ISLAMABAD, Oct 18: The federal government has directed the National Electric Power Regulatory Authority (Nepra) to fix consumer tariff on the basis of the actual cost of supply of electric power by eliminating the subsidy factor.

Informed sources told Dawn on Monday that the directive was part of comprehensive 'policy guidelines' issued by the federal government to put in place a 'fully differentiated tariff regime' for Wapda's corporate companies and the Karachi Electric Supply Corporation (KESC).

This would have a far-reaching impact not only on country's power sector and its consumers but also on the national economy as a whole and the consumer power tariff would vary in various parts of the country, a senior official said.

He was of the view that through the recent directive a major irritant to foreign investment had been removed and a longstanding demand of the international lenders had been met.

The guidelines have been issued to Nepra under section 7(6) of the Nepra Act for purposes of tariff determination, village electrification, subsidies as well as for differentiated tariff and to encourage private investment in the power sector either through privatization process or new project investments and to ensure protection of the interests of the consumers and suppliers of electric power.

The policy guidelines have come at a time when review petitions of all the distribution companies are pending with Nepra for determination of their tariff. The regulatory authority had earlier asked the government to pick up over Rs14 billion subsidy on behalf of the Quetta, Hyderabad and Peshawar electric supply companies to maintain uniform tariff rates.

The new policy guidelines have limited Nepra's role in terms of subsidy and notification of tariff. Nepra will determine the tariff for all three categories of suppliers i.e. generation, transmission and distribution, based on the cost of supply of each entity without any cross-subsidy among different power utilities.

Consumer-end tariff on the other hand will be separately notified by the federal government after incorporating the subsidies that it intend to provide to the different categories of consumers. However, the federal government will reduce these subsidies gradually, with the ultimate aim of eliminating all of them.

The government will notify the consumer-end tariff within a period of 30 days instead of 15 days envisaged under the 1997 Nepra Act. If notification from the government is not issued within 30 days, the tariff determined by Nepra will automatically stand approved as the final tariff to be charged to the consumers.

In order to rationalize and rebalance the present tariff structure, the number of consumer groups, the number and size of slabs within each consumer category, the gap between the highest and lowest slabs, cross subsidies and flat rates will be gradually phased out.

TOD TARIFF: The distribution companies would offer time of day (TOD) tariff, whereby a reduced tariff would be offered during off-peak hours as an incentive to restrict power consumption during peak time.