ISLAMABAD, May 12: Wapda on Monday proposed a six-point package to reduce power tariff by an average Rs1.10 per unit provided the federal government makes some structural adjustments in the tariff inputs and market-based interest rates on loans, Wapda sources told Dawn.
The proposal came under discussion here at an inter-ministerial meeting that decided to meet some of these proposals immediately for a quick relief to the public.
The meeting also decided to constitute a task force to come out with suggestions within two months for tariff reduction on a long-term basis.
The meeting, presided over by Water and Power Minister Aftab Ahmad Khan Sherpao, also directed the ministries of water and power, finance, the Private Power and Infrastructure Board (PPIB) and Nepra to prepare similar working papers for a consolidated tariff reduction effort.
The meeting was attended by senior officials of all the stake-holders on the directives of Prime Minister Mir Zafarullah Khan Jamali.
The working paper submitted by Wapda envisages managing potential cost savings in the input supply chain of electricity generation, and passing on the resultant tariff relief to consumers in the year 2003-04, a senior Wapda official told Dawn.
FURNACE OIL IMPORT: Wapda suggested allowing the independent power producers (IPPs) to import furnace oil directly that would save approximately Rs1 to 3 billion a year. This would reduce tariff in the range of two to six paisa per unit.
It said the utility saved Rs700 million during 2002-03 for its thermal units through direct oil import, which was earlier a part of oil companies’ profit. The IPPs’ oil consumption is estimated at 2.165 million tons during 2003-04.
RELIEF ON DEBT SERVICE: The meeting also considered a proposal to convert Rs17.5 billion debt liability payable by Wapda to the federal government into equity. The proposal has already received the prime minister’s concurrence.
It also agreed to lower interest on both the re-lent and new loans, which ranged from 17 per cent to 18.4 per cent in the past, to 9 per cent in line with the prevailing market rates. This would entail a relief of around 17 paisa per unit to consumers.
GAS QUOTA INCREASE: The paper proposed increase in the gas quota by 150 MMCFD (million cubic feet per day) to the existing allocation of 400 MMCFD. This would reduce the fuel cost by Rs5.529 billion and bring a relief of 11 paisa per unit to end-consumers.
RATIONALISATION OF LEVIES ON FURNACE OIL AND GAS: Another 42 paisa per unit relief could be provided to the consumers through rationalization of levies on fuel oil and gas. But the government will have to forgo Rs20.835 billion annually on account of excise duty and development surcharge on gas and ad-valorem tax on fuel oil used by Wapda and the IPPs. It said the economic logic of taxing inputs for an essential item and thereby penalizing the consumers for their dependence was not socially sustainable.
REMOVAL OF GOVT TAXES: Wapda said the government taxes charged to the end-consumers amounted to 71 paisa per unit, of which 30 paisa per unit was mitigated by the government through a subsidy. The removal of the sales tax, withholding tax and electricity duty could, therefore, bring down the tariff by a further 41 paisa per unit.
Withdrawal of GST will give relief to the industrial and commercial consumers and bring down the prevailing tariff of Rs5.02 per unit and Rs8.10 per unit by 65 paisa and 106 paisa per unit, respectively. Mr Sherpao said this was perhaps not possible because the GST was being charged on all consumer items under agreements with the IMF.
CAP ON WAPDA’S O&M COST: Wapda’s total revenue requirement could be frozen at the current level, saving an increase of Rs1 billion. The cost escalation on account of inflation would be met by Wapda through efficiencies.
CURRENT DEFICIT: Wapda is currently running into a financial deficit of around Rs33 billion. In order to reduce tariff at a sustainable basis, the GOP should honour its earlier commitments regarding recovery of public sector receivables, pay its share of contribution to the Drought Relief Fund and release outstanding amount of GST on inputs to Wapda.
The minister said after the meeting that the proposed task force would be headed by a private sector expert who could analyze various aspects with an independent mind.
The task force would comprise five members representing finance, water and power, the PPIB and Wapda, and would finish its task within two months, he said.
Mr Sherpao said a reduction in interest rates on loans and allowing the IPPs and Wapda to import fuel oil directly could be done immediately while some other issues could also be identified for a long-term tariff reduction programme.
He said that recommendations, to be finalized by the task force, would be forwarded to the federal cabinet for approval and implementation.
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