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Business Recorder
16-07-2025
- Business
- Business Recorder
Industrial power tariff: Power Div, APTMA at odds over cross-subsidy calculation
ISLAMABAD: The Power Division and the All Pakistan Textile Mills Association (APTMA) appear to be at odds over the actual volume of cross subsidy embedded in industrial power tariffs, with APTMA claiming that the burden is nearly twice what the Power Division reports. The dispute emerged at a time when the Power Division claims it is engaging with the industry to further reduce cross subsidies to ease the financial strain on industrial consumers. The Division had earlier announced a reduction of Rs 174 billion in cross subsidies. 'We do not agree with the Power Division's calculation of Rs 74 billion in cross subsidies in industrial power tariffs,' stated Shahid Sattar, Secretary General of APTMA, in a letter addressed to Power Minister Sardar Awais Khan Leghari. 'According to our analysis based on Nepra's determination of consumer-end tariffs for FY26, the actual cross subsidy amounts to at least Rs 137 billion.' PD uncertain on power tariff changes from July 1 APTMA defines cross subsidy as the difference between a consumer's cost of service, which includes generation, transmission, distribution, and associated margins, and the effective price charged by the government of Pakistan. Under Section 31(4) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997, Nepra is mandated to determine a uniform tariff for public sector licensees in the interest of consumers. The National Electricity Policy 2021 also allows the government to propose uniform tariffs across consumer categories based on socioeconomic objectives, budgetary targets, and regulator recommendations. According to APTMA, power tariff determination results in two sets of tariffs: one determined by Nepra, which reflects the true cost of service across consumer categories, and another proposed by the government, which applies cross subsidies. Nepra's tables show that residential users consuming up to 300 units and non-ToU agricultural consumers are charged below-cost tariffs. In contrast, other consumer categories, including industry, pay higher-than-cost tariffs to cover the resulting revenue gap—effectively bearing the cross subsidy burden. 'Our calculations, using category-wise consumption data from the FY25 determination (due to lack of FY26 data), indicate a cross subsidy of nearly Rs 140 billion in industrial power tariffs. This figure may rise by 2–3% based on CPPA-G's projected demand growth for FY26,' APTMA noted. APTMA suggests that the Power Division's Rs 74 billion figure likely uses an average system-wide benchmark—such as the FY26 Power Purchase Price (PPP) of Rs 25.98/kWh—instead of Nepra's cost-reflective tariffs by category. Based on this method, APTMA acknowledges the cross subsidy may drop to around Rs 85 billion, closer to the government's estimate. However, APTMA insists the cross subsidy should be calculated against actual cost of service per consumer category, not a generalised average. 'If the goal is to deliver cost-reflective and competitive power tariffs, it's critical that government and stakeholders align on definitions and calculation methodologies.' APTMA reiterated its long-standing demand for a regionally competitive power tariff of 9 cents/kWh. This demand, it says, is supported not only by regional benchmarks (5–9 cents/kWh) but also by domestic cost-of-service studies that show tariffs for 83–84% of Pakistani consumers' hover around 9 cents/kWh. Nepra's own determination supports this, with industrial base rates set at Rs 21.65/kWh (off-peak) and Rs 30.76/kWh (peak) for July 2025, equating to roughly 9.5 cents/kWh before applying cross subsidies. On the issue of wheeling charges, APTMA argues that the current rate of about 4.5 cents/kWh undermines the viability of the Competitive Trading Bilateral Contract Market (CTBCM) for renewable energy. For a textile unit operating three shifts, only 20% of its energy demand can be met at a viable rate (~8 cents/kWh) through wheeling. The remainder must be sourced from the grid, where marginal costs—particularly from RLNG plants—total around Rs 37.79/kWh (or 13.4 cents/kWh), resulting in an average energy cost of 12.32 cents/kWh, significantly above the industry's target. APTMA emphasised the need for tariff predictability, which is crucial for long-term business planning. Volatile rates pose major challenges, particularly for exporters. The Association urged the Power Minister to reconsider wheeling charges and allow hybrid consumers (those using both CTBCM and grid power) to retain access to the industrial tariff, enhancing predictability and competitiveness. APTMA also acknowledged the government's new incremental consumption package, calling it a 'substantial improvement' over previous schemes, which were complex and impractical for industry adoption. 'We appreciate that industry feedback is now being actively considered in policy design,' the Association added. On the topic of industrial Time of Use (ToU) tariff reform, APTMA said it has recently engaged with Abid Lodhi and Naveed Qaiser at PPMC. 'They outlined several system constraints, and we are now developing a proposal for a more flexible ToU tariff structure, which we plan to submit in the coming weeks,' said Sattar. Copyright Business Recorder, 2025
