Government cuts petrol price, hikes power tariff

Petrol price slashed by Rs10.20 per litre n Nepra approves Rs5.72/unit base power tariff. After PM’s approval, Nepra fixes electricity rate at

ISLAMABAD   -   Prime Minister Shehbaz Sharif on Friday approved a massive reduction in electricity tariff for the industrial sector by Rs 10.69 per unit in order to boost production and exports.

In view of the prime minister’s initiative, the new electricity price per unit for the industrial and export sector had now been fixed at Rs 34.99, a PM Office press release said. The National Electric Power Regulatory Authority (NEPRA) had recommended a reduction of Rs10.69 per unit for industries.

“The PM’s package, which is expected to provide relief of over Rs 200 billion to the industry, will help bring down the manufacturing cost of the goods making them competitive in the global market,” the news release added. Similarly, the initiative would also help decrease the prices of agriculture commodities. “The step will likely to spur industrial growth, create new job opportunities, and stimulate economic activity,” it said.

Also, Prime Minister Shehbaz Sharif on Friday instructed the relevant authorities to hold consultation with the globally reputed consultancy firms to realise the investment agreements with the friendly countries.

The prime minister, in a meeting with a delegation of an international consultancy firm headed by former State Bank Governor Raza Baqir, also directed for consultation with the reputed firms to reduce the volume of government infrastructure and enhance effectiveness of the governance system.

He told the delegation that there existed a huge potential for investment in minerals and energy sectors.

Appreciating the key role of the private sector in national economic development, the prime minister assured of all-out facilitation by the government for economic revival.

Federal ministers Ahsan Iqbal, Ahad Khan Cheema, Dr Musaddik Malik, Muhammad Aurangzeb, Awais Ahmed Leghari, ministers of state Ali Pervaiz Malik and Shaza Fatima Khawaja and relevant senior officials attended the meeting.

Prime Minister Shehbaz Sharif, following the reduction in electricity prices for industries, also announced a significant cut in petrol and diesel prices by Rs 10.20 per litre and Rs 2.33 per litre respectively.

Earlier on June 1, the government had announced to cut the petrol price by Rs 4.74 per litre while that of HSD by Rs 3.86 per litre, a PM Office press release said on Friday. The incumbent government has so far provided a massive relief of overall Rs 35 per litre in petrol, it added.

Meanwhile, the finance division in a statement said that the prices of Petroleum products have seen a mixed trend in the international market during the last fortnight. The Oil & Gas Regulatory Authority (OGRA) has worked out the consumer prices, based on the price variations in the international market. The prices of Motor Spirit & HSD for the next fortnight, starting from 15th June, 2024, are accordingly being, said the statement.

Following the reduction of Rs 10.20 per litre the price of Petrol will come down to Rs 258.16 per litre from the existing Rs 268.36 per litre. Similarly, the price of HSD will go down to Rs 267.89 per litre from the existing Rs 270.22 per litre following a reduction of Rs 2.33 per litre

The Federal Government is currently charging Rs 60 per litre Petroleum Levy on both Petrol and HSD. Currently, no General Sales Tax is being charged on Petrol and HSD.

The government revises the petroleum products prices twice a month, on the last day and 15th of every month, however this time the announcement for the price revision was made one day ahead of the schedule date.

The new oil prices will be effective from June 15, 2024,till further revision.

The National Electric Power Regulatory Authority (NEPRA) Friday approved a hike of Rs 5.72 per unit in base electricity tariff, which will burden the electricity consumers by an additional approximately Rs600 billion during the upcoming fiscal year 2024-25.

The decision will jack up the average base tariff from the existing Rs29.78 per unit, during 2023-24, to Rs 35.50 per unit, for the upcoming FY, effective from July 1, 2024.

