Frequent hike in energy rates to appease IPPs will dent PM vision of reducing production cost

The Federation of Pakistan Chambers of Commerce and Industry’s ruling group has resented the frequent jump in electricity tariff and petroleum products’ prices, which is made on behest of the IMF, besides appeasing the Independent Power Producers, stating the move will dent the Prime Minister’s vision of lowering cost of industrial production.

The FPCCI’s ruling party Businessmen Panel chairman Mian Anjum Nisar stated the constant raises in energy rates on behest of the IMF would make the Pakistani products uncompetitive in the international market.

Mian Anjum Nisar, while talking to a trade a delegation here at his office, rejected the recent government’s move of raising power cost by more than 15%, besides lifting rates of petroleum products twice a month to qualify for revival of the stalled $6 billion IMF loan program, leading the economy towards point of no return due to interference of International Monetary Fund.

The authorities, instead of impeachment and forensic audit of Independent Power Producers, have lifted base power tariff, prioritizing interests of IPPs and setting aside public as well as overall trade and industry’s interests, he lamented.

Mian Anjum Nisar said that the regular attempt of economic managers to increase oil prices along with hike in power and gas tariffs will ultimately harm the government’s overall move of reducing production cost in the country announced by the PM in various phases, including Industrial Power Tariff for SMEs and reduction in markup rate to 7 percent by the SBP.

He said that the present as well as the previous governments have always been forced for exorbitant hike in energy tariffs just due to excessive capacity payment to IPPs in dollars, leading to further addition in public debt of the government, which ultimately passed on to the end consumers.

The major reason of growing circular debt is the sovereign guarantees of rate of return to IPPs in terms of dollars not rupees while continued depreciation of local currency against dollar in the past also amounted to losses in trillions.”

Mian Anjum Nisar said it was imperative to make power and gas tariffs for domestic as well as export sectors compatible to tariff being applied in regional and neighboring countries. The industry is presently paying more than double power price as compared to regional tariff of about 7.5 cents/unit in neighbouring countries,” he said and added that low energy tariff was the only way to ensure more investment in the country.

He said the country can improve economic growth and job creation by overcoming inefficiencies in its power sector, which needs to focus on eliminating waste, promoting the shift towards cleaner energy and attracting private investments.

A major reason for the chronic and growing circular debt problem is the size of the guaranteed capacity payments or fixed costs paid to the Independent Power Plans (IPPs).

He said that the total circular debt increased by Rs538 billion during the fiscal year 2019-20 at a rate of about Rs45 billion per month. During the Jul-Nov 2019-20 period, circular debt increased by Rs179 billion at a rate of Rs36 billion per month. It should be recalled that it was in July 2013 that the previous government had cleared the circular debt of Rs480 billion.

Now, after an agreement has been finalized with the IPPs, the power sector reforms should be a top priority for a quick yield of economic gains, Anjum Nisar said and added that reforms that focus solely on rising energy prices had already led to an excessively high cost of electricity because of inefficiencies in the system, negatively impacting the industrial cost.

The FPCCI’s ruling group chief said the overall line losses of distribution companies in the public sector remained unchanged at 18 percent for the last several years while the current Unaccounted For Gas losses of gas companies are causing a loss of more than Rs50 billion to the end consumers, burdening the industry with billions of rupees cost additionally.

The government will have to get rid of expansive thermal power generation, as the hydropower’s share of installed generation capacity fell from around 67 percent in 1985 to 27 percent now. The dramatic increase in oil prices in the 2000s (reaching a high of $147 per barrel in 2008) caused Pakistan’s power generation costs to skyrocket. Pakistan’s reliance on fuel oil for power generation contributed to the liquidity crisis in the country’s power sector.

He said that the increase in tariffs alone can solve the fiscal problems just in short-term but on the long-term basis it cannot address the energy sector issues.

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