A study found that rising electricity tariffs are increasingly moving beyond the affordability of the masses and adversely impacting their consumption patterns.
The study was conducted by the Institute of Policy Studies, Islamabad titled “Impact of Rising Electricity Prices on Consumer Behavior: The Case of Power Distribution Companies in Pakistan”.
The research study covered over 1,000 households and 140 shop owners in the top 10 cities of Pakistan.
The survey results indicate that most of the respondents have experienced moderate to significant increases in their electricity bills in recent months.
The study further highlights the correlation between the magnitude of the bill increase and the extent of consumption reduction, indicating that higher price hikes lead to more significant efforts in reducing electricity usage.
However, despite the overall reduction in electricity consumption, a significant portion of the survey participants reported no noticeable decrease in their bills.
It recommends the need for improved governance and regulatory measures in the energy sector along with affordable electricity tariffs and alternative payment options to accommodate different economic circumstances.
The study also stresses the importance of addressing issues such as load shedding and raising consumer awareness about peak hours when electricity costs are higher.
Moreover, it also found that the alarming trend also caused a sharp decline in the recoveries of distribution companies (DISCOs) which can lead to difficulties in paying for power purchases from the generation companies, maintaining distribution networks, and servicing debts.
These factors further hinder the ability of DISCOs to invest in infrastructure upgrades, provide quality services, and improve the overall reliability of electricity supply.
The research emphasises effective measures to address power affordability concerns and suggests strategies for distribution companies to mitigate the negative effects of rising prices.
Overall, the study provides valuable insights into the impact of rising electricity prices on consumer behaviour in Pakistan and offers recommendations for DISCOs and policymakers to address affordability concerns and ensure a sustainable balance between electricity prices and consumers’ ability to bear these costs.
Chinese power plants using inferior coal: Nepra
- Coal power plants pledged to utilise coal with 6000 CVs.
- But they’re importing coal with CVs ranging from 4500-5500.
- Not a single imported consignment meets required standards.
ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) has exposed Chinese coal-fired power plants for using lower-quality imported coal, despite their pledge to use coal with a calorific value of 6,000 (CVs).
Not a single imported consignment meets the required standards and still they claim multi-billion rupees of capacity payments that are being collected from the public.
This revelation came to light during a public hearing conducted by Nepra on Thursday to review the existing mechanism, last revised in 2016.
The mechanism is based on a fixed benchmark weightage of different coal origins and heat values, originally approved by Nepra in June 2014 as part of the determination of coal upfront tariffs.
Nepra Chairman Waseem Mukhtar headed the proceedings while the authority’s members — including Mathar Niaz Rana (member Balochistan), Maqsood Anwar Khan (KP), Amina Ahmed (Punjab), and Rafique Ahmad Shaikh (Sindh) — were in presence.
It is important to mention that the coal-based current derated installed capacity is 6,777MW (foreign-funded on imported coal), with an outstanding capacity payment of a substantial Rs643 billion.
While citing documents, a Nepra member said: “Your documents say that you imported lower quality coal against what was promised in the agreements.”
Notably, the Sahiwal Coal Power Project, now known as Huaneng Shandong Ruyi (Pakistan) Energy (Limited), disclosed that it had imported multi-thousand tons of coal in July 2022 when prices were high, at a rate of Rs70,000 per ton ($380).
In response, a Nepra member remarked: “You claim capacity payment, but you don’t use costly coal.”
The disclosure unveiled that these coal-based power plants had pledged to utilise coal with a calorific value of 6000 (CVs) but had been importing coal with CVs ranging from 4500 to 5500.
Consequently, they were employing substandard coal while billing customers for the price of higher-quality coal.
A member said, “The price should be of off-specification coal, but they were demanding the rate for 6000 CVs,” suggesting that the price should be reduced due to the quality of coal in use.”
It was noted that they were granted various discounts based on CVs, sulfur, and moisture, but they were unwilling to extend discounts to power consumers.
Pakistan had been facing issues with the exchange rate and opening of Letter of Credits (LCs) for coal import.
In response, the Power Division official said that a few Chinese banks were ready to open LCs in Chinese Yuan [RMB], and coal-based independent power plants (IPPs), and these plants can also consider and should import coal in RMB.
They also said: “Never-ending Pak-Afghan border issues are also affecting us.”
Since they also import coal from Afghanistan, the closure of the border also cost them. Normally it takes 7 to 10 days to reach Pakistani plants.
They said that the demand for Australian coal is high, and it was supplied to a few countries like Japan and Vietnam. Since no discounts are available on Australian coal, while freight charges are high due to long distances, we don’t go for it.
Representatives of the coal-based IPPs argued that they had long-term contracts with coal suppliers and therefore negotiated prices accordingly.
However, they complained to Nepra about the application of differentials in calculating FCAs (Fuel Cost Adjustments) without revising the mechanism.
