The National Electric Power Regulatory Authority (NEPRA) has greenlit a significant hike in power tariffs, approving an increase of Rs 7.056 per kilowatt hour for consumers of power distribution companies (DISCOs), excluding K-Electric.
The hike will reportedly put an additional burden of Rs55 billion on electricity users in Pakistan.
This adjustment, attributed to fuel charges, is slated to reflect as Fuel Cost Adjustment (FCA) for January, reflected in March 2024 billing.
NEPRA’s decision encompasses all consumer categories except Electric Vehicle Charging Stations (EVCS) and lifeline consumers. The tariff adjustment, proportionate to units billed in January 2024, will be separately reflected in consumer bills by DISCOs.
“The said adjustment shall be shown separately in the consumers’ bills on the basis of units billed to the consumers in the month of January 2024 and reflect in the billing month of March 2024,” the document added.
The move follows a detailed submission by the Central Power Purchasing Agency Guarantee Limited (CPPA-G) on behalf of DISCOs, advocating for the increase based on actual fuel charges incurred in January. CPPA-G proposed a Rs. 7.1308/kWh increase over reference fuel charges, totaling Rs. 7.4894/kWh for January 2024.
The cost breakdown highlights varying expenses across generation sources, from Rs. 11.9213/kWh for hydel to Rs. 45.6066/kWh for High-Speed Diesel (HSD). A dip in hydel electricity generation due to reduced water releases from dams, exacerbated by canal closures in January, contributed to increased reliance on expensive fuels.
Despite a diverse energy mix, including thermal, hydroelectric, wind, solar, and nuclear sources, costly fuel usage persisted, notably HSD and furnace oil, reflecting the challenges in meeting electricity demand.
Highest ever Fuel Cost Adjustment
The recent Rs7.06 per unit FCA marks the highest ever, nearly 96% higher than the pre-fixed fuel cost of Rs7.50 per unit in January, raising concerns about the power sector’s forecasting accuracy.
This addition compounds a 26% annual base tariff increase and an 18% quarterly adjustment hike, leading to excessive consumer bills despite minimal winter consumption.
NEPRA officials questioned the need for such a substantial tariff hike. During a recent hearing, NEPRA Chairman Waseem Mukhtar and member tariff Rafique Shaikh were puzzled at the record increase despite unchanged fuel prices, exchange rates, and average eight-hour load shedding.
Last week, DISCOs requested an FCA of Rs7.13. Startled by the request, the regulator announced an inquiry, delaying any decision until the investigation is complete. However, the government cautioned the regulator that proceeding with this approach could lead to cash flow challenges for DISCOs and impact performance benchmarks pledged to the International Monetary Fund (IMF) during a critical period.
Strong reaction from business community
The decision sparked vehement opposition from the business community, expressing concerns over increased production costs, industrial challenges, and inflation. Industrialists deemed the hike detrimental, warning of heightened unemployment and economic strain.
Meanwhile, the federal cabinet’s impending decision on electricity and gas prices remains crucial amidst mounting economic pressures.
The business sector emphasizes the urgency for cost reduction measures to avert further economic distress.As stakeholders await government action, the tariff hike underscores the delicate balance between energy affordability and economic sustainability in Pakistan’s power landscape.