ISLAMABAD: Ministry of Power Division on Thursday issued a point by point response to Miftah Ismail’s tweets on Energy sector with accurate facts and figure.
According to the response issued by the Power Division, “the main reason for forced increase in base tariff is the “tsunami” of expensive and excess power capacity contracted by the previous PML government on “take or pay” basis that has hit the sector hard.
The previous government also did not pass on any tariff increase in its last year and left that burden to this government. Due to COVID-19, no increase in base tariff was allowed by the PTI government in 2020 to avoid burdening the consumers (which inevitable added to the circular debt build-up).
The Rs 1.95 tariff increase that has now being passed through is still much less than the actual cost of this faulty planning by the PML government, as determined by NEPRA.
The total compulsory annual capacity charges were Rs 185 billion (Rs 2.1 per unit in 2013 that increased to Rs 468 billion (Rs 3.98 per unit) in 2018.
Due to excess and expensive contracts inherited by the PTI government, these charges increased to Rs.860 billion in 2020 and projected to be a whopping Rs. 1455 billion (Rs. 10.82 per unit) in 2023.
Even assuming a 7+% annual increase in power demand (which is quite optimistic under any base case scenario), we shall have an almost 40% over supply situation in 2023 that the economy will have to pay for regardless of need.
It is an established fact that the power contracts signed by previous government were, on average, 25-35% more expensive than comparable regional bench marks.
Imported coal-based plants (including one in Sahiwal), with guaranteed 30-35% annual return on equity, are a policy disaster that we are now grapping with.
Wind and Solar based plants with tariffs now averaging Rs 20-25 per unit are crippling the power sector, compared to the Rs 6 per unit solar IPP tariff awarded during the PTI government’s tenure last year.
The PTI government inherited a broken economy in an ICU that necessitated Rupee devaluation (kept artificially high by the PML government resulting in an unsustainable current account deficit), alongside increase in interests rates to control inflation. Since 60-80 % of the IPP tariff are denominated in US $, and almost 45% of the power generated on imported fuel, the power consumers have had to bear a tariff hike due to this faulty planning of the past.