NEPRA approves electricity price hike of Rs1.90 per unit

ISLAMABAD: The National Electric Power Regulatory Authority (NEPRA) has approved an increase of Rs1.90 per unit in the price of electricity for May fuel adjustment charges of distribution companies (Discos).

The Central Power Purchasing Agency (CPPAG) had requested an increase of Rs2.5 per unit, but NEPRA reduced it after hearing objections from various stakeholders.

The increase in price per unit will be applicable only for July bills, and will not affect lifeline consumers who use less than 50 units per month.

According to NEPRA, the increase is due to higher fuel costs and lower hydropower generation in May.

Rising costs

Pakistan has been facing a challenge of high electricity prices for the past decade, despite increasing its installed capacity and diversifying its generation mix.

One of the main reasons for the high tariffs is the capacity charge component, which is a fixed cost paid to power producers regardless of their actual output.

The capacity charge has quadrupled from Rs2.49 per unit in 2015 to Rs 9.77 in 2021, according to a report.

The report also cited transmission and distribution losses, prior-year adjustments, and exchange rate fluctuations as other factors contributing to the rising costs.

The government has been trying to renegotiate some of the power purchase agreements with independent power producers (IPPs) to reduce the capacity charge and improve efficiency.

However, some of the IPPs have challenged the government’s move in courts, creating uncertainty and delays.

The government has also been facing pressure from the International Monetary Fund (IMF) to phase out subsidies and rationalise tariffs to reduce the circular debt in the power sector.

The circular debt refers to the gap between the cost of electricity generation and recovery from consumers, which accumulates as arrears in the system.