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The base adjustment in Power Purchase Price (PPP) has been okayed by the regulator, and it is now a matter of days before the final revenue requirements and adjusted consumer end tariffs are notified for FY25. At Rs3.5 trillion, it is an increase of Rs500 billion in absolute terms or 17 percent from last year’s reference PPP. In unit terms, the increase is 20 percent at Rs26.99/unit, as power generation is assumed to stay lower at 130 billion units than the FY24 reference generation.

For the past two years, the reference PPP has increased at a pace of Rs500 billion annually. In a refreshing move, Nepra for FY25 base tariff referencing has opted for much more realistic assumptions than last year. It is critical because PPP referencing devoid of ground reality leads to more significant revisions in quarterly and monthly adjustments – as was the case throughout FY24.

To refresh the memories, the FY24 PPP was based on a 5 percent share of RLNG-based power plants in total generation versus an actual 19 percent share. Similarly, imported coal-based generation was assumed to have a 12 percent share, whereas the actual generation has a share of no more than 3 percent. Despite the commodity prices and currency staying well within the broader assumptions used for FY24 reference, the monthly fuel charges adjustments for 11MFY24 have totaled Rs278 billion – and are likely to surpass Rs300 billion. The biggest reason for the deviation is the lopsided fuel generation mix assumed for referencing.

The second key component for deviation from the reference tariff during FY24 was the departure from the assumed generation of 138 billion units. The actual generation is estimated at no more than 124 billion units and that, coupled with deviation from generation mix, led to a significant upward revision in variable operation and maintenance charges that feed into the quarterly adjustments. Combined, the quarterly and monthly adjustments –are expected to be around Rs500 billion – despite favorable currency and fuel price movements. This is also close to the amount of PPP tariff revision of Rs517 billion – taking the effective FY24 adjustment (excluding surcharges, distribution margin, and taxes) over Rs1 trillion.

There are early indications that the inflation considerations arising out of FY25 electricity price adjustments may well be much lower than earlier feared. Of course, fuel prices remain a big factor and can go either way, but the assumptions are very reasonable and if nothing untoward happens on this front, the generation mix used for FY25 PPP referencing is as close to ground realities as it possibly could be – and a marked improvement from last year. All else constant, this could pave the way for adjustments of Rs500 billion incurred in fY24 to be brought down considerably. That way the effective change in the PPP component of the tariffs would be limited to none. There is of course, always an ever-present risk of the government imposing new surcharges out of nowhere or deciding to alter the existing cross-subsidy mechanism to favor one user or another. But as things stand, the FY25 electricity price inflation should be under control, unlike last year.

Comments

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KU Jun 24, 2024 11:27am
This respite does not benefit export industry nor gives relief to agriculture n associated industry, every venture is unfeasible. Climate/Inflation/food insecurity is not a perception, its a reality.
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imdad kolori Jun 24, 2024 02:32pm
whats the respite ? or did Finance minister himself wrote this
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Aam Aadmi Jun 25, 2024 09:12am
Please do not project GoP's point of view. Write on your own keeping in view the travails of the common man. As an ordinary poor person, I do not see respite in anything, not at all.
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Mumtaz Malik Jun 25, 2024 03:19pm
Pakistan is an Islamic welfare state, and it should establish an economic system where every individual can live in peace. Currently, the electricity and gas bills act like atomic bombs.
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Mumtaz Malik Jun 25, 2024 03:20pm
Devastating people's lives every month. Does NEPRA /OGRA really have the authority to impose such oppressive and unjust taxes on the already burdened public?.
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Mumtaz Malik Jun 25, 2024 03:24pm
Is this sanctioned by the Constitution of Pakistan? A formal response should be sought regarding this matter.
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Mumtaz Malik Jun 25, 2024 03:40pm
Every citizen of Pakistan is deserving of respect and honor, whether they are a laborer or the President of Pakistan, and everyone is bound by the law.
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Mumtaz Malik Jun 25, 2024 03:48pm
The NEPRA OR OGRA. must keep in mind that an ordinary citizen seek justice and assert their rights against these oppressive and unjust taxes.
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Mumtaz Malik Jun 25, 2024 03:50pm
The NEPRA /OGRA agency to explain why they are increasing the bills and what this non-protected category entails.
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Mumtaz Malik Jun 25, 2024 03:51pm
Due to this category, the poor people of Pakistan are now begging not for food, but for relief from gas and electricity bills.
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Mumtaz Malik Jun 25, 2024 03:52pm
Was Pakistan created to allow oppressors to impose arbitrary laws on the people? This situation must be addressed to protect the citizens from such exploitation.
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Arsalan Jun 30, 2024 07:07am
Lot of people even elected members say that these IPP's r owned by 3 families in Pakistan. if this is the case then y do we always use Int'l shoulders when it comes to renegotiation with them?!!!!!!!!
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