Circular debt keeps rising despite massive power tariff hike

Despite an over 50 per cent hike in power tariff involving Rs1.2 trillion additional burden on consumers, the government conceded that circular debt was continuously going up due to missed targets on recovery and losses.

While pleading its case at a public hearing for adding Rs43.34bn financial burden (Rs2.18 per unit) to the consumers in three months, Power Division told National Electric Power Regulatory Authority (Nepra) that circular debt that stood at Rs2.253tr by end of September last year had now reached Rs2.437tr, showing an increase of Rs185bn.

Nepra Chairman Tauseef H. Farooqui said the impact of Rs43.34bn demanded by the Power Division under quarterly tariff adjustment (QTA) for the July-September period would translate into Rs2.18 per unit additional charge for all exWapda Distribution Companies (Discos) for three months. Under the mechanism, he said, this has to be charged to consumers in three coming months - January to March.

Joint Secretary Power Division Mehmooz Bhatti who was leading the power sector team requested Nepra to allow recovery of additional QTA in two months of February and March so that consumers do not feel the increase in tariff as a previous QTA at the rate of Rs3.30 per unit was part of the current bills and would lapse in January. He said the Rs2.18 per unit in three months if charged in two months after January would work out to be Rs3.16 per unit lower than Rs3.30 at present - and the consumers would feel the "price shock".

Answering a question, Mr Bhatti said the previous QTA of Rs3.30 was allowed by Nepra to charge Rs61bn to the consumers but about Rs20bn of that amount had been built into the circular debt because of lower recoveries and higher than allowed system losses.

The Nepra chief observed that it appeared the purpose of rebasing of the tariff had not achieved desired results as QTA for the first quarter of the current year required additional revenue generation of Rs43.34bn from consumers compared to Rs14.3bn of the same period last year. Member Nepra Rafique A. Shaikh said this also proved the fact that unless long-term corrections were not made, the power sector challenges would not be resolved.

Discos reported that their sales and recoveries had dropped by 510pc between July to September period because of floods while the quantum of capacity payments remained unchanged and was to be charged on fewer electricity units.

Also, some bills could not be recovered from consumers because of stay orders issued by a high court against fuel cost adjustment. Mr Farooqui said while these recoveries remained pending, capacity payments to power producers had to be made in time as required under the contracts. Discos had filed requests for a combined additional revenue of Rs43.34bn for the first quarter of FY23 . Nepra said it would issue its decision after an internal examination of evidence and data but the increase would be charged to all consumers of all Discos except lifeline consumers.

Under the separate petitions, the biggest revenue requirement of Rs10.7bn had been sought by Multan Electric, followed by Rs9.1b by Lahore Electric and then Rs6.4b by Faislabad Electric. Likewise, Gujranwala Electric has demanded additional revenue of Rs5.34bn, followed by Quetta Electric with Rs3.66bn and Islamabad Electric with Rs2.7b. Peshawar Electric, Tribal Electric, Sukkur Electric and Hyderabad Electric have pleaded for an additional revenue requirement of Rs2.13b, Rs1.28b, Rs905m and Rs450m respectively.