Industrial power tariff: Power Div, APTMA at odds over cross-subsidy calculation

ISLAMABAD: The Power Division and the All Pakistan Textile Mills Association (APTMA) appear to be at odds over the actual volume of cross subsidy embedded in industrial power tariffs, with APTMA claiming that the burden is nearly twice what the Power Division reports.

The dispute emerged at a time when the Power Division claims it is engaging with the industry to further reduce cross subsidies to ease the financial strain on industrial consumers. The Division had earlier announced a reduction of Rs 174 billion in cross subsidies.

“We do not agree with the Power Division’s calculation of Rs 74 billion in cross subsidies in industrial power tariffs,” stated Shahid Sattar, Secretary General of APTMA, in a letter addressed to Power Minister Sardar Awais Khan Leghari. “According to our analysis based on Nepra’s determination of consumer-end tariffs for FY26, the actual cross subsidy amounts to at least Rs 137 billion.”

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APTMA defines cross subsidy as the difference between a consumer’s cost of service, which includes generation, transmission, distribution, and associated margins, and the effective price charged by the government of Pakistan.

Under Section 31(4) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997, Nepra is mandated to determine a uniform tariff for public sector licensees in the interest of consumers. The National Electricity Policy 2021 also allows the government to propose uniform tariffs across consumer categories based on socioeconomic objectives, budgetary targets, and regulator recommendations.

According to APTMA, power tariff determination results in two sets of tariffs: one determined by Nepra, which reflects the true cost of service across consumer categories, and another proposed by the government, which applies cross subsidies. Nepra’s tables show that residential users consuming up to 300 units and non-ToU agricultural consumers are charged below-cost tariffs. In contrast, other consumer categories, including industry, pay higher-than-cost tariffs to cover the resulting revenue gap—effectively bearing the cross subsidy burden.

“Our calculations, using category-wise consumption data from the FY25 determination (due to lack of FY26 data), indicate a cross subsidy of nearly Rs 140 billion in industrial power tariffs. This figure may rise by 2–3% based on CPPA-G’s projected demand growth for FY26,” APTMA noted.

APTMA suggests that the Power Division’s Rs 74 billion figure likely uses an average system-wide benchmark—such as the FY26 Power Purchase Price (PPP) of Rs 25.98/kWh—instead of Nepra’s cost-reflective tariffs by category. Based on this method, APTMA acknowledges the cross subsidy may drop to around Rs 85 billion, closer to the government’s estimate.

However, APTMA insists the cross subsidy should be calculated against actual cost of service per consumer category, not a generalised average. “If the goal is to deliver cost-reflective and competitive power tariffs, it’s critical that government and stakeholders align on definitions and calculation methodologies.”

APTMA reiterated its long-standing demand for a regionally competitive power tariff of 9 cents/kWh. This demand, it says, is supported not only by regional benchmarks (5–9 cents/kWh) but also by domestic cost-of-service studies that show tariffs for 83–84% of Pakistani consumers’ hover around 9 cents/kWh. Nepra’s own determination supports this, with industrial base rates set at Rs 21.65/kWh (off-peak) and Rs 30.76/kWh (peak) for July 2025, equating to roughly 9.5 cents/kWh before applying cross subsidies.

On the issue of wheeling charges, APTMA argues that the current rate of about 4.5 cents/kWh undermines the viability of the Competitive Trading Bilateral Contract Market (CTBCM) for renewable energy. For a textile unit operating three shifts, only 20% of its energy demand can be met at a viable rate (~8 cents/kWh) through wheeling.

The remainder must be sourced from the grid, where marginal costs—particularly from RLNG plants—total around Rs 37.79/kWh (or 13.4 cents/kWh), resulting in an average energy cost of 12.32 cents/kWh, significantly above the industry’s target.

APTMA emphasised the need for tariff predictability, which is crucial for long-term business planning. Volatile rates pose major challenges, particularly for exporters. The Association urged the Power Minister to reconsider wheeling charges and allow hybrid consumers (those using both CTBCM and grid power) to retain access to the industrial tariff, enhancing predictability and competitiveness.

APTMA also acknowledged the government’s new incremental consumption package, calling it a “substantial improvement” over previous schemes, which were complex and impractical for industry adoption. “We appreciate that industry feedback is now being actively considered in policy design,” the Association added.

On the topic of industrial Time of Use (ToU) tariff reform, APTMA said it has recently engaged with Abid Lodhi and Naveed Qaiser at PPMC. “They outlined several system constraints, and we are now developing a proposal for a more flexible ToU tariff structure, which we plan to submit in the coming weeks,” said Sattar.

Copyright Business Recorder, 2025