Govt to give Rs21bn subsidy from Covid Package

MUSHTAQ GHUMMAN

ISLAMABAD: The government has reportedly decided to allocate Rs 21 billion subsidy from Covid-specific stimulus package to supply cheap electricity to industrial consumers of Discos and Karachi Electric, well-placed sources in CPPA-G told Business Recorder.

However, the impact of the Fuel Price Adjustment (FPA) shall be passed on to the industrial consumers on incremental consumption basis and Nepra will issue necessary notification in this regard, the sources added.

Sharing the details, sources said, in compliance with Prime Minister's Office directions of October 22, 2020 Power Division submitted a summary for consideration of ECC on October 26, 2020. Subsequent to the said ECC meeting, high-level meetings were held at Prime Minister's Office (PMO) on October 26, 2020 and October 29, 2020.

During the meetings, a revised proposal of extending the package for three years, effective from November 2020 to October 2023, was discussed. It was also proposed during the meetings that the package may be extended to industrial consumers of K-Electric (KE) on the same pattern. The objective of the package was to spur industrial growth. There was an underlying assumption that there would be external benefits of the package, including but not limited to, increase in industrial activity, enhanced tax revenues, increase in employment and increase in export earnings. Estimation and quantification of these benefits was not the role of Power Division under the Rules of Business, 1973. In view of the discussions in meetings and consultative sessions attended by the Minister for Energy, Advisor on Finance, Special Assistant to Prime Minister (SAPM) on Power, SAPM on Petroleum, SAPM on Revenue and officers of the PM0, the following proposals were submitted for the consideration of the ECC: (a) Rate of Rs 8/kWh may be charged for industrial consumer categories B1, B2 & B3 from November 1, 2020 to June 30, 2021 for off-peak hours on incremental consumption basis over their consumption in corresponding months of the period March 2019 to February 2020 (the reference period adjusted to exclude COVID months). This would yield an estimated discount of Rs 4.96/kWh that may change with upward variation in the incremental marginal rate (this discount based on the assumption of 500MW of additional demand in Discos in FY 20-21); (ii) rate of Rs 12.96/kWh may be charged for industrial consumer categories (B1, B2 & B3) from July 1, 2021 to October 21,2023 for off-peak hours on incremental consumption basis over their consumption in corresponding months of the period March 2019 to February 2020; (iii) rate of Rs 12.96/kWh may be charged for industrial consumer category B4 from November 1, 2020 to October 31,2023 for off peak hours on incremental consumption basis over their consumption in corresponding months of the period March 2019 to February 2020; (iv) new industrial consumers having no reference consumption available in the period of March 2019 to February 2020 shall be offered the same package through slab-wise consumption structure; and (v) all the proposed rate structures are subsidy neutral except for the proposal of Rs 8 per unit.

For industrial consumers connected with K-Electric network: (i) rate of Rs 8/kWh may be charged for industrial consumer categories B1, B2 & B3 from November1, 2020 to June 30, 2021 for off-peak hours on incremental consumption basis over their consumption in corresponding months of the period March 2019 to February 2020. This would yield an estimated discount of approximately Rs 8/kWh and that may change with upward variation in the base rate (discount based on the assumption of 200 MW of additional demand in FY 20-21); (ii) Rate of Rs 12.96/kWh may be charged for industrial consumer categories (B1, B2 & B3) from July 1, 2021 to October 31, 2023 for off-peak hours on incremental consumption over their consumption in corresponding months of the period March 2019 to February 2020; (iii) rate of Rs 12.96/kWh may be charged for industrial consumer category B4 from November 1, 2020 to November 1, 2023 for off-peak hours on incremental consumption basis over their consumption in corresponding months of the period March 2019 to February 2020; (iv) new industrial consumers of K-Electric may be offered the same package through slab-wise consumption structure; and (v) this package would require GoP subsidy for KE during whole package tenure (November 1, 2021 to October 31, 2023) as KE's base tariff rate exceeds Rs 12.96/kWh (extending the package to KE for FY 21-22 and 22-23 will yield a subsidy requirement for KE whereas the rest of the country will be subsidy neutral for the same period). The package may result in prolonged hours of load-shedding, especially during the peak summer season in view of constrained available generation capacity of KE.

