The government of Pakistan has taken reform measures for the power sector that are expected to save Rs. 300 billion within three years, said the Minister for Planning, Development and Special Initiatives, Asad Umar, on Monday, a national daily reported.
While speaking to the media, the minister who also heads the Cabinet Committee on Energy (CCOE), said that this would be achieved between 2021 and 2023. He also termed the circular debt as a “landmine” for Pakistan, and blamed the previous government for all that is wrong in this regard.
Asad Umar reiterated the incumbent government’s statement that it had inherited an infrastructure for which the country lacked a transmission network to transport electricity. He remarked that the PML-N government had chosen to set up power plants instead of resolving this problem.
The minister also claimed that the utilization capacity of the power plants was 84 percent in 2018 and that it had dropped to 55 percent during the Pakistan Tehreek-e-Insaf (PTI) government’s rule.
He further stated that the capacity payment obligation was at Rs. 488 billion in 2018, and that it is expected to balloon to Rs. 1.473 trillion by 2023. He added that a tariff increase of Rs. 4.09 per unit will be needed by then to clear the circular debt base of Rs. 450 billion.
Another tariff increase of Rs. 8.09 per unit is also being anticipated by the government due to the expected increase of capacity payments to Rs. 890 billion.
The government has decided to introduce a competitive tariff regime to reduce energy prices to remedy these issues.
Minister Asad Umar added that the PTI government is introducing power sector reforms under which competitive tariffs will become possible under the bulk power market when the Competitive Trading Bilateral Contract Model (CTBCM) will be enforced in the next eighteen months. The CTBCM was recently approved by the National Electric Power Regulatory Authority (NEPRA) and it will benefit the end consumers.
He also announced that a reduction in the rate of return on equity (ROE) of the public sector projects approved by the CCOE on 2 September will result in a reduction in the cost of generation by about Rs. 100 billion during 2021-23. Furthermore, the memorandums of understanding (MoUs) signed with independent power producers (IPP) will have an impact of Rs. 60 billion during 2021-23.
The minister said that the CCOE’s decision to unlock take-or-pay contracts of LNG-based power plants in Punjab will lead to cumulative savings of Rs. 136 billion through tariff reduction at the rate of 74 paisa per unit in FY22 and 66 paisa per unit in FY23.