Coronavirus outbreak: Power Division proposes freeze on power tariff

Mehtab Haider

March 28, 2020

ISLAMABAD: In a bid to ward off the negative impact of coronavirus on consumers, the Power Division has proposed to the government that it freeze the electricity tariff for six months from April to September 30, 2020, The News reported on Saturday.

Top official sources told The News on Friday that the Power Division had estimated that the move would cost Rs150 billion if Fuel Price Adjustment (FPA) of Rs73 billion and Rs77 billion of Quarterly Tariff Adjustment (QTA) were frozen.

The decision will result in the circular debt swelling by the same amount, a top official said.

It remains to be seen how the government is going to satisfy the IMF and other multilateral creditors, but the official hoped that in the aftermath of the coronavirus epidemic, International Financial Institutions could be convinced to freeze the power tariff due to a severe slowdown in the economy.

“We might explore the possibility of bridging the Rs150 billion gap by seeking assistance from multilateral creditors,” the official further said.

Another official said the government would have to explore the possibility of convincing independent power producers to slash their return on equity for the next six months keeping in view the extraordinary situation.

However, no details were shared about how the private sector will be convinced to cut profits at a time when they are already facing a difficult situation.

The sources insisted that IPPs had earned hefty profits and the time had now come for them to pay something back out of their earned profits by agreeing to reduce their return on equity.

Although prices of POL products and furnace oil have fallen substantially in the international market, these contracts were done on the basis of three-month prior basis. It is yet to see how the government will absorb this difference for the purpose of keeping the electricity tariff unchanged for the next six months period.

This calculation might also get hit negatively because of a recent spike in the exchange rate as the rupee has nosedived against the dollar in the inter-bank market during this last week.

This will have a negative impact on all imported items, including furnace oil, and the government will have to keep all facts in mind before taking any final decision regarding its wish to freeze electricity prices, the sources said.