Power Division submitted the following proposals to the ECC: (i) in case the GoP abolishes the Time-of-Use tariffs for industrial categories, the same package will be applicable for all hours of the day resulting in addition to the subsidy estimates (a separate summary for CCoE is being submitted on this subject); (ii) issuing of guidelines to Nepra for approval of proposed package and incorporation in the regulatory framework; (iii) after recommendation of Nepra , notification of the proposed package in the official gazette; (iv) the required amount of subsidy, ie, approx. Rs 31 billion may be provided as supplementary grant against demand of Industrial Support Package— payment to other expenditures of Power Division during CFY; (v) subsidy volume of Rs 59 billion may be budgeted for FY22 and FY23 and released on actual basis for each month.

During the ensuing discussion, Minister for Industries & Production opined that the proposed package should be based on actual consumption trends of different industrial sectors as the power requirement of different industries varies according to nature of their production. Adviser to the Prime Minister on Institutional Reforms & Austerity also raised a query regarding estimated revenue generated as result of proposed package.

Secretary, Power Division stated that such estimation was not possible at this stage. Finance Advisor observed that the proposal was originally focused on providing surplus capacity at marginal rates to incentivise the industrial sector and enhance economic activity in the country. However, the factor of subsidy involved in the proposed package was a new dimension. While acknowledging that subsidy could be considered for this fiscal year in view of COVID situation in the country, extending it to several years needs due consideration and thought. Adviser to PM on Finance further pointed out that a uniform subsidy be considered for all Discos including KE rather than calculating it on different base rates.

After detailed discussion, the ECC took the following decisions: (i) discount of Rs 4.96/kWh would be offered from the incremental marginal rate (Rs 12.96/kWh) for industrial consumer categories (B1, B2 & B3) from November 1, 2020 to June 30, 2021 for off-peak hours on incremental consumption basis over their consumption in corresponding months of the period March 2019 to February 2020 (the reference period would be adjusted to exclude COVID months). In this case, an estimated subsidy requirement shall be approximately Rs 14 billion which shall be provided by the Finance Division from COVID Economic Stimulus Package on actual consumption basis for each month; (ii) rate of Rs 12.96/kWh may be charged for industrial consumer categories (B1, B2 & B3) from July 1, 2021 to October 31, 2023 for off-peak hours on incremental consumption basis over their consumption in corresponding months of the period March 2019 to February 2020. In this case, there is no subsidy requirement; (iii) rate of Rs 12.96/kWh may be charged for industrial consumer category B4 from November 1, 2020 to October 31, 2023 for off peak hours on incremental consumption basis over their consumption in corresponding months of the period March 2019 to February 2020. In this case, there is no subsidy requirement and ; (iii) new industrial consumers having no reference consumption available in the period of March 2019 to February 2020 shall be offered the same package through slab-wise consumption structure.

For KE consumers; (i) discount of Rs 4.96/kWh, from the base rate, will be offered for industrial consumer categories (B1, B2 & B3) from November 1, 2020 to June 30, 2021 for off-peak hours on incremental consumption basis over their consumption in corresponding months of the period March 2019 to February 2020. In this case, an estimated subsidy requirement for K-Electric shall be approximately Rs 7 billion which shall be provided by the Finance Division from COVID Economic Stimulus Package on actual consumption basis for each month and; (ii) new industrial consumers of K-Electric may be offered the same package through slab-wise consumption structure.

The ECC also decided that impact of the Fuel Price Adjustment (FPA) shall be passed on to the industrial consumers on incremental consumption basis. The subsidy amount will be reconciled every month on actual incremental cost/base tariff between Power Division and Finance Division. Guidelines shall be issued to Nepra for incorporation of the proposed package in the regulatory framework. After recommendation of Nepra, notification of the proposed package in the official gazette will be issued by the Power Division.