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The Economic Coordination Committee (ECC) of the Cabinet which is scheduled to meet on Wednesday (today) is likely to approve provision of electricity to five export-oriented sectors at 7.5 cent all inclusive and the mechanism for Karachi Electric's (KE) 11 quarters tariff adjustment of Rs 4.87 per unit, well informed sources told Business Recorder.

On February 25, 2020, Prime Minister expressed concern over a strike call by the business community of Faisalabad due to increase in industrial gas and electricity tariffs. However, Minister for Power, Omar Ayub, briefed the members that in order to make the export sector more competitive, the government had announced an all-inclusive tariff of 7.5 cents / kWh for the export-oriented industry, which was valid till June 2019.

The government kept its commitment but the growing amount of subsidy required had made it untenable to continue the facility beyond June 2019. The Cabinet was also informed of the earlier negotiations held with the industry representatives, wherein it was agreed that out of the gas and electricity tariffs, subsidy on gas would be retained whereas the base rate for electricity tariff would be kept at 7.5 cents/ kWh subject to fuel price adjustments, which would be passed on to the industrial consumers.

He further stated that despite the agreement, the industry went into litigation against agreed increase in electricity tariffs and obtained restraining orders against any change in the tariff. The stay orders granted by the courts have been vacated which triggered the recent call for strike. Some of the Cabinet members stated that the protest call had strong political overtones. Thus, there was need to engage and negotiate with the industry representatives to find a mutually acceptable solution, although the engagement should have been done much earlier when the situation was still developing.

The Cabinet had directed Ministries of Commerce, Power Division and other stakeholders to hold a meeting to firm up government's position prior to negotiations with the industry representatives to avert the possibility of strike. The committee and industry held negotiations and reached an agreement to continue supply of electricity at 7.5 cents per unit all inclusive.

The sources said the government has to extend Rs 23 billion from June 2019 to June 2020 and Rs 5 billion from January 2019 to June 2019, totaling to Rs 28 billion. Finance Division has to extend a subsidy for this purpose.

With regard to KE, Power Division has pointed out that currently on account of the provisions of the Nepra Act and applicable policies as well as guidelines developed thereunder, uniform tariff for each category of consumers for Discos is applicable pursuant to various determinations of Nepra from time to time. KE notified tariff was also accordingly aligned. Subsequently, thereto, Nepra determined quarterly adjustments in June 2019, September and December 2019 for consumers of Discos. Consequently, currently a consolidated uniform rate within the range of Rs 1.09 to Rs 2.89 per unit is being charged for various consumers of Discos while also maintaining the socio-economic objectives for specified category of consumers.

After explaining the history, Power Division has submitted the following recommendations for the ECC: (i) QTA decision of 11 quarters be notified as recommended by Nepra which would result in subsidy claim of around Rs 71 billion up to March 2019 and from the date of notification for next 12 months the additional estimated subsidy would be Rs 28 billion; or (ii) the recommended quarterly adjustment to the tune of Rs 4.87 per unit being the differential between the schedule of tariff recommended by Nepra for April-June 2019 and schedule tariff earlier recommended by Nepra and reflected in the KE notified tariff, be notified for each category of consumer, as is currently in field for consumers of Discos.

Any difference between the two rates will be made available by way of subsidy which shall amount to Rs 26 billion only. To the extent of earlier quarters, KE be intimated to file its revised claim to Nepra for such quarterly adjustments after reflected subsidy claims have already been processed.

Copyright Business Recorder, 2020