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KARACHI: Energy experts have blamed a host of issues for the rising electricity prices, saying that the recent stance by many stakeholders that Independent Power Producers (IPPs) capacity charges is the main reason for higher bills, does not depict the real state of affairs.

According to data from energy department, Capacity Payment (CP), often blamed for increased tariffs, accounts for just 31 percent of the total electricity cost. CP is essential without which the current model of power market, where a sole buyer (CPPA-G) has exclusive right on the generation of the IPPs, cannot operate. Imagine an investor who has invested millions of dollars of his savings and bank borrowings on the request of GOP to setup an IPP and the sole buyer refuses to off take energy from him after few months.

Under the contracts, the IPPs are obligated to keep their power plants available for generation 24/7, and if they are unable to do so, they have to bear heavy cost for it.

Pakistan renegotiating power deals with IPPs to cut costs, minister says

CP includes compensation of essential expenses such as debt servicing, maintenance, insurance, manpower etc. This phenomenon is being followed around the globe termed ‘take or pay’.

Experts say that in addition to capacity charges, the base tariff includes several other components that make up the overall cost of electricity. The total consumer tariff is approximately Rs 60.18/KWH out of which Rs 41.05/KWH (68 percent) is base tariff and remaining Rs 20.13/KWH (32 percent) are levies and taxes. There is another dimension of seeing the consumer tariff, the cost of generation (EP and CP) in the total tariff is 49 percent and the remaining 51 percent are the levies, taxes, distribution margin, cross-subsidy and tariff adjustments.

It is of utmost importance to scrutinize the quantum of these levies, taxes, distribution margin, cross-subsidy and tariff adjustments.

The experts opined that another reason for increase in power tariff can be attributed to deprecation of Pak Rupee against USD as well as higher interest rates in recent years as they are directly linked with the cost of generation.

One energy consultant explained, “The real issue is not the IPPs, but the taxes, inefficiencies, and other costs built into the system. Capacity payments ensure power plants stay operational, but the government needs to focus on improving the overall system, such as reducing power theft and modernizing infrastructure”.

Transmission and Distribution (T&D) and Recovery losses incurred by network aggregates to 27 percent of the total generation, these losses are added to the cost of generation.

Annual savings of approximately Rs 150 billion can be made by eliminating the recovery losses and reducing the Transmission & Distribution losses to 10 percent, this will reduce the consumer tariff by Rs 1.38 per KWH approximately.

Karachi Electric (KE) is a prime example that has reduced its T&D losses from 36 percent in 2009 to 15.27 percent in 2023. “If we are able to privatize the DISCOs, we can certainly achieve efficiency and attract investment in this sector that would definitely ease the consumer tariff.”

Experts also mentioned that the biggest share in installed generation capacity of the country is owned by Government, i.e. 54 percent. The Government controlled 03 IPPs having the gross capacity of 3700 MW have earned net profits of Rs 65.6 billion alone in the financial year 2023. GOP can either reduce their tariffs or use the profits generated by these entities to reduce the consumer tariff.

Experts are urging the government to address these underlying problems rather than renegotiate contracts with power producers, as this could discourage future investments in the energy sector.

Renegotiations with the IPPs have been done before at least twice but problems in the sector have continued as the root cause lies elsewhere.

They recommend improving recovery rates, tackling power theft, and upgrading the power distribution system by privatizing it, to help reduce electricity prices for consumers.

Copyright Business Recorder, 2024

Comments

Comments are closed.

KU Sep 13, 2024 07:43am
The bad, the ugly n the corrupt who ensure theft. On same note, imagine the plight of masses, salaried class, farmers, small businesses who are shut down or selling belongings to survive this heist.
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T Sep 13, 2024 09:08am
Government painting a different picture as usual.
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irfan Sep 13, 2024 11:12am
I totally agree because cost of turbine blades and fuel is also paid by govt. Example, Auto Plant 100 unit assembly line. But Zero Sale, but government will pay the assembly capacity to investor :)
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Ahmed Sep 13, 2024 11:49am
Paid content the IPP s are major source for inflatedBills have siphoned off billion of dollars already and still trying to play victim what a biased paid article shame on the writer
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test Sep 13, 2024 02:15pm
@Ahmed, Well Said Ahmed. 100% agree
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Faiz Jalib Sep 13, 2024 02:17pm
'Paid content'
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Ali Sep 13, 2024 02:47pm
They are the actual source of inflated bills dollar payment and capacity payment both are the main problem we as public have pay and can't even raise our voice about it
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Mahboob elahi Sep 13, 2024 02:48pm
These EXPERTS are on payroll of IPPs...biased faulty inferences
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Waqas Sep 13, 2024 04:03pm
IPPs has realize to make some investment in article as well, Bn of Rs paid to for generating nothing? do you have any figure what else inflated payment has been made apart form these capacity charges?
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Tarif Khan Sep 13, 2024 06:14pm
This is a paid piece of write up to white wash what has been exposed, both the incompetent Govt and greedy IPPs. Bottom line. We pay for what we use. Not pay the IPPs for no generation.
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Sher Shah Sep 13, 2024 09:05pm
This is how experts tiling the arguments to the sponsors of the theme
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Khadim Hussain Sep 13, 2024 10:19pm
We strongly recommend to constitute a committee comprising of foreign consultants to sort out a viable solution.
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Truth Sep 14, 2024 12:21am
my question to these experts is, what about the rate at which govt. buys frm IPP. Upto Rs. 400 per unit. Cap. payment are 30% of the cost. Is 30% of 1 trillion Rs. not a significant amount to you.
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Aam Admi 2 Sep 14, 2024 05:08am
Such experts need to FIRED before revisiting IPP issue
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Farrukh Sep 14, 2024 05:12am
It seems like paid article as the public is suffering from it Why 31% useless payment? To what extent it will, even they have paidback investments? Why installed 43k mw vs required 20k in peak?
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Azhar Panni Sep 14, 2024 06:19am
Obviously CP is very important to ensure return of investment made by the IPP during the concession period. However, it is equally important to revisit the incurred cost through a forensic audit.
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Qaiser Sep 14, 2024 08:08am
Its true because in my province KP where i live, more than 80% of people dont pay elctricity bills and even dont bother to install electricity meters.
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Tariq Mehmud Satti Sep 14, 2024 09:24am
Why we are not conducting the forensic audit of plants to ascertain the actual capacity of plants
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owais Sep 14, 2024 02:11pm
Main culprits are IPPs in connivance with the then political govt. This piece of paper trying to hid what these establishment have done with this segment.
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owais Sep 14, 2024 02:14pm
Paid Artical indeed. BR should not have published this being a reputed newspaper we read and follow.
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Majid Sep 14, 2024 03:02pm
Can you please mention the name of sources you include, it is intellectual dishonesty if u do not, capacity payments to IPPs on average is 120rs per unit if we remove government plants such as tarbela
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Dr Ali Hasan Sep 15, 2024 12:22am
Seems like a paid content in favor of IPPs. Thanks to Naeem ur Rehman who really exposed this all.
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Hafiz Sep 15, 2024 10:37pm
Whatever one says, IPP is the biggest scam in the history of our country. No explanation can defend it when our ruling elite overtly and covertly involved in it.
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Kamran Shaikh Sep 16, 2024 08:20pm
Govt is serious about people welfare then they should achieve two target to minimize bill interest rate under 15% & losses should not exceed 10%. IPP's are paying the small investor good% in dividends
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Naeem Ahmad Sep 18, 2024 09:46pm
Experts quoted anynumsly, why? It means something is wrong. BR is a reputable news outlet but article is not up to the mark.
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