act.
The audit revealed that power distribution companies could not collect Rs401 billion from various defaulters in FY2012-13, while the procurement of material and consultancy services, provision of PC-1s and contracts involved the violation of procurement rules
“There was poor monitoring of revenue collection, embezzlement of funds, misappropriation and theft of material, misuse of public funds, incorrect billing, non-implementation of commercial procedure and non-adherence to provisions of power policy,” the AGP said.
https://profit.pakistantoday.com.pk/2019/02/17/nab-summons-nepra-over-case-of-unprecedented-profits-earned-by-ipps/
Nishat Chunian Power Limited had earned 44.25 per cent profit on equity investments against 14 per cent RoE based on IRR during the financial year 2010-11. Nishat Chunian was asked to explain the reasons for earning additional profits.
Responding to NEPRA, Nishat Chunian power Ltd said that allegations pertaining to submission of fake records during the time of tariff determination were wrong and baseless. However, NEPRA rejected the stance of Nishat Chunian Power Ltd and asked to submit a reply within seven days to avoid action against the company.
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Sources also said that the independent power producers (IPPs) and the owners of power plants which were installed during the tenure of the former government of Pakistan Muslim League-Nawaz have been earning additional profits around $1 billion annually, allegedly because of fake records and collection of additional tariffs.
They said that the owners of thermal, coal, wind and solar power plants will additionally collect $19 billion during the next 25 years while the IPPs which are running on oil and gas including Nishat, Chunian, Liberty, Atlas Power etc have earned additional profits in the range of 20 to 64 per cent other than the fixed limit of profits for them. They said that NEPRA had taken notice over additional profits to IPPs in 2014 but stopped the process of inquiry after the passage of one year.
They added that NAB Lahore has expanded the scope of the investigation against additional profits by IPPs and summoned NEPRA officials while the initial inquiry report of NAB has allegedly made responsible officials of the Punjab government, NEPRA and Alternative Energy development Board (AEDB).
A copy of documents available with Pakistan Today reveal that due to the approval of additional tariffs, owners of coal power plants will earn $14.25 billion, while the owners of solar plants will earn $900 million, wind to earn 1.8 million and fuel oil-run power plants will earn $90 billion during the next 25 years allegedly because of an approval of additional tariffs.
Sources in NAB said that power plants installed under the power policy of 2002 and in the rule of PML-N have become a burden on the national exchequer.
They said that Nishat Chunian Power Limited had earned 44.25 per cent profit on equity investments against 14 per cent RoE based on IRR during the financial year 2010-11. Nishat Chunian was asked to explain the reasons for earning additional profits.
Responding to NEPRA, Nishat Chunian power Ltd said that allegations pertaining to submission of fake records during the time of tariff determination were wrong and baseless. However, NEPRA rejected the stance of Nishat Chunian Power Ltd and asked to submit a reply within seven days to avoid action against the company.
Nishat Chunian was also advised to submit a separate statement within 15 days pertaining to its regulated profit and asked to include the financial impact of all items in the statement. Nishat Chunia Power Ltd was also informed about initiation of a suo motu action in case of no proper response over the said inquiry. However, despite the passing of one year, the inquiry has been closed without taking any final decision regarding billions of rupees worth additional profits by influential owners of power plants, said sources.
The cabinet has backed a proposal that opposes the renewal of power purchase agreements with independent power producers (IPPs) having 5,000-megwatt electricity generation capacity, which are expiring in a couple of years.
The proposal was submitted by Special Assistant to Prime Minister on Petroleum Division Nadeem Babar to the cabinet, chaired by Prime Minister Imran Khan.
Now, the task force on energy is working on a policy, which will be submitted to the cabinet for formal approval. “Power purchase agreements with the IPPs including Kapco and Hubco are going to expire in coming years and the government will not renew the agreements,” Babar told The Express Tribune.
This means that the government will not continue to follow the power purchase agreements on a ‘take and pay’ basis, which binds the government to pay capacity charges. However, these power plants will be able to sell electricity to the Central Power Purchasing Agency (CPPA) in the summer season when demand is higher compared to the winter.
The power plants were set up under the Power Policy of 1994 and were based on furnace oil. The only flaw is that the past government had not foreseen the future scenario of prices of different fuels.
At that time, the price of furnace oil stood at Rs2,843 per ton, which was cheaper than the domestically produced gas. However, the price of furnace oil has now jumped up to Rs87,000 per ton, which is many times expensive than the price of indigenous gas.
