The international News (25/08/2020) - ISLAMABAD: Contrary to the clear directions of Prime Minister Imran Khan, the inordinate delay in extending the regional competitive power tariff of 7.5 cents per unit by the Power Division has put the export industry and Small and Medium Enterprises (SMEs) in a quandary if they should continue production activities or not, as in absence of the regional competitive tariff, the industry cannot thrive any more.
In line with directions from the top man of the country, the Power Division was supposed to bring the summary in the ECC held on August 21 for issuance of regionally competitive tariff of electricity at 7.5 cents per unit, but it didn’t come up with the summary which irritated Adviser to PM on Commerce and Textile Abdul Razak Dawood in the meeting, a senior official who had attended the said meeting told The News.
The official said that since June 2018 to June 2020, the industrial power tariff has virtually increased by 45 percent saying he never heard the phrase ‘creeping tariff’ but this is happening in Pakistan.He said the Commerce Ministry’s top mandarins were also distressed over the unwarranted delay by the Power Division, as it would increase the energy cost manifold owing to which the Pakistani products in global market will be no more affordable when compared to the products of competitive nations such as Vietnam, India, and Bangladesh.
In the ongoing financial year, the export industry is yet being denied the regionally competitive tariff earlier extended by the government in the last fiscal but in the current financial year, the government has not yet notified the said tariff of electricity at 7.5 cents per unit putting the exports growth at stake.
The export industry is rather getting the tariff of 13.3 cents per unit instead of 7.5 cents, which is why the Pakistani products in the international market are no more competitive in terms of price, which will result in reduction of exports growth.
The textile industry, currently constituting 8.5 percent of Pakistan’s total DGP at approximately $13 billion in exports has the capacity to double the latter to $26 billion provided tariffs are regionally competitive. Between the existing and the regionally competitive power tariffs of 13.3 cents per unit and 7.5 cents, the annual differential in tariffs for SMEs works out to be Rs23 billion.
This represents 30 percent of the conversion cost and 10 percent of the final cost of the value of production is expected to feed intermediate products for exports valued at approximately $3.5 billion. By the way of a simple cost-benefit analysis, the potential loss in exports worth $3.5 billion is far worse than savings in tariff worth Rs23 billion while still ignoring other adverse effects of the regionally uncompetitive tariffs such as closure of SMEs and resultant unemployment stemming from the inability to absorb higher energy tariffs.
However, the Power Division is adamant to charge more add-ons in addition to 7.5 cents per unit from the export industry such as Quarterly tariff Adjustment, Electricity duty, PTV fee, FC , Fixed Charges and Monthly fuel Adjustment. Owing to the add-ons, the tariff has swollen to 13.3 cents per unit for the export industry and attached SMEs.
Quarterly Tariff Adjustment (QTA) is a charge for unsold electricity in the previous quarter which was allocated to the DISCOs in accordance with their forecast and the DISCOs failed to market or deliver the same to customers.
It is understandable that forecast sales can be lower in certain times, but this regular occurrence raises questions and doubts as to what is really happening. Under any circumstances, the QTA charges should not be charged from consumers, especially the Export Industry as they can be classified as failure / negligence of the DISCOs as it arises out of failure to market electricity.
This can partially be ascribed to revenue-based load shedding. This may not only be constitutionally improper but could also be termed a collective punishment a la ‘FCR’.The Sustainable Development Goal (SDG) of universal access to power has been completely forgotten in the revenue based load shedding, and DISCOs now take the easy way out of suspending power supply to areas with high loss and collection – a situation not understandable in a country with excess power capacity.
More importantly, the cost of service as calculated by CPPA (Central Power Purchase Agency) for electricity B-3 Industrial consumers is 7.5 cents/kwh which works out to Rs 12.5/kwh. The Ministry of Power is therefore not losing any money on supply of 7.5 cents to industrial consumers, as there are no line losses or non-payments from these sectors. NEPRA’s approved line losses are already included in the fixed charges that form the part of fixed cost. This means while extending the regionally competitive tariff, Power Division sustains no loss.
Read more at https://www.thenews.com.pk/print/705505-delay-in-extending-regional-competitive-tariff-export-industry-smes-in-the-doldrums