MUSHTAQ GHUMMAN

ISLAMABAD: Federal government is likely to discontinue from December 2017 the Rs 3 per unit (KWh) subsidy extended to the industrial sector by the former Prime Minister Nawaz Sharif in 2015 as Finance Division is unwilling to release funds against the Discos claims.

The Economic Coordination Committee (ECC) of Cabinet in its decision of January 28, 2016 had decided that the existing base tariff for the industrial consumers of all Discos be reduced by up to Rs 3/kWh for the financial year 2015-16 for electricity consumed with effective from January 1, 2016 to maintain a uniform tariff and directed the Ministry of Water and Power to issue policy guidelines to Nepra not to pass on negative fuel price adjustment to the industrial consumers till the tariff determination/notification of all Discos.

The subsidy was also extended to the industrial consumers of K-Electric which  is now being purchased by a Chinese company, i.e.,  Shanghai Electric, but some issues are still hindering smooth handover of the utility to the new buyer.

However, subsequently Finance Division raised some observations for clarification before further processing of the claims of subsidy: (i) K-Electric is included in the S.R.O 395(1)2016 while the ECC of the Cabinet decision does not mention this entity; and (ii) as per ECC of the Cabinet decision the subject subsidy is payable from January 2016 to June 2016 with the condition that the benefit of reduction in Fuel Price Adjustment will not be passed on to the Industrial sector.

The ECC, however, in its decision has also directed Nepra that a mechanism in the form of policy directive be formulated for inclusion in base tariff for the purpose of cross subsidy to be worked out for the ISP beyond claims of June 2017.

The ECC also decided that retrospective recovery of industrial support package claims may be made, under a mechanism proposed.

The sources said power Distribution Companies(Discos) are continuously supplying electricity to the industrial sector in accordance with the decision of the ECC but they are not being paid their due claims by the Finance Ministry.

Finance Division wants the amount of subsidy to be recovered from other consumers through cross subsidy. However, this proposal has not been accepted by the Power Division.

According to sources, Ministry of Power had asked Ministry of Finance for retrospective release of subsidy till June 2017 which released only Rs 13 billion against the claims of Rs 24 billion.   

The sources said,   ECC will also extend duration of three surcharges of Rs 2.50 per unit on electricity consumers to help financially ailing Discos and near completion Neelum Jehlum Hydropower Project.

National Electric Power Regulatory Authority (Nepra) does not include late payment surcharge (LPS) on loans being taken by Discos and with the new decision LPS has also been made part of electricity tariff.

On August 17, 2007 surcharge of 10 paisa/KWh was approved on all electricity consumers except lifeline consumers with the objective of raising funds for the 696 MW Neelum-Jhelum Hydropower Project. The surcharge was imposed in 2008 for applicability till December 2015. However, later on surcharge was extended till December 31, 2017.

The collection of Neelum-Jhelum Surcharge will be deposited by the Discos in a fund called the “Neelum-Jhelum Hydro Project Development Fund” to be kept in the escrow account of the Neelum-Jhelum Company for exclusive use for the Neelum-Jhelum Hydro Power project. The first unit of the project whose cost has touched Rs 525 billion, as per previous schedule, will be operational on February 28 this year.

The sources said a significant shortfall in recovering full cost continues to emerge due to less than full pass-through of the cost of electricity. In order to fulfill financial needs of Discos, loans from banks have been arranged for payment to power producers to maintain power generation and stability of the power sector.