Zubair Qureshi Islamabad
The Speakers at a panel discussion underscored that Pakistan is facing an overall increase of 38 percent in energy prices along with a 62 percent rise in capacity charges leading to tariff hikes in the country that could be overcome through an independent power consumer model promoting individual power generation.
They were addressing the panel discussion organized jointly by the Sustainable Development Policy Institute (SDPI) and the Network for Clean Energy Transition (NCET) on “Pakistan’s Electricity Tariff Structure: Insights and Key Determinants” here on Monday.
Dr. Khalid Waleed, Research Fellow at SDPI, highlighted Pakistan’s consumer categories and tariff-setting mechanisms, highlighting how the tariff structure is designed to reflect various consumer types and usage patterns. Residential consumers classified under category A-1, make up 89pc of the consumer base and account for 48% of the total consumption. This trend is opposite to the global pattern where industries are the main consumers of electricity. In Pakistan, however, commercial consumers (A-2) represent 9% of the consumers and 7pc of the consumption.
He further explained the mechanism behind the high electricity bills. In Pakistan, the capacity charge, encompassing fixed operational and maintenance costs, return on equity, debt servicing, insurance, working capital financing fees, and procurement and construction costs, is higher than the generation charge. The Energy Price (EP), which includes fuel cost and variable operational and maintenance expenses, is projected to increase from 0.84 trillion Rs in FY24 to 1.16 trillion Rs in FY25, translating to a rise from 10.94 Rs/unit to 15.65 Rs/unit. The Capacity Price (CP) is anticipated to grow from 1.847 trillion Rs in FY24 to 1.95 trillion Rs in FY25, contributing to 18.39 Rs/unit or 60% of the overall power tariff.
Another reason for the increased electricity bills is the various taxes imposed. He explained that in Pakistan, electricity bills include several taxes, including an 18pc General Sales Tax (GST) from the federal government and an Electricity Duty from provincial governments of 1.5% for residential customers and 2% for commercial customers.
“Various strategies can be employed to effectively address the issue, such as removing the six-month criteria for protected consumers, promoting innovative financial solutions, simplifying the SLAB mechanism, and, most importantly, advocating for region-wise competitive tariffs and improving service quality,” he suggested.
Dr. Musarat Jabeen talked about the concept of the independent power consumer (IPC) model, advocating for solar energy initiatives and encouraging everyone to generate their own energy to promote sustainability. She emphasized the need to formulate new policies tailored to our specific needs and challenges.
Engr Ahad Nazir, Associate Research Fellow and Head Center for Private Sector Engagement at SDPI highlighted that all energy-generating plants are paying fixed tariffs regardless of production and output, which eliminates the incentive to compete, whereas capacity payments and the dollar index are the main causes of such high prices.
Engr. Ubaidur Rehman Zia, head of energy unit at SDPI said that tariff structure reflected the complex interplay of power sector policies and regulations, market dynamics, and regulatory frameworks.