Business Recorder
27-04-2025
- Business
- Business Recorder
Classification of cold storage facilities: Nepra faces legal challenges following decision of appellate forum
ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) is navigating a complex legal and regulatory challenge following a recent decision by the Nepra Appellate Tribunal concerning the tariff classification of cold storage facilities in the country. The Tribunal has directed the Nepra that based on a consensus reached between the parties, any applications filed by appellants must be decided promptly and in accordance with the law, ensuring that all stakeholders are given a chance to be heard. Nepra, in its majority decision dated December 23, 2024, stated: 'The Authority is of the considered view that cold storage facilities do not meet the criteria laid out in the consumer-end tariff determinations for the application of the industrial supply tariff. Therefore, all Discos, including K-Electric, are directed to classify all cold storages under the commercial tariff category, as already notified in the tariff terms and conditions dated July 25, 2022.' The Authority further clarified that the commercial tariff applies to offices and establishments engaged in commercial activities, while the industrial tariff is reserved for entities involved in manufacturing, value addition, or processing of goods. Cold storages, Nepra noted, typically serve retail chains, food distributors, and restaurants by storing goods such as fruits, vegetables, dairy, and meat without any processing or transformation, merely maintaining freshness until sale. As such, they do not qualify for industrial classification. Chairman Nepra Waseem Mukhtar, in his note, explained that Member (Tariff) (now resigned) was on leave at the time of the decision, and with Members (Technical) and (Law) dissenting, he exercised his casting vote as presiding officer under Section 5(4) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 (XL of 1997) to finalise the decision. In his dissent note, Member (Technical) Rafique Ahmad Shaikh argued that cold storages engaged in large-scale processing, value addition, or long-term preservation, particularly in agriculture, food, and pharmaceutical sectors, should be classified under the industrial tariff. He proposed a differentiated approach: cold storages involved in short-term retail distribution without significant value addition could remain under the commercial tariff, while industrial-scale operations should receive industrial classification. He also warned that a blanket commercial classification could unfairly burden a key sector of the economy. Member (Law) Amina concurred that the tariff terms require a facility to engage in manufacturing, value addition, or processing to qualify for industrial rates. However, she argued that cold storages do perform value-adding activities by using advanced technology to preserve the physical, chemical, and nutritional properties of perishable goods, similar to processing. She also pointed out that in many jurisdictions, such as the United States (California, New York, Texas), India, the Netherlands, and Poland, cold storage facilities are considered industrial due to their energy-intensive nature. Nepra's decision was challenged by 108 cold storage operators before the Nepra Appellate Tribunal in the case titled Javed Iqbal Ch s/o Mushtaq Ahmad Prop M/s Ever-Green Cold, etc. vs. Federation of Pakistan, etc. The Tribunal's decision, issued on April 16, 2025, has been forwarded to Nepra and three Distribution Companies (Discos) for implementation. The judgment—signed by Tribunal Chairman Zafar Ullah Khan Khakwani and Member (Electricity) Salman notes that the appellants challenged Nepra's December 23, 2024 decision rejecting their complaints over the reclassification of their tariff from industrial to commercial by LESCO. During the hearing, the appellants' counsel submitted a government notification (No.1 (42)/2005-Inv-III of February 6, 2025) from the Ministry of Industries and Production declaring the warehousing sector, including cold storage, as an 'industry'. They argued that this resolved their core grievance, though they still sought refunds for excess charges paid under the commercial tariff. Nepra's legal counsel acknowledged that in light of the notification, the appeal had become infructuous. After brief consultations between both sides, Nepra's counsel undertook that if the appellants filed formal applications, Nepra would decide them promptly and in accordance with the law, allowing all stakeholders a fair hearing. Accordingly, the Tribunal ruled the appeal infructuous but emphasised that Nepra is expected to act swiftly on any applications filed, consistent with legal procedures and stakeholder participation. Sources say Nepra now finds itself in a tricky position, especially since the Tribunal attributed specific commitments to its legal counsel. While an appeal against the Tribunal's decision is under consideration, no final decision has yet been made. Copyright Business Recorder, 2025
