National Electric Power Regulatory Authority has said it will reject a proposed review of the special industrial tariff incentive package if the government finalises it without consulting industry representatives. The regulator made the position clear during a public hearing as power consumers face a potential additional recovery of around Rs36.52 billion in September due to higher costs associated with imported liquefied natural gas.
The public hearing was conducted by Nepra members Maqsood Anwar Khan, Amina Ahmed and Ghulamullah Shaikh. During the proceedings, Central Power Purchasing Agency Chief Executive Officer Rehan Akhtar explained that the main reason behind the additional fuel cost of Rs2.52 per unit recorded in July was the purchase of a record volume of liquefied natural gas cargoes from the spot market.
According to Akhtar, the absence of contracted liquefied natural gas cargoes from Qatar following the closure of the Strait of Hormuz forced Pakistan to rely more heavily on spot market purchases. The higher cost of these imports contributed to an increase in fuel costs for power generation and ultimately placed additional pressure on electricity consumers.
The hearing also saw questions raised about coal imports by power producers, particularly the Port Qasim Power Plant. Commentators argued that some coal imports were unnecessarily increasing the burden on consumers and called for improvements in the procurement process. They urged the regulator to ensure that fuel procurement was conducted through a fair and transparent mechanism.
Industrial representatives, many of whom were from Karachi, also repeated their concerns about the industrial support package for incremental electricity consumption. They argued that the package had failed to benefit a majority of industrial consumers and should have been reviewed after six months, as had been promised when the scheme was introduced.
However, the industrial representatives said the review had not taken place even after nine months. They maintained that industry had not been properly consulted despite the importance of the tariff package to industrial electricity costs.
The industrial sector also raised concerns over tariff rebasing introduced from January 1. According to the representatives, the benchmarks were reduced as part of efforts to lower the budgeted subsidy, but subsequent increases in fuel costs resulted in additional financial pressure on consumers. They estimated that additional fuel cost adjustments and quarterly adjustments had placed an extra burden of Rs206 billion on consumers.
The representatives further pointed out that Nepra had previously directed the Power Division to prepare an incremental tariff review following consultations with industry within six months. They said the required consultations had not taken place before the review was submitted to the regulator.
Nepra Member Amina Ahmad said the Power Division had already submitted its review of the incremental tariff package. However, she expressed concern that industrial consumers had not been properly heard during the process.
She announced that Nepra would not open the review request in its existing form and would return it to the Power Division unless the proposal was updated following comprehensive consultations with industrial representatives. The position effectively places industry consultation at the centre of any further review of the tariff incentive package.
Industrial consumers also questioned the export of furnace oil at a subsidised rate while the government continues to collect a substantial petroleum levy on domestic consumption. They argued that there was little justification for exporting furnace oil when the price difference between liquefied natural gas and furnace oil was only around Rs3 per unit despite the petroleum levy.
The representatives proposed that petroleum levy collections from furnace oil should instead be used to reduce electricity rates for industrial consumers, in line with an earlier announcement by the prime minister.
Akhtar acknowledged that the proposal was valid and said it was currently under consideration by the government. However, he warned that implementing the proposal could prove difficult because of technical considerations associated with the International Monetary Fund programme.
The availability of contracted liquefied natural gas cargoes has also affected electricity generation planning. Akhtar said the shortage of contracted supplies required additional liquefied natural gas imports for large power plants in Punjab to maintain system stability. The shortfall was also addressed through increased generation from imported coal based power plants.
He also discussed the decision to stagger refuelling at Karachi Nuclear Power Plant Unit 3. According to Akhtar, the 1,100 megawatt facility is now expected to return to full generation by August 31 instead of following the originally planned shutdown period from April 20 to June 20. He argued that changing circumstances had altered the impact of the refuelling schedule on consumers.
The public hearing was also informed that the cost of liquefied natural gas based electricity generation had increased sharply in July. The cost reached Rs47.4 per unit during the month, more than double the level recorded in the previous month. The increase was linked to expensive spot market cargoes arranged after contracted supplies from Qatar were suspended following the conflict between the United States and Iran.
Power sector officials warned that the pressure could continue into the following months. Liquefied natural gas prices increased by almost one third in August, raising the possibility of another significant increase in electricity costs. Akhtar said the higher prices could result in an additional burden on consumers through October electricity bills.
If approved, the additional fuel cost adjustment would require power companies to recover around Rs36.55 billion from consumers in September. The charges would apply to consumers of all relevant power companies, including former Water and Power Development Authority distribution companies and K-Electric.
The developments have placed further attention on the process used to determine electricity tariffs and fuel cost adjustments in Pakistan. Nepra’s decision to return the tariff review unless industry consultations are completed indicates that the regulator expects the concerns of industrial consumers to be formally addressed before considering the revised proposal.
For industrial consumers, the dispute centres on the effectiveness of the existing incremental consumption package, rising fuel related costs and the treatment of petroleum levy collections. For the power sector, the immediate challenge remains managing higher imported fuel costs while maintaining electricity supply and limiting the financial impact on consumers.
Nepra’s stance now requires the Power Division to engage with industry representatives and revise its proposal before the regulator proceeds with the review. Meanwhile, higher liquefied natural gas costs and the expected recovery of additional fuel expenses are likely to remain important factors affecting electricity bills in the coming months.
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