Oil consumers to fund tariff cut

Express Tribune

05-04-2025

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Oil consumers are set to mainly fund the recent reduction in electricity tariffs up to 17% under the prime minister's relief package.
The National Electric Power Regulatory Authority (Nepra) on Friday held a public hearing to consider the government's request for a tariff reduction of Rs1.71 per unit for consumers across Pakistan, including Karachi.
It was informed that total subsidy had been increased to Rs266 billion after adding Rs58.6 billion worth of petroleum development levy (PDL). Currently, the government is providing Rs266 billion in tariff differential subsidy to bridge the gap between actual and notified tariffs, which could rise to Rs324 billion with the latest tariff proposal.
The government has recently increased PDL from Rs60 to Rs70 per litre on petrol and diesel each but it announced that its impact would be redirected to electricity consumers. Now, it is believed that oil consumers will provide Rs58 billion in additional PDL to cross-subsidise the electricity consumers.
At the hearing, Nepra directed the Power Division to clear the confusion among consumers, especially the industrial sector.
While hearing a government petition for the tariff reduction of Rs1.71 per unit on account of additional PDL of Rs58.6 billion for three months, Nepra chairman stated that work was underway to firm up the prime minister's announcement of a power tariff cut of Rs7.69 per unit for industrial consumers and Rs7.41 per unit for domestic consumers, excluding lifeline users.
He added that consumers would receive an immediate relief of Rs5.03 per unit within the next few days, while the remaining relief would be provided in the quarterly tariff adjustment (QTA) for the third quarter.
Industrialist Aamir Sheikh acknowledged the tariff reduction but pointed out that there was a discrepancy as Nepra chairman cited a relief of Rs5 per unit whereas the Power Division indicated a reduction of Rs6.
The breakdown of QTA relief includes Rs1.9 per unit under the tariff differential subsidy, Rs1.71 under QTA and Rs1.36 under the fuel price adjustment (comprising Rs0.46 and Rs0.90 per unit).
"I hope Nepra will clarify whether the relief from the upcoming QTA will be given to consumers in the current quarter (April-June), meaning two QTA simultaneously, or it will be finalised now but will be implemented in the July-September quarter," he said. "If the next QTA is granted in this quarter and is around minus Rs1 per unit, this clarification would allow us to estimate a net relief of around Rs4 per unit and plan export sales accordingly," he added.
Arif Bilwani and Tanveer Barry also sought clarifications on several points raised during the public hearing.
The proposed decrease in tariff is required to be implemented through an increase in the tariff differential subsidy, with the government already securing cabinet's approval before submitting the request to Nepra. The relief will be applicable to all power distribution companies, including K-Electric (KE), for three months. However, officials clarified that lifeline consumers would not enjoy the benefit.
According to Power Division officials, the government aims to offset the cost through estimated savings of Rs58 billion by keeping petroleum prices stable over the next three months.
Additional relief is being provided through revisions in power purchase agreements as savings of Rs12 billion following negotiations with independent power producers (IPPs) had already been included in the recent QTA. The government is also negotiating with banks to cope with the circular debt. These talks are part of a broader strategy to finalise an arrangement that could slash liabilities in the power sector.
Officials clarified that the relief to consumers was being provided through quarterly adjustments instead of annual rebasing because of the current economic conditions.
Nepra officials confirmed that a relief of Rs1.36 per unit had already been granted under the fuel charges adjustment and with the proposed reduction of Rs1.71, consumers could receive an immediate cumulative relief of Rs5.03 to Rs5.04 per unit. The authority will review the submitted data and issue a formal decision.
Power Division officials emphasised that the continuation of relief measures would depend on macroeconomic stability, noting that the current financial situation did not allow for annual tariff rebasing, which was why quarterly adjustments were being used. The third quarterly adjustment request is expected to be submitted in the second week of April.
During the hearing, concerns were raised about the burden being placed on grid-connected consumers due to increasing net-metering connections, translating into a tariff hike of Rs1.5 per kilowatt-hour (kWh).
In response, Nepra officials stated that the government was actively deliberating on the issue and was expected to announce a decision soon. They added that adjustments may also be introduced during the upcoming tariff rebasing to ensure fairness while protecting grid consumers.
Rs3.02 relief for KE consumers
Separately, Nepra issued its decision on KE's petition for the provisional fuel charges adjustment for January 2025, indicating a relief of Rs3.02 per kWh. This will be passed on to consumers in April 2025 bills.
Nepra provisionally retained Rs2 billion in respect of adjustments on account of partial load, open cycle and degradation curves along with start-up cost pursuant to its decision regarding generation tariff for the period July 2023 onwards from the fuel charges adjustment for January 2025. It would be adjusted against pending KE claims to ensure that consumers are not burdened at a later stage.