Power tariff being restructured: minister

ISLAMABAD: The caretaker regime is vigorously working on the overall restructuring of the existing tariff regime by rationalizing the cross-subsidies, and fixed and variable costs in the tariff to make the export industry competitive, Energy Minister Muhammad Ali told The News in an exclusive talk here on Wednesday.

All categories, except protected and some unprotected domestic consumers using up to 300-400 units a month, are experiencing higher tariffs which has miserably slowed down the economic activities. The restructuring of the tariff regime would bring down the wheeling charges from Rs27 per unit demanded by CPPA to a reasonable level to ensure bilateral BtB electricity trade, he said.

The incumbent regime is also working to rationalize cross-subsidy of over Rs600 billion being extended to the protected and some categories of non-protected domestic consumers by the industry, commercial, and high-end domestic consumers (having three phase meters and ToU meters). At present, the total cost of the electricity unit comprises 72 percent fixed charges and 28 percent variable charges, but on the revenue side, the fixed charges stand at just 2 percent, and variable charges stand at 98 percent.

Muhammad Ali said “We are working to rationalize the fixed and variable charges in the tariff to bring down the variable charges and increase the fixed charges in the tariff for end consumers. This will provide cushion to scale down the export industrial tariff from 14 cents per unit to close to industrial tariffs.”

In the fixed charges of electricity cost, capacity payments stand at 57 percent, Discos’ assets including administrative costs stand at 10 percent, and transmission and market operator’s costs account for 4.5 percent. In variable charges, fuel cost, maintenance cost, and the losses’ impacts are included. “The authorities are working to increase the tariff of the fixed charges which currently stand at 2 percent to a reasonable level and bring down the variable charges which are currently at 98 percent to rationalize the existing tariff design.” The relevant officials said the reduction in cross-subsidy to protected and some unprotected consumers using up to 300-400 units a month will cause an increase in their tariffs. The withdrawal of some of the cross-subsidy will provide the government space to bring down tariffs to a reasonable level allowing the industry to thrive and increase its exports. They also mentioned that on National Electricity Plan 2023-27, the fixed charges would be increased up to 20 percent in 2027.

They said that right now apart from the subsidy of Rs150 billion on the part of the government, industrial, commercial, and high-slab domestic consumers are extending over Rs600 billion cross-subsidy to the protected consumers and some non-protected consumers whose tariffs did not increase for decades. By doing so, the burden on industrial, commercial, and high-slab domestic consumers has increased manifold. “The government would reduce the current cross-subsidy to consumers using up to 300-400 units per month meaning that their tariff would increase and the cross-subsidy being given from industry would end and this is how the industrial tariff would also drop closer to the regionally competitive tariff of 9-10 cents per unit.” The non-protected consumers falling in the 1-100 units slab category saw an increase in tariff by Rs3 per unit, those using 100-200 units have an Rs4 per unit hike, Rs5 per unit increase for those consuming 200-300 units slab, and Rs6.5 per unit for those in the bracket of 301-400 units as compared to other high-end categories whose tariff was increased by 7.5 percent in the rebasing of electricity tariff for FY24. This means that domestic consumers using up to 400 units are getting subsidized tariffs financed by industry, commercial, and high-end domestic consumers as the subsidy by the government has been limited to Rs150 billion in the CFY24.