“However, in the new policy, the government will examine the future scenario of fuel and gas prices,” said Babar. Now, the imported LNG and coal have also become part of the energy basket in addition to furnace oil and domestic gas.
The government will also forecast the future LNG price. At present, Qatar is the major LNG supplier to Pakistan. However, Australia and the United States are going to become potential suppliers in future, which may cause a decline in LNG prices. A senior government official said LNG prices may come down to $2 per million British thermal units (mmbtu) in the next 10 years.
However, according to experts, the LNG suppliers will form a cartel in the global market and control production in order to keep prices at a certain level.
In the case of oil, the US shale oil boom had shaken the global market and had even broken the monopoly of Organisation of Petroleum Exporting Countries (OPEC). Following this, the prices of crude oil touched $35 per barrel and several US and European companies shut down.
However, the oil-producing countries had control over crude oil production and prices again started rising. The same will happen in the case of LNG, say experts.
Pakistan has secured the cheapest LNG supply deals recently in spot purchase contracts. However, officials believe that in short and long-term contracts, Pakistan could have to pay 11-12% of Brent crude despite the lowest LNG contract at around 7% of Brent in spot purchases.
Singapore and South Korea have received contract prices of 11.8% and 11.7%, respectively. So, such scenarios should be kept in mind while framing the new power policy, an official said.
The government is considering offering economic incentives to the consumers. Officials said consumers would be offered discounted rates of electricity from the national grid when the demand stood low to lift electricity from those power plants whose contracts were going to expire.
For foreign investors registered with the State Bank of Pakistan, the return on equity (ROE) ‘will be 12pc prospectively’. For local investors, the ROE will be changed to 17pc in rupee terms without dollar indexation. “In recalculating the return, the equity approved by the National Electric and Power Regulatory Authority (Nepra) on commercial operation date in dollar shall be converted into rupee at an exchange rate of Rs145 for prospective calculation”, according to an MoU seen by Dawn.
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A senior government official told Dawn that about half of the 12 IPPs set up under the 2002 power policy and an association representing about two dozen WPPs had already signed memorandums of understanding (MoUs) with a negotiation team led by former federal secretary Babar Yaqoob Fateh Muhammad while others are expected to follow suit within 15 days.
These do not include the IPPs under 1994 policy, China-Pakistan Economic Corridor, public sector plants of generation companies, hydropower and nuclear power projects which claim over 75 per cent of the capacity payments.
Since most of the IPPs remained unutilised for almost nine months last year and are on the last leg of their terms, the total savings would amount to about 5pc of the total energy purchases that last year stood at about Rs775 billion or about Rs35-40bn, the official explained.
The understanding followed principles from government side that power purchase agreements are sacrosanct, the IPPs would not be subjected to media trial and there would be no investigations or arm twisting. However, evidence was put on the table to suggest that on a case to case basis, investments had been exaggerated, equity overstated and machinery over-invoiced and taxes underpaid and hence mutually agreed changes in existing contractual relationship.
https://www.dawn.com/news/1575402 by Khurram Husain
The amount the government will have to pay for this settlement is estimated by the IPP managements to be above Rs200 billion. The total outstanding owed to power producers is Rs600bn, but not all of those producers are part of these talks. The IPP team tells me they expect a full settlement of all outstanding receivables owed to them before they will consider activating any of the other clauses in the MoU. But the language of Clause 10, where this understanding is written, does not specifically make activation of the terms of the agreement conditional on prior payment of outstanding receivables. The MoU simply says there will be “agreement on payment of receivables within an agreed time period”.
The language of the clause is carefully crafted to leave just enough ambiguity to let the IPPs decide either way, to either press for full payment or activate the terms against an agreed timeline only. They will probably check the temperature at decision time before choosing their course of action on this clause.
The other clauses in the MoU are minor details, even the IPP managements agree. The revised formulae for sharing of efficiency gains or the revision in the Delayed Payment Rate are nothing special. The reduction in the DPR is only for the first 60 days, for example, after which it reverts to an exorbitant Kibor plus 4.5 per cent.
The switch to “take and pay” — a reference to eliminating capacity payments — has been thrown indefinitely into the future since both sides agreed it can only happen after a competitive trading arrangement comes into being, an idea that has languished for more than 20 years already. There is little reason to believe it will happen in the next five years, and even that is being optimistic.
The committee has also agreed to abide by the principle of first in first out when making all future payments, which will prove to be costly for the government. Common practice that helped save the government money was to pay off those bills first that came with the highest interest rates, and FIFO ends that discretion.
