Shocking Development in Financial Year 2023-24
In a stunning turn of events, the National Electric Power Regulatory Authority (Nepra) has announced a significant surge of Rs6.90 per unit in the base tariff for the Financial Year 2023-24.
Sharing of New Base Tariff with Power Division
Sharing the news on Thursday, a high-ranking official from the energy ministry informed The News about the newly determined base tariff.
Increase in Base Tariff and Previous Fiscal Year Comparison
The increase of Rs6.90 per unit will propel the base tariff to Rs31.70 for 2023-24, surpassing the previous fiscal year’s rate of Rs24.80 per unit. It is worth noting that the government had initially set the base tariff at Rs24 per unit for the last fiscal year.
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IMF Briefed on Implementation of New Base Tariff and Circular Debt Strategy
IMF Team Receives Briefing at Power Division
During their visit to the Power Division on Thursday, the IMF team was provided with an overview of the implementation of the new base tariff starting from July 1, 2023. The team was also briefed on the strategy to effectively address the soaring circular debt, which has reached a staggering Rs2.64 trillion.
Concerns Raised by IMF Officials
Comparing it with the same period in fiscal year 2021-22, the monthly inflow of circular debt has surged by 32.59 percent to Rs35.8 billion, raising concerns among IMF officials.
IMF Urges Reduction of Recovery Losses and System Inefficiencies
“The IMF has urged officials to reduce recovery losses and address system inefficiencies, which are currently high.”
Government Obligated to Notify Base Tariff Increase by July 12
Base Tariff Notification for IMF Executive Board Meeting
The government is obligated to notify the increase in the base tariff before July 12, as it coincides with the meeting of the IMF executive board where the approval of the $3 billion Stand-By Arrangement (SBA) for a nine-month period will be sought.
Determination of New Price Range
Initially, Nepra had proposed an increase of nearly Rs4 per unit in the base tariff. However, due to feedback from the Central Power Purchase Agency (CPPA)-G, which projected electricity sales growth for the Financial Year 2023-24 and requested a tariff increase of Rs8.50 per unit, the regulator determined the new price range to be between Rs6.50 and Rs6.90 per unit.
Increase in Capacity Charges Payment and Nepra’s Decision
Alarming Increase in Capacity Charges Payment
The new base tariff for the financial year 2023-24 shows an alarming increase in the contribution of capacity charges payment, accounting for 65 percent compared to 53 percent in the Financial Year 2022-23. As a result, Rs4.48 will be part of the Rs6.90 per unit increase in the electricity base tariff.
Nepra’s Official Decision Yet to be Confirmed
Nepra officials declined to confirm the development when contacted by the reporter. However, they hinted that the decision is likely to be published on the Authority’s official website on Friday, pending approval from two members who are yet to give their go-ahead.
Base Tariff Details and Implications
Base Tariff for Financial Year 2023-24
The base tariff, set by Nepra, currently stands at Rs24.80 per unit for FY2022-23, but the government has officially notified it at Rs24 per unit. Considering the required increase, the base tariff for FY24 is expected to reach nearly Rs31.70 per unit. It’s important to note that the base tariff does not include surcharges, taxes, and duties, as they fall under the jurisdiction of the federal government. The power purchase price (PPP) constitutes 90 percent of the tariff, with capacity charges payments accounting for 65 percent. The power sector is currently facing significant challenges, with circular debt exceeding Rs2.64 trillion, and the government struggling to make payments to powerhouses for the electricity it purchases due to high system losses, low recovery rates, and insufficient budget subsidies.