Given the specialised nature of the power sector, particularly coal, they stressed the importance of handling it with expertise and care.
Several critical aspects were reviewed, including the justification for coal procurement through tendering and the rationale for procuring 10% to 20% of coal from the spot market. Technical considerations were also examined, such as the introduction of new indices based on the country of origin and calorific value, marine freight calculations based on time charter rates, and bunker fuel rates.
Nepra suggested increasing the share of importing coal from the spot market from 10% to 20%. It also advocated that coal should be imported through a bidding process to get a competitive price of coal from the local and international markets.
However, China Power Hub Generation Company (CPHGC), which developed a 1.32GW coal-fired thermal power plant in Hub, Balochistan under the China-Pakistan Economic Corridor (CPEC), rejected the suggestion to increase the share to 20%.
A CPHGC representative stated that under the Power Purchase Agreement (PPA), they were obligated to take up to 10 percent from the spot market and could not exceed this limit.
Regarding the API 4 differential, they raised concerns about sudden deductions without prior notice, affecting 44 ships. They questioned how they could change the contract through a Nepra notification.
The API 4 price assessment is the benchmark price reference for 6,000 kcal/kg coal exported from South Africa’s Richards Bay Coal Terminal and is used in physical and over-the-counter contracts.
They also sought the Nepra’s permission to pay in Pakistani rupees, as the exchange rate issue has cost them over $8 million in loss.
They said that the spot market cannot fulfill the need for coal. About the tendering process of coal import, they said that they had long-term contracts with suppliers and therefore, there were a lot of issues.
Govt shelves plan of staggered power bill payments
- Minister says govt aware of capacity payments issue.
- Smart meters can help curb electricity theft, says Ali.
- Adds Pakistan in talks with Russia for crude oil import.
ISLAMABAD: The government has abandoned the proposal earlier agreed with the International Monetary Fund (IMF) to extend the payment of electricity bills in August for consumers using up to 200 units over three months, it emerged on Wednesday.
Caretaker Energy Minister Muhammad Ali, in a wide-ranging interview with The News, said that the impact was nominal and most of the bills had been collected, and more importantly, from next month in October, the electricity bills will start tumbling.
The minister’s attention was drawn towards more power projects in the system, such as the 660 MW solar project at Muzaffargarh with an 80% dollar indexation, 330 MW imported coal-based plant at Gwadar, and the C-5 nuclear power plant with a 1,200 MW installed capacity at a time when the countrymen were facing the monster of Rs2.2 trillion capacity payment trap.
To this, Mohammad Ali responded, saying the government is quite aware of the capacity payment issue; however, it will initiate the solar project of 660 MW only when the competitive price is received at a reasonable level.
As far as Gwadar Port is concerned, the minister said it is a strategic project, and the port when it becomes functional, will need a sustainable supply of electricity.
However, there will be an option to later use the local Thar coal to some extent when it is made available on a sustainable basis.
The minister, however, was very quick to say that the authorities in the Power Division are making their case on tackling the capacity payments issue to be taken up with Chinese lenders by increasing the tenure of payment of loans with interests from the existing 10 years to 20-25 years, and this will help bring down the capacity payments volume in the tariff.
“We have also started working to depoliticize the boards of directors (BoDs) of DISCOs and will replace them with capable persons of high integrity, and this process will be completed next month.”
Energy Minister Muhammad Ali mentioned that the time has come for the federal government to seriously think about coming out of the business of electricity, oil, and gas, limit itself to policymaking and a strong regulatory regime, and protect consumers.
He said the technology of Advanced Metering Infrastructure (AMI) and smart meters can play a pivotal role in coping with electricity theft, and to this effect, PC-1 for the AMI (Advanced Metering Infrastructure) project is lying in the Planning Commission, but because of fiscal constraints, this project is not moving at the required pace.
However, in IESCO, the project of installing smart meters is being implemented, and about 900,000 to 1,000,000 electricity consumers have smart meters installed.
This project would be extended to other DISCOs when the required funds were available.
It is understood that authorities are working to increase the gas prices and, to this effect, the government has decided to link the natural gas price of high-end consumers using 4hm3 in a month or more with LPG and they will have to pay the price of one MMBTU at par with the price of the LPG cylinder, which stands at Rs4,500.
This time the authorities have started making up their mind to also bring the first four categories of protected consumers using gas in a month, up to 0.25 hm3, 0.5 hm3, 0,6 hm3, and 0.9 hm3, which are 57% of the total gas consumers, into the loop of the new pricing mechanism.
The protected consumers are six million in number, and they will have to face an increase from Rs300 to less than Rs500 per MMBTU increase.
However, as many as eight million unprotected consumers consuming gas up to 0.25 hm3, 0.6 hm3, 1 hm3, 1.5 hm3, 2 hm3, 3 hm3, 4 hm3, and above 4 hm3 will be facing the increase in gas price as per their slab categories.
