ISLAMABAD: Power Division has tailored three options for country-wide four months (November 2023 to February 29, 2024) subsidy neutral Winter Package for industrial electricity consumers on incremental consumption, which may have some financial impact on other consumers, well informed sources told Business Recorder.
In option 1, a relief from Rs 3.32 per unit to Rs 7.86 per unit, in option 2 from Rs 8.57 per unit to Rs 14.13 per unit and in option 3 from Rs 12.28 per unit to Rs 17.84 per unit has been proposed. Cabinet Committee on Energy (CCoE) is expected to consider the three options on Thursday (today).
According to Power Division, in recent months’ tough economic conditions coupled with hike in electricity tariffs have resulted in slow industrial growth which, in turn, accounted for 8% reduction in industrial electricity demand in FY 23 and FY 24.
High power tariff hampering industrial production: Arbi
Accordingly, Power Division was directed to provide a subsidy neutral interim relief package to support the industrial consumers across the country.
Sharing the background, Power Division stated that in order to address similar situation in 2020, a discount on incremental consumption namely ‘Use More Pay Less Package’ was offered for the period of November 2019 till February 2020. The discount was available to domestic, commercial and industrial consumers of Discos and yielded a growth of 16% in consumption. In addition, an Industrial Support Package (ISP) was also introduced during Covid-19 during FY 2021-23, to spur industrial activity.
ISP contributed to demand growth of 15%, 14% and -8% (high inflation, high current account deficit, and pressure on dollar reserves resulted in economic recession, which led to reduction in industrial demand even when the package was applicable) in FY 2021 2022 and 2023 for the industrial sector.
Power Division argues that any increase in the electricity demand during winters will not only enable optimum use of system generation capacity but it will also help in reducing gas demand due to shifting of favourable demand towards electricity.
Power Division also clarified that power sector’s medium-term operational roadmap as envisioned under approved National Electricity Plan, approved by Federal Cabinet in August 2023 provides that “incentive mechanisms/ schemes shall be utilised as a tool to facilitate accelerated energy transition and economic growth. Such mechanisms shall account for: (i) predictability through consistency of policy directives; (ii) cross sectoral integration and optimization; (iii) efficient utilisation of resources; and (iv) regional competitive tariffs for productive consumer.”
Considering this background, an incentive package is proposed for all industrial consumers of Discos and K-Electric for winter months, i.e., from November 1, 2023 till February 29 2024, with the following provisions: A) The Package will be applicable to both single and three phase industrial consumers for both Peak and off-Peak hours but for three phase consumers the sum of energy consumed in peak and off-peak hours must be greater than the aggregate benchmark consumption (Peak + Off-peak sales) for the relevant month; B) Benchmark consumption will be based on the historical consumption of 3 years for the relevant months as per previous formula; C) Impact of FCA to be passed on the industrial consumers on incremental sales as per the applicable mechanism; D) No quarterly adjustments and FC Surcharge would be applicable on incremental consumption; E) Any further adjustment due to incremental consumption shall be pooled and passed on to all the consumers under the applicable adjustment mechanisms; F) No quarterly adjustments and FC Surcharge would be applicable on incremental consumption; G) The Package is subsidy neutral. However, it may result in an incremental load management of 1 hour for two other categories of consumers; H) Any further adjustment due to incremental consumption shall be pooled and passed on to all the consumers under the applicable adjustment mechanisms; and I) The Package is subsidy neutral.
Based on assumptions, various options have been worked out, with impact of tariff on other categories for consideration of CCoE to opt any one option.
Option A: Tariff of 36.54 Rs/kWh shall be charged to all industrial consumers on the respective incremental consumption, above the benchmark consumption in the corresponding months; Or Option B: Tariff of 30 Rs/kWh shall be charged to all industrial consumers on the respective incremental consumption, above the benchmark consumption in the corresponding months, which may result in an estimated positive adjustment of 0.26 Rs/kWh in the end consumer tariff of all the baseline consumers; Or Option C: Tariff of 26.29 Rs/kWh shall be charged to all industrial consumers on the respective incremental consumption, above the benchmark consumption in the corresponding months, which may result in an estimated positive adjustment of 0.44 Rs/kWh in the end consumer tariff of all the baseline consumers.
Power Division further stated that marginal rate of KE is Rs 41.62 kWh. However, the uniform package shall be applicable to all industrial consumers of K-Electric on incremental consumption, with any further adjustment to be parked under the existing mechanism to all the KE consumers.
It was proposed that in order to alleviate the pressure on natural gas supply system the above proposals will have a more positive impact if an inverse gas pricing mechanism for some winter months is introduced simultaneously and direction be issued to Petroleum Division to develop inverse gas pricing mechanism for the consumers of gas sector and its simultaneous implementation.
