Energy affordability plummets as tariffs reach new highs

WEB DESK: The power sector in Pakistan is facing a critical situation as industrial power tariffs surge to approximately 17 cents per kWh, surpassing the regional average by more than double.

Compounding the issue, gas prices have witnessed a staggering three-fold increase since January 2023, according to concerns raised by the All Pakistan Textile Mills Association (APTMA).

In a comparative analysis, APTMA highlighted that power tariffs for the textile sector in India stand at 6 cents/kWh, while in Bangladesh, they are at 8.6 cents/kWh, and in Vietnam, they are recorded at 7.2 cents/kWh.

The exorbitant energy costs are precipitating a decline in power consumption nationwide. In December 2023, total power consumption experienced an 8–10 per cent reduction, primarily attributed to diminishing industrial and high-end domestic consumption, the largest contributors to the fixed costs of the power sector.

November 2023 witnessed a 9.8 per cent year-on-year decrease in power generation, followed by a 2.4 per cent year-on-year decline in January 2024.

APTMA members’ power consumption has steadily dwindled since October 2023, registering a 37 per cent year-on-year drop and further plummeting by 25 per cent in December 2023.

APTMA’s calculations underscore the adverse impact on power sector revenue, as the positive effects of elevated electricity prices are overshadowed by the negative repercussions of declining consumption.

This is evident in the persistent growth of circular debt, despite substantial tariff hikes.

Notably, the decrease in power consumption by industry and high-end domestic consumers necessitates spreading fixed costs over a smaller consumption pool.

This recently manifested in the approval of a Rs4.5/kWh QTA by NEPRA a few days ago, potentially leading to a further decline in power consumption and subsequent tariff hikes.

The country finds itself entangled in a relentless cycle of diminishing consumption and escalating tariffs, with a bleak outlook. Current underutilization of existing capacity, partly due to inadequate infrastructure and partly due to prohibitive power tariffs, exacerbates the situation.

APTMA warns of impending challenges, with around 7,000 MW of new projects in the pipeline over the next two years.

These projects will demand additional capacity payments, despite existing capacity not being fully exploited. The association contends that the situation is unsustainable, predicting tariffs soaring to Rs100/kWh without a corresponding increase in consumer demand.

Urging for immediate intervention, APTMA proposes the removal of cross-subsidy from industrial tariffs and the restructuring of tariffs to incentivize higher consumption.

This, they argue, will stimulate industrial activity, boost power consumption, enhance power sector revenue, and potentially lead to reduced power tariffs for all consumers by alleviating the burden of capacity payments.

The urgency of finding a viable solution is paramount to averting the collapse of the entire sector.

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