Fuel cost declines but power tariff cut unlikely

ISLAMABAD: It may be possible to reduce the power tariff on May 1 by at least 65 paisa per unit on account of declining fuel costs, but the government is not likely to pass on this benefit to consumers because of a commitment made to the International Monetary Fund.
The government amended the Nepra Act of 1997 through finance bill 2009-10 under International Monetary Fund directives to pass on the impact of variation in fuel cost to consumers every month through a fuel adjustment formula. Over the past many months, the tariff has been continuously rising because of increase in oil prices in international markets.

Sources in National Electric Power Regulatory Authority (Nepra) said that power companies were currently charging about Rs1.02 per unit on electricity tariff as fuel variation cost under the monthly fuel adjustment. The fuel cost for the month of March this year has initially been calculated by Wapda’s power companies at 0.66 per unit (Kwh).

The sources said Nepra would scrutinise on Monday (today) the accounts of central power purchase agency (CPPA) that purchases electricity from independent power producers (IPPs), rental power projects (RPPs) and generation companies of Wapda to ascertain if its fuel adjustment calculations were correct.

Past experience suggests that power companies normally build up their expenses to get higher tariff and seldom stand regulators’ scrutiny which normally brings down cost estimates.

But even the calculations made by the power companies suggest that fuel component of the electricity tariff should come down by 65 paisa per unit.

The power companies have told the regulator that power production based on residual furnace oil (RFO) based electricity production during March accounted for 42 per cent of total electricity supplied, followed by 30 per cent from gas, 21.6 per cent hydropower, 3.6 per cent of nuclear power and 1.4 per cent produced from high-speed diesel.

The diesel-based electricity cost has been the highest at Rs14.89 per unit, followed by Rs10.84 of RFO, coal at Rs2.70 per unit, natural gas at Rs3.65 per unit, nuclear at Rs4.25 per unit and hydropower at 44 paisa per unit. The average fuel cost for the month of March has been estimated at Rs6.39 per unit.

However, an official of the finance ministry said that despite public statements not to increase electricity tariffs, the government has made a commitment to the IMF to increase the overall tariff by six per cent with retrospective effect from April 1 and hence a fuel-based tariff reduction provides room for adjusting the tariff increase because consumers would not immediately feel the tariff difference.

He said the actual average sale price stood at about Rs10 per unit and a six per cent increase committed to the IMF comes to about 60 paisa per unit.

According to revised fourth supplementary memorandum of economic and financial policies (S-MEFP) submitted to the IMF for the release of next $1.2 billion tranche says that “tariffs will be increased by 6 per cent to take effect from April 1 in accordance with earlier plans”.

It said: “We have also corrected the measures applied by Nepra to fully recover the power purchase costs through the monthly adjustments and put in place a programme of recovering the unrecovered power purchase costs during the first nine months of the fiscal year over 15 months period beginning April 2010”.


Source The News