THE approval of the Federal Cabinet settlement agreements with bagasse-based power plants, a move that would save national exchequer Rs238 billion raises hopes about an imminent decrease in the power tariff, which is considered to be one of the highest in the region. The Cabinet, which met with Prime Minister Shehbaz Sharif in the chair, was informed that the Central Power Purchasing Agency (CPPA) would contact the National Electric Power Regulatory Authority (Nepra) regarding a reduction in the power tariffs produced by these power plants. The Prime Minister underlined that the incumbent government was taking all possible steps to reduce electricity prices for the common man.
The process of revision of the clause of the contracts with Independent Power Producers (IPPs) relating to so-called capacity charges is taking too much time but understandably so as the Government cannot do so unilaterally because of legal implications and consequences of such a move on the overall investment climate. However, it is encouraging that the leadership of the country is mindful of the fact that the condition of the capacity charges (for idle periods of power plants) is one of the main reasons for an unprecedented hike in the electricity tariff and is pursuing the problem with the IPPs. The IPPs also deserve credit for their appreciation of the issue and their willingness to sort it out amicably in the interest of consumers, who are strongly agitating against high electricity prices.
The latest move is important in the sense that it will help save national exchequer Rs. 238 billion. The development came two months after the Premier announced the premature termination of power purchase agreements (PPAs) with the five oldest IPPs, with annual savings of Rs. 60 billion or around Rs. 411 billion over the remaining term of their contracts. There is no clear indication as yet about the possible relief that consumers would get due to settlement of the capacity payment issue with the IPPs and whether more IPPs will be willing to engage in talks for revision of the controversial clause. However, some estimates suggest the process might result in reduction of the electricity tariff by two to three rupees a unit. Such a small reduction in the electricity price will not translate into meaningful relief for consumers who were made to believe that capacity charges were the main factor behind the inflated tariff.
No doubt, the clause itself was highly unjust and its inclusion in the agreements with the IPPs showed the negotiators either had a malafide intention or failed to grasp its impact on the overall tariff. This and similar other controversial issues also prove that our relevant officials do not do their homework properly in safeguarding interests of the people and the country. However, once deals are done, they should be revised amicably through talks and there should be no feeling of coercion or unilateralism. The Government should also look into other factors responsible for a phenomenal increase in the cost of generation and eliminate or lower multiple taxes on the electricity bills. This has become a necessity also because backbreaking electricity prices have forced consumers to go for roof-top solutions (solar panels). We have been emphasizing in these columns that if individuals can produce cheaper electricity why the Government can’t increase the share of the renewable resources to the energy mix to bring down the cost of generation. The Prime Minister has made a welcome statement that national interests should always be prioritized in every decision and action, adding that the promotion of the private sector and industries in the country was a key priority for the Government. This is the spirit that can contribute towards resolution of this and similar other challenges.