The government can’t afford to purchase RLNG for $13 (Rs3,700) per MMBTU and sell it at Rs1,100 per MMBtu.
Muhammad Ali also touched on the issue of importing more crude oil from Russia, saying that Pakistan and Russia are engaged in talks.
“We are in the process of persuading PARCO and NRL to join PRL in refining Russian oil for maximum yields, and if PARCO agrees, then Pakistan will increase its imports of Russian crude.”
The minister said that the authorities are also vigorously working on the special-purpose vehicle (SPV) to ensure the sustainable import of Russian crude.
When asked if Russia is working on a special deal to be offered to Pakistan on crude imports, the minister said: “Yes, we have got some indications from Moscow to this effect.”
While mentioning the gas availability vulnerabilities in the coming winter season, the minister said the country needs more long-term agreements, saying these should have been inked for sustainable RLNG supplies.
He disclosed that the country will have to import an additional 2 RLNG cargoes each in December 2023 and January 2024, apart from 9 (8 from Qatar and 1 from ENI) contracted cargoes in December and 10 cargoes (9 from Qatar and 1 from ENI) in January. The local gas price has dwindled to 3.2 bcfd.
He said that the authorities are working to allow the private sector to import LNG and use the underutilised capacity of LNG terminal 2 to increase the availability of the gas.
“We have started working on a new pricing mechanism, alluring the existing companies and those who have left the country to come and increase the exploration and production activities.
“We are also devising a strategy on how to optimise gas production from the depleting wells, and the authorities are in the process of making a framework acceptable to the E&P companies.”
He pointed out that, due to the period from 2013 to 2023, oil and gas production has decreased by $3.2 billion, which is a bitter fact.
Elections, reforms to boost confidence in Pakistan’s economy: ADB
- GDP growth expected to experience a modest recovery.
- Inflationary pressures to remain elevated amid hike in energy tariffs.
- Continued weakening of rupee to also impact inflationary pressures.
The Asian Development Bank (ADB) has expressed optimism regarding Pakistan’s economic prospects, highlighting that the reform programme and smooth conduct of upcoming general elections are likely to restore investor confidence in the country’s economy.
The regional financial institution, in its report released on Wednesday, underscored the significance of Pakistan’s commitment to an economic adjustment programme until April 2024, which is crucial for reestablishing macroeconomic stability and facilitating the gradual resurgence of economic growth.
According to the Asian Development Outlook (ADO) for September 2023, Pakistan’s gross domestic product (GDP) growth is expected to experience a modest recovery, increasing from 0.3% in FY2023 to 1.9% in FY2024, although inflationary pressures are expected to persist.
However, significant downside risks to the outlook remain, including global price shocks and slower global growth.
The ADB also anticipates a decrease in Pakistan’s inflation trends to 25% in FY2024 from the elevated 29.2% experienced in FY2023 in the wake of base-year effects setting in, normalisation of food supply, and a moderation in inflation expectations.
“However, sharp increases in energy tariffs under the economic adjustment programme, and the continued weakening of the rupee will keep inflationary pressures elevated,” it added.
According to the Asian Development Bank (ADB), the gross domestic product (GDP) growth of Pakistan is expected to experience a modest recovery, reaching 1.9% in the fiscal year 2024 (spanning from July 1, 2023, to June 30, 2024), marking an improvement from the meagre 0.3% growth recorded in FY2023.
This anticipated recovery will come amidst the persistence of increased price pressures, and there remain significant downside risks to this outlook, primarily stemming from potential global price shocks and the potential for a slowdown in economic growth around the world.
ADB Country Director for Pakistan Yong Ye said that the country’s economic prospects are closely tied to the steadfast and consistent implementation of policy reforms to stabilize the economy and rebuild fiscal and external buffers.
“Greater fiscal discipline, a market-determined exchange rate, and speedier progress on reforms in the energy sector and state-owned enterprises are key to reviving economic growth and protecting social and development spending,” he added.
Pakistan’s economy, in FY2023, has faced a series of challenges, including severe floods, global price shocks, and political instability, collectively leading to weakened economic growth and an increase in inflation.
According to the ADO, the implementation of the economic adjustment programme and a smooth general election in FY2024 are expected to boost confidence, while easing import controls is likely to support investment, the ADB said.
“Favourable weather conditions coupled with government initiatives such as distributing free seeds, offering subsidised credit, and providing fertilisers are projected to bolster the recovery of the agricultural sector,” the report mentioned, adding that this will have a “positive spillover effect on the industrial sector, which will benefit from improved access to essential imports.”
In its report, the financial institution said it remains steadfast in its commitment to achieving prosperity, inclusivity, resilience, and sustainability in Asia and the Pacific region.
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