The base tariff of electricity has been increased by the federal government, effective from July 1, 2023. The increase, amounting to Rs 4.96 per unit, was made in accordance with an agreement with the International Monetary Fund (IMF). The new base tariff now stands at Rs 29.78 per unit, based on a revenue requirement of Rs 3.281 trillion. This decision applies to all power Distribution Companies (Discos) as well as K-Electric.
In 2022, the PTI government raised the base tariff in three phases, resulting in an increase from Rs 16.91 per unit to Rs 24.82 per unit. The IMF’s Executive Managing Director, Kristalina Georgieva, emphasized the need for Pakistani authorities to enhance the viability of the energy sector by aligning tariffs with costs, reforming the cost base of the sector, and targeting power subsidies more effectively. This statement was made in a press release on June 12 following the approval of a $3 billion stand-by arrangement.
The increase in base tariff was determined based on various assumptions, including the prices of RLNG, imported coal, local coal, gas, and furnace oil, as well as exchange rates and inflation rates. The estimated purchase of power by Discos is 124,860 GWh, with projected sales of 110,165 GWh. The Energy Purchase Price (EPP) is estimated at Rs 840.462 billion, resulting in a cost of Rs 7.63 per unit. The Capacity Purchase Price is expected to be Rs 2,025,697 million (over Rs 2 trillion), equivalent to Rs 18.39 per unit. Consequently, the total Power Purchase Price (PPP) is projected to be Rs 2,866,159 million (Rs 2.866 trillion), with a cost of Rs 26.02 per unit.
The financial impact of Distribution Margin and Prior Year Adjustments is estimated to be Rs 415,003 million (Rs 415 billion), or Rs 3.77 per unit. The total revenue requirement for the current financial year 2023-24 is projected to be Rs 3,281,162 million (Rs 3.281 trillion), resulting in a cost of Rs 29.78 per unit. To achieve this, the government needed to raise the base tariff by Rs 4.96 per unit, from the previous rate of Rs 24.82 per unit.
According to an official statement by the regulator NEPRA, different consumer-end tariffs are determined for each distribution company (XWDISCO) based on their revenue requirements and allowed levels of T&D losses. These tariffs are then submitted to the federal government as part of a uniform tariff application. The uniform tariff, incorporating subsidy/surcharges as specified by the government, is notified and implemented for consumers.
Several distribution companies, including MEPCO, GEPCO, HESCO, SEPCO, QESCO, PESCO, and TESCO, have filed adjustment/indexation requests under the multi-year tariff regime for FY 2023-24. Additionally, IESCO, LESCO, and FESCO have filed Multi-Year Tariff petitions covering the period from FY 2023-24 to FY 2027-28, along with a request for an interim tariff for FY 2023-24.
NEPRA has determined the consumer-end tariff for FY 2023-24, setting the revised national average tariff at Rs 29.78/kWh, an increase of Rs 4.96/kWh compared to the previous rate of Rs 24.82/kWh. NEPRA attributes this increase to factors such as low sales growth, devaluation of the PKR, high inflation, high-interest rates, and the addition of new capacities.
The revenue requirement for Discos in FY 2023-24 is projected to be Rs 3,281 billion, with projected sales of 110,165 GWh.
Any decrease in tariffs in the future, resulting from an appreciation of the PKR, decrease in inflation, or lower interest rates, will directly benefit consumers. NEPRA has also released annual tariff determinations for six Discos, namely HESCO, SEPCO, QESCO, MEPCO, PESCO, and TESCO, as part of the rebasing of electricity tariffs for FY 2023-24. However, specific details regarding the rebasing have not been shared with the media.