The biggest allegation that launched this entire exercise in the first place was the one of “excess profits” that the IPPs were said to have made by misrepresenting their costs or their fuel consumption or their efficiency levels. The government marched into these talks alleging trillions of rupees worth of wrongdoing in “excess profits”. Yet under the MoU, the whole matter has been lobbed into Nepra’s court, which will decide only whether the profits were made in accordance with the 2002 policy, the tariff determinations and the power purchase agreements of the IPPs, based on numbers that were reconciled between government and the IPPs during these talks.
The rupee indexation of returns for local investors sounds good on the surface, until you see that the rupee has been indexed at 148 to a dollar. Given these plants made their equity investments in the year 2002, when the dollar was around a third of this value, the indexation compensates the IPPs very generously in return for losing their dollar-based certainty.
The government has done the right thing to seek these talks, and it has also done the right thing to ensure sovereign guarantees are not violated in the process. But these terms do little for the vaunted goal of tariff reduction. The terms in the MoU are meek and the IPPs have largely escaped the kind of accountability that the government was screaming about when this whole affair was launched. In the meantime, the circular debt, power sector governance and the rising power bills of consumers will remain large challenges for the government.
The country confronts steep electricity payments amidst persistent blackouts.
https://scroll.in/article/989919/pakistans-surplus-power-generation-capacity-has-come-at-a-price
Pakistan’s dilemma is a surplus of power generation capacity – a problem it has avoided since the late 1990s. “We are producing much more than we need,” Tabish Gauhar, the prime minister’s special assistant on power, has been telling the media since January.
In his public remarks, he points out that the country cannot afford the new electricity that has been in its system ever since a spate of Chinese-built power plants began to come online in 2017. Gauhar also attributes the bulk of the increased cost to “fixed capacity charges” that he says have “gone through the roof”.
By some estimates, the country has had to pay capacity charges of 85,000 crore Pakistani rupees a year in the last few years, a figure projected to rise beyond 1.45 lakh crore Pakistani rupees by 2023 – by when it will be larger than the country’s present peacetime defence budget.
Technically capacity charges are not a budgetary item (they are paid through power bills sent to consumers rather than out of the government’s own budget). The escalating cost of surplus power generation has meant a continuous rise in consumer power tariffs.
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Javed Hassan
@javedhassan
Capacity payments to IPPs:
FY 2017-18 cRs250bn
FY 2018-19
FY 2019-20 cRs900bn
FY 2029-21 > cRs 1.0tr
FY 2023 > Rs 1.5tr
Electricity Consumption
2018 c106bn units
2019 c109bn units
From ‘18 to ‘23 Capacity payments increases by cRs1.25tr; or from Rs2.4/unit to Rs12/unit
https://twitter.com/javedhassan/status/1373715348147613702?s=20
https://twitter.com/haqsmusings/status/1373857897512198145?s=20
Dr Munir is a Reader in Strategy and Policy at the Judge Business School, and is Academic Director at the Centre for Strategic Philanthropy. He is a University Race and Inclusion Champion, and is a Fellow of Homerton College.
In his role as Pro-Vice-Chancellor, Dr Munir will provide leadership on matters relating to the University’s community, with an emphasis on staff and external engagement. These areas of responsibility have increased significantly in recent years and are a priority area for the University.
Dr Munir’s new role takes over from Professor Eilis Ferran, who will complete her term in office as Pro‑Vice‑Chancellor for Institutional and International Relations at the end of this academic year. The international portfolio will be combined with the Pro‑Vice‑Chancellor (Research) role, since there are important synergies between the University’s international and research activities.
Dr Munir will lead the development and implementation of strategy and policy relating to all staff (academic and professional services). Building on the foundations put down during Professor Ferran’s tenure, he will have a focus on equality and diversity. The University’s aim is to stand out among its international peers for the excellence of its practice in this area. Dr Munir will also further develop the University’s considerable collections both as an important teaching and research resource, and in engagement with those outside the University community: locally, regionally, nationally and internationally.
There are five Pro-Vice-Chancellors, whose roles provide academic leadership to the University and support the Vice-Chancellor. They work as a team with the Heads of the Schools, the Registrary, the Chief Financial Officer and other senior colleagues, to ensure that the University maintains and enhances its contribution to society and its global academic standing.