In its decision in the matter of request filed by CPPA-G for Power Purchase Price Forecast for the FY 2024-25, NEPRA said that the total Power Purchase Price of XWDISCOs for the FY 2024-25, (after excluding the share of KE), works out as Rs3,277.506 billion, which includes Rs.1,161.257 billion for fuel & variable O&M cost and Rs.2,116.250 billion as capacity charges including UoSC of NTDC & PMLTC and MoF of CPPA-G. The capacity charges translate into Rs.6,957/kW/month, based on projected average monthly MDI of 25,348 MW. Thus, the capacity charges work out as around 65% of the total projected PPP of XWDISCOs, whereas energy cost is around 35% of the total projected PPP. In terms of average per unit PPP of XWDISCOs on unit purchased basis i.e. before adjustment of allowed T&D losses of XWDISCOs, capacity charges work out as Rs. 17.66 per unit, whereas energy charges are Rs.9.69 per unit, totalling to Rs.27.35 per unit for the FY 2024-25.

According to the decision, the national average power purchase price works out as Rs27 per unit.

Following the increase in average PPP, the average base electricity tariff will go up to Rs 35.50 per unit from the existing Rs 29.78 per unit. The new base tariff will be effective from July 1, 2024, and it will burden the electricity consumers with an additional Rs 600 billion during the Fiscal 2024-25.

The power regulator in a decision said that it observed that CPPA-G has projected growth under three scenarios: 3%, 5%, and 10%. However, actual demand during the last two years, FY 2022-23 and FY 2023-24, has shown negative growth. For the FY 2022-23, the overall generation was reduced by around 10% compared to FY 2021-22. Similarly, for FY 2023-24 (projected to June 2024), total generation has shown a slight decrease of around 1.5% compared to FY 2022-23. Additionally, KE’s electricity share from the National Grid is assumed to increase to 11,030 GWh during FY 2024-25. Therefore, XWDISCOs’ demand would be growing at a rate less than the overall rate assumed by CPPA-G in the report.

Furthermore, as per the IMF data mapper report, GDP growth is projected to increase to 3.5% for FY 2024-25, compared to 2.38% for FY 2023-24 (National Accounts Committee meeting of 21.05.2024), with inflation also expected to decrease significantly in FY 2024-25.

Although the improved economic situation may lead to additional electricity consumption, the Authority considers the demand growth of 5% and 10% assumed by CPPA-G as ambitious and unlikely.

Therefore, considering past trends, GDP projections for FY 2024-25, and other economic indicators, the Authority has decided to accept a demand growth of 3% for FY 2024-25, including the impact of energy to be procured by DISCOs through bilateral contracts.

The exchange rate parity significantly impacts electricity prices in Pakistan.

Power sector costs are generally tied to dollar indexation, and any change in exchange rate parity directly affects the energy and capacity charges of the generation segment, constituting over 90% of the total cost of the power sector. CPPA-G has projected PKR/USD at 275 and 300 under different PPP forecast scenarios.

The power regulator noted that the prevailing exchange rate as of June 2024 is around Rs279/USD. Although the Pakistan rupee has shown stability over the past few months, it remained above Rs. 280/USD on average during FY 2023-24, peaking at Rs. 297/USD in September 2023.

Historically, over the past 15 years, PKR has devalued by around 10% per annum against the USD and may exceed Rs. 300/USD if the same trend continues. Given these facts, the Authority considers CPPA-G’s projection of an exchange rate parity of Rs. 300/USD for FY 2024-25 reasonable.

During the public hearing, APTMA and FPCCI submitted that the industry was not consulted for constructing demand scenarios, and CPPA-G has not specified the underlying basis for assuming 3-5% demand growth, especially considering the decrease in power consumption.

Industrial contribution to GDP has been contracting since FY 23, with little growth expected, mainly due to agriculture, which is shifting towards solarization of tube-wells. Consequently, the demand growth scenarios are unrealistic and will result in high quarterly tariff adjustments throughout the next financial year. They said that the assumed exchange rate (1 USD = 275) is problematic, as the USD to PKR exchange rate has consistently been above this for over a year, with further devaluation expected.

Similarly, the assumption of 12.20% inflation is weak and requires further sensitivity analysis, as inflation is likely to increase with expected exchange rate devaluation and subsequent energy price increases. They further said that the assumptions about RLNG pricing must be revisited considering long-term LNG contracts and downward trends in global oil prices, as the long-term contracts of 1000 MMCFD are indexed to international oil prices.

The instant decision of the Authority is hereby intimated to the Federal Government for filling of uniform tariff application in terms of section 31 of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997.

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