Nepra alarm over lack of accountability in power sector

ISLAMABAD: After reserving its decision on the base tariff increase for the current Fiscal Year 2025, the National Electric Power Regulatory Authority (Nepra) Wednesday expressed serious concerns over the lack of accountability in the power sector, highlighting that law-abiding consumers who paid their bills were not adequately protected while electricity theft continued unchecked.

Besides, it also expressed concerns about the efficiency of generation sector, particularly of independent power producers (IPPs).

The Authority held a public hearing on the federal government’s motion for a unified national tariff for FY2024/25 on Wednesday, chaired by Waseem Mukhtar. The federal government has requested for an average increase of Rs5.72 per unit in the base tariff starting July 1, 2024.

“Lack of improvement in recovery rates over the years is concerning. Will increasing electricity prices lead to better recovery rates?” asked the Nepra chairman, stressing the need for a “system of rewards and punishments” in electricity companies.

He pointed out that despite setting tariffs based on 100 percent recoveries, the actual recovery rates had not exceeded 95 percent. He warned that if the cost of energy increased, recovery rates might further decline. “The government will have to take drastic steps; business as usual will not work,” he added.

Addressing complaints of slab changes through overbilling, the Nepra chairman confirmed that an investigation was currently underway, with 60 percent of the work completed. “Rest assured, we are working on it, and in a few days, you will see the results,” he stated.

Nepra Member Mathar Niaz Rana referred to the issues in the generation sector as the “elephant in the room,” questioning whether the IPPs’ efficiencies had been adequately checked. It should be looked into that whether their efficiencies are even near to the regional IPPs.

Rana underscored the inefficiencies plaguing the sector, emphasizing the need for a thorough scrutiny and resolution. He mentioned that discussions with the IPPs were possible if the prime minister gave his approval. He noted that there might be room for adjustments, highlighting inefficiencies in electricity generation and the need to address issues like insurance and other related matters.

The regulator said the tariff for K-Electric will align with that of other distribution companies (DISCOs). It was also noted that the federal government would maintain electricity rates for domestic consumers using up to 200 units per month. It was highlighted that a significant subsidy totaling Rs730 billion for various consumer categories would be paid. Of this amount, Rs490 billion will come from the federal government as budgeted subsidy, with the remainder covered by cross-subsidies.

K-Electric is set to receive Rs177 billion, while Discos will get Rs313 billion. The current fiscal year will see capacity payments amounting to Rs2.16 trillion.

The consumers voiced their dissatisfaction during the hearing with the increase in electricity tariffs and failure of Nepra in protecting the consumer’s interest. The Central Power Purchasing Agency (CPPA) stated that billions of rupees in annual capacity payments in the power sector were not unusual.

Recently, the federal government announced a relief package for domestic consumers using up to 200 units per month, effective for three months starting in July 2024. This package will benefit 86 percent of domestic consumers. Consequently, the average basic tariff will see an increase of Rs3.29 per unit from July to September, and Rs4.55 per unit from October onwards.

For residential consumers, the Nepra has approved Rs9.18 per unit hike in average tariff; however, the government has proposed Rs3.23 per unit from July to September 2024 and Rs6.27 per unit from October to June 2025, the official informed.

Similarly, for commercial consumers, Nepra has approved an increase of Rs8.96 per unit in average tariff; however, the government has proposed Rs8.04 per unit. Capacity payments have seen an increase of 38 paisa per unit compared to last year.

The Power Division officials revealed that the electricity price determination was based on an exchange rate of Rs300 per dollar. They reassured that the proposed changes were mere tariff re-settings rather than significant hikes and emphasized that the overall bills for consumers would decrease with the end of adjustments in the coming months.

The Power Division officials disclosed that the burden of Rs155 billion had been lifted from the industrial sector. They highlighted that the tariff for Pakistan’s industry was higher compared to other countries in the region. By maintaining the current tariff, they hope to stimulate industrial growth. Additionally, 77 percent of industrial consumers will not be subjected to fixed charges.

The Power Division officials said the government was also shifting to local fuel for generation, retiring inefficient state-run generation companies (Gencos), and converting plants and IPPs to local coal. The circular debt has ballooned from Rs280 billion to over Rs2.6 trillion in the past decade, underscoring systemic issues in the power sector.

In FY2023-24, power theft and inefficiencies accounted for Rs590 billion. However, a recent nine-month drive against power theft recovered Rs95 billion. Nepra has reserved its decision on the government’s request for a uniform basic tariff and an increase of up to Rs7.12 per unit starting from July. The decision will be announced later.