Javed Hassan
@javedhassan
The obscenity of the IPP contracts, signed first by PPP and the dramatically expanded by PMLN, manifests in so many different ways. First there’s the take or pay terms that means we pay even if we don’t consume. Next there’s the uncapped dollar indexation, so that tariffs rise as
https://twitter.com/javedhassan/status/1550010012247941120?s=20&t=zb0ivMitlh9O4f8J4egvIA
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Javed Hassan
@javedhassan
rupee falls. Effectively we get slapped any which we go. Even as the economy slows down with higher interest rates and possibly consumption falls, we pay higher tariffs as consumers since govt continues to pay for what may not be consumed. Those who signed these contract were mad
https://twitter.com/javedhassan/status/1550010015364354049?s=20&t=zb0ivMitlh9O4f8J4egvIA
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Javed Hassan
@javedhassan
or determined to screw the country. They could have been both
https://www.brecorder.com/news/40187211?ref=whatsapp
https://twitter.com/javedhassan/status/1550010017851604992?s=20&t=zb0ivMitlh9O4f8J4egvIA
https://www.brecorder.com/news/40187211
This indication came from Nepra Chairman Tauseef H Farooqi during a public hearing on government of Pakistan’s motion with respect to increase in base tariff by Rs7.91 per unit, to be raised in three phases - Rs3.5 per unit in July, 2022, Rs3.5 per unit in August-September and Rs0.91 per unit from October onward. With this increase, the cumulative tariff of consumers will touch Rs40 per unit including taxes and surcharges from existing Rs27 per unit. The revised Schedule of Tariff (SoT) for distribution companies and K-Electric will be applicable after issuance of notification.
“We are in a catch 22 situation these days. The biggest problem is that the electricity consumers are troubled due to higher bills and others are concerned about the non-availability of electricity. Damned if we do, and damned if don’t” Chairman Nepra said adding that the country is passing through an “emergency” situation.
He further argued that fuel cost has increased by eight times and the rupee has touched Rs222 per dollar mark which are the main reasons for the increase in tariff.
“If the rupee value is reduced to half and fuel cost increased 8 times, then the cost of electricity generation increased by 16%. The country should not have opted for power generation on imported fuel,” he said adding that everyone knows what blunders Pakistan made with respect to power generation strategy.
Discos, KE’s base tariffs: Nepra all set to approve modifications
“If you ask me, I would say, we have committed a fundamental blunder. We should not have opted for imported fuel projects,” he maintained.
The regulator came under fire from consumers’ representatives, KCCI and media for being a “rubber stamp” with respect to passing on the proposed increase in tariff without raising any questions.
A Power Division team, headed by Joint Secretary, (Power Finance) Mahfooz Ahmed Bhatti, informed the authority that the government will extend a subsidy of Rs220 billion to the lifeline and protected category of consumers. He said that about 42% of total consumers are protected as no increase has been proposed for them. Nepra, in its determination of June 6, 2022 approved a revenue requirement of Rs2.584 trillion for FY2022-23 but the government decided to extend a subsidy of Rs220 billion to domestic consumers falling in the category of lifeline and protected, he added.
“Almost 50% of domestic consumers will not face a price shock due to the proposed increase of Rs7.91 per unit,” Bhatti maintained.
Naveed Ahmad from CPPA-G informed the authority that the government has also protected lower middle class consumers using 1-100 units per month and will pick up a subsidy of Rs11 per unit. The consumers using 101-200 units will be given a subsidy of Rs10.97 per unit.
Chairman Nepra inquired if the impact of the proposed increase of Rs0.91 per unit from October 1, 2022 will be offset by a drop in the existing QTA of Rs1.66 per unit, the representative of CPPA-G responded that the rationale is that with a drop of QTA of Rs1.66 per unit the impact will be reduced by Rs0.75 per unit in October 2022.
Nepra Director Tariff Mubashir Bhatti, further clarified that Rs7 per unit will be increased in July, August and September. However, the impact of Rs0.91 per unit will be offset with a drop of QTA of Rs1.66 per unit.
Joint secretary (Power Finance) Power Division said that revenue requirement was due from July 1, 2022 and now economic assumptions have further changed and which are changing every day.
Chairman Nepra forced Power Division’s team to make a categorical statement before the Authority that the former was not responsible for any delay in notification of tariff increase as reported in the press.
Mohammed Sohail
@sohailkarachi
Hub Power Company (HUBC), Pakistan largest independent power producer (IPP), announced a record profit of Rs62bn (up 110%)
Company announced extraordinary total dividend of Rs30/share for FY23.
As a result, Hubco stock has been one of the best performing at PSX, delivering a total return of 68% in the last one year. And the stock still trades at PE of 2x
https://x.com/sohailkarachi/status/1701556628007653634?s=20