New electricity charges challenged by NEPRA

ISLAMABAD: The National Electric Power Regulatory Authority (NEPRA) on Thursday raised serious questions over the federal government’s request for imposition of additional surcharge of Rs 3.39 per unit on the power consumers of the country.

NEPRA held two separate public hearings under the chair Tauseef H. Farooqi on the government’s application, seeking approval for the imposition of Rs3.39/unit additional surcharge and transfer of up to Rs 14.23/unit staggered FCA to power consumers, during this meeting the regulator expressed its concerns regarding the increase. 

The first hearing was about the federal government’s motion seeking the regulator’s approval for putting the burden of an additional surcharge of Rs3.39/unit on the electricity consumers. 

Applying this charge to the bills of the consumers will allow the government a collection of an additional Rs 76 billion from March to June of the current year.

During the course of hearing, NEPRA said that the regulator is not clear whether the unprecedented increase in consumer pricing is within their domain or not and has sought legal opinion on the matter.

The NEPRA officials said that already, Rs0.43/unit is being charged to consumers and now the government wants to increase it to Rs3.82/unit. 

The additional surcharge of Rs3.39/unit is to be applied in the billing of consumers from March to June 2023, to cover the markup charges of Power Holdings Limited (PHL) loans which are not covered through the already applicable FC surcharge of 0.43/unit for the current financial year. 

After four months the additional surcharge of Rs3.39/ unit is expected to be reduced to Rs1/unit to cover the markup charges of PHL; the total surcharge would then become Rs. 1.43/unit for the new financial year. 

The levying of additional surcharge in electricity tariff will enable the government to pay off interest on the loans of PHL valued at Rs 120 billion.

With the application of additional surcharge, the total surcharge will peak at Rs3.82/unit for the four months (Mar-June).The current surcharge being paid by power consumers at a rate of Rs0.43/unit is earmarked to clear an interest amount of Rs 44 billion accrued on loans of the PHL. 

Out of the total outstanding finance facilities of Rs. 800.253 billion, as of June 30,2022, servicing of loans or interest charges amount to Rs. 246.384 billion. 

It is pegged to be paid back through imposition of a “Financing Cost (FC)” surcharge at a rate of Rs. 0.43/unit.  This surcharge is not sufficient to cover markup charges of total PHL loans. 

The mark up of remaining loans is being paid from revenue collected through electricity sales and this constrains the payments of other financial obligations.

To summarise it all the total surcharge becomes Rs 3.82/unit for the said period and for new financial year, additional surcharge of Rs. 3.39/unit will be reduced to Rs. 1/unit to cover the additional markup charges of PHL loans which cannot be covered through the already applicable FC surcharge of 0.43/unit. This would yield a total surcharge of Rs. 1.43/unit for the new financial year.

Chairman NEPRA who presided over the proceedings asked whether the NEPRA can reject this proposed imposition of the surcharge to which officials from the Power Division replied “yes, it can”. 

The chairman said that the regulator has strong reservations about the imposition of this surcharge, as those who are loyal consumers and regularly pay their bills are to pay Rs3.39/unit surcharge, while those who do not pay their bills are rejoicing. 

The authority is neither accepting or rejecting this surcharge and linked it with the legal opinions and asked the Power Division to take legal views on it and then come to us. “We need the legal position of the government regarding the imposition of surcharge,” he said.

Chairman said that if NEPRA allows recoveries in this way, then other procedures will become redundant. If the government has the authority, then it should not shift the responsibility onto NEPRA.

This situation did not emerge in one day, we had several times forewarned the government of deteriorating power management, but no heed was given. It indicates the inefficiencies of the Power Division due to which every year the situation becomes bad to worse.

Member NEPRA Rafique Ahmad Shaikh asked the division to do its homework on the issue, take legal views regarding the surcharges and then come to us. He further said that the surcharge will not solve the issues of the government.

He said that the industrial tariff could go up to Rs32/unit. Followed by a question “if industries opt for an alternate option, then how can the government recover?”. Ironically, the power division official had no answer and said that we have not looked into this question so far. 

Chairman NEPRA said that our energy sector governance and recoveries are not settled while challenges of losses are increasing. We are pressing on the subsidy’s surcharges, but are not willing to address the actual issues.  

Meanwhile, while chairing a second public hearing on the petition for recovery of staggered Fuel Charges Adjustment (FCAs) that was applicable for August and September 2022, of Discos and K-Electric in eight months starting from March 2023.

The federal government has sought NEPRA’s policy guidelines for transferring the burden of Rs 52 billion to the electricity consumers on account of staggered fuel charges adjustments (FCAs) for the months of June and July 2022.

It is worth mentioning here that the federal cabinet had already approved the recovery of Rs 52 billion on account of two consecutive FCAs from the consumers of Discos and KE. 

NEPRA had determined the FCAs of Rs9.89/unit and Rs4.3435/unit for the months of June and July 2022, respectively. The FCA for both the months was supposed to be charged in the billing months of August and September 2022, respectively, for Discos.

For the consumers of K-Electric, the regulator had determined an increase of Rs9.89/unit on account of FCA to be charged in the August 2022 billing cycle. 

Similarly, the tariff was increased by Rs8.09/unit on account of FCA for June 2022, which was supposed to be charged in September 2022. Since the July FCA was negative Rs4.11/ unit, therefore for June FCA the consumers were supposed to pay only an additional Rs3.97/unit instead of Rs8.09/unit hike determined by NEPRA. 

Rebasing of uniform tariff determined by NEPRA and recommended by it as “final tariff’ for publication in the official gazette was notified by the federal government in order to not burden the consumers disproportionately through a back to back charge of Rs 3.5/unit in July and Rs 3.5/unit in August of last year. 

Consumers were hit by Rs 9.89per unit of FCA plus Rs 7 per unit of rebasing simultaneously in August billing. This is an average increase of Rs 16.90 per unit over and above the July rates. The above adjustments in tariff significantly increased the electricity bills for the months of August and September 2022.

Moreover, the extensive flood due to abnormally heavy monsoon rains also affected consumers across the country. Under this scenario, the Prime Minister of Pakistan decided to stagger the recovery of Discos and K-Electric FCAs applicable in August and September 2022.

The government wants to transfer the burden of up to Rs 14.24/unit to power consumers during next eight months which is Rs 10.34/unit for the protected consumers using up to 200 units, and Rs 14.24/unit for the non-protected consumers using up to 300 units. For the agriculture consumers it will be Rs 9.90/unit.

NEPRA linked the staggered FCA recovery to legal opinions and said that at the time the government was deferring the recoveries, it should have also informed the Authority.

Chairman NEPRA said that the Supreme Court’s order is already there regarding the recovery of outstanding, so now the Power Division should tell us how the deferred payments should be recovered.  

The official of the Division said that due to floods, the recoveries were deferred. Now, if in one go it was charged, then consumers would be unable to pay and it will affect the government’s recoveries’ position.

Member NEPRA Rafique Ahmad Shaikh said that the government should have opted for recoveries in the winter months.