Power sector: Base tariff relief likely
The Central Power Purchasing Agency (CPPA) has set the ground for the power base tariff adjustment for FY26, submitting the Power Purchase Price (PPP) projection in consultation with multiple agencies including the Power Division. The CPPA's PPP projection envisions seven different scenarios, with varying assumptions for demand, rupee dollar parity, fuel prices, and hydrology. The PPP deviation between the best case and worst-case scenario is Rs1.95/unit.
The lowest PPP is set at Rs24.75/unit for FY26 – which is Rs0.29/unit lower than the lowest PPP envisioned in the previous rebasing exercise of FY25. The PPP allowed for FY25 was Rs27/unit, with an absolute amount of Rs3.5 trillion. What looks increasingly likely is that the final PPP for FY26 will be lower year-on-year – regardless of which scenario is used as best case. The year-on-year savings in case of most likely adoption of Scenario 2 – which envisions are close to Rs0.96/unit – which may not sound massive but is a relief, especially considering this will be the first time in many years when year-on-year change in PPP is negative. For context, Pakistan's electricity PPP had doubled in last five years, despite significant improvement in fuel generation mix.
A large part of it is due to savings to the tune of Rs100 billion resulting from renegotiated IPP contracts. The bar for demand has been set low – and understandably so, given the rather dismal rate of demand revival in the past two years. Even the 'high' demand scenario envisions power sales going up only 5 percent, that too, from a multiyear low 12-month demand from January to December 2024. The 'normal' demand growth scenario sees it growing 3 percent – which sounds just about right, given the ground reality, on both domestic and industrial fronts, and with the solar boom in full swing.
What is concerning is the rather steep fall in power demand, which for FY26 is likely to be set at the lowest in five years. It remains to be seen what room does the government have in lieu of subsidies, once the final revenue requirement is approved – after induction of prior year adjustment and distribution margin. The fate of Rs1.71/unit subsidy that is scheduled to expire in June 2025, will determine the extent of base tariff relief for FY26.
While the exchange rate and international commodity fuel prices have stayed stable, the biggest concern for upcoming fiscal year could be a sharp drop in electricity generation from hydel sources. Low hydrology could take the PPP close to Rs27/unit – wiping out any potential gains from the IPP negotiations. It remains to be seen, how the authorities treat hydel generation assumptions – especially in light of recent geopolitical events. Even without the one-sided abeyance of Indus Water Treaty, experts had been raising concerns over low hydrology going forward. In all likelihood, low hydrology will lead to higher periodic and monthly adjustments, even if base tariff does not account for the same.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Recorder
6 hours ago
- Business Recorder
‘Apna Meter Apni Reading' App unveiled
ISLAMABAD: Prime Minister, Shehbaz Sharif has approved phasing out the role of meter readers in power Distribution Companies (Discos) across the country except KE's service area with initiation of new mechanism 'Apna meter Apni Reading' App, to be launched soon, well informed sources told Business Recorder. Currently, Meter Readers take a snap of consumers' electricity meters which are sent to Discos to Power Information Technology Company (PITC), on the basis of which bills are generated, however, there are numerous complaints of this mechanism as consumers receive inflated bills. In this regard, Prime Minister presided over a meeting on June 17, 2025 wherein issues related to the launching of new scheme and eliminating the menace of overbilling and resolving complains through an automated system came under discussion. Policy for installing more than one electricity meter unchanged, says Power Division amid social media reports According to sources, Prime Minister directed the Power Division to install a Power Smart Mobile App with instructions for use, in both National and four regional languages (Punjabi, Sindhi, Pashtu and Balochi) for easy use / application and understanding of common people. Power Division has been directed to conduct a soft launch of Power Smart Mobile App immediately in order to fix/ streamline any teething issues before the nationwide launch / inauguration by the Prime Minister. The sources said, Prime Minister has given one month to the Power Division to chalk a plan for phasing out the Meter Readers from the power metering system. Power Division in coordination with the Ministry of Information and Broadcasting is tasked to prepare a comprehensive and engaging media campaign clearly spelling out the objectives of this initiative for the review/ approval of Prime Minister this week. Prime Minister has also directed Power Division that savings on account of reduced administrative charges for meter reading shall be passed on to the consumers . To support the initiative, the Power Information Technology Company has also instructed all Discos to prepare comprehensive media campaigns to inform consumers about the benefits of self-reading. This move aims to eliminate the role of meter readers—many of whom have been implicated in over billing and malpractice. The government has allocated Rs. 316 million for the national media campaign. A detailed Terms of Reference (ToR) has been formulated, outlining the scope, objectives, and methodology for the campaign. Additionally, a clear responsibility matrix has been developed to define the roles and responsibilities of PITC and MEPCO—covering aspects such as media planning, vendor engagement, field activation, monitoring, and reporting. Discos have sought guidance from the Chief Executive Officer (CEO) of PITC with respect to their due contribution in media campaign. Clarification have also been sought on whether this amount should be deducted from the total payment and borne by individual Discos or whether PITC will facilitate the provision of promotional materials (e.g., boards, standees, banners). Discos have also urged PITC to explore the possibility of securing complimentary airtime for public service announcements through electronic media. Discos highlight the importance of PITC's support in providing the necessary documentation to ensure the success of this public awareness initiative. Furthermore, Discos have stressed the need for thorough testing and validation of applications such as the Power Smart App, Apna Meter Apni Reading, CCMS+, and the Lineman Mobile Solution prior to launch. This is vital to prevent technical issues, ensure a smooth user experience, and build consumer trust. The sources told this correspondent that PITC will ensure high performance, reliability, and a seamless user experience across all platforms during the campaign rollout. All relevant details are to be shared with full transparency to meet the codal formalities required for such government initiatives. Copyright Business Recorder, 2025
Business Recorder
3 days ago
- Business Recorder
Payment dispute between CPPA-G, KE remains unresolved
ISLAMABAD: The Power Division has reportedly failed to resolve a dispute over an excess payment of Rs 7.43 billion between the Central Power Purchasing Agency – Guaranteed (CPPA-G) and K-Electric (KE), which has been pending for over a year, sources within CPPA-G told Business Recorder. In May 2024, the Power Division released Rs 172.8 billion to CPPA-G on account of Tariff Differential Claims (TDC) for KE. In this regard, KE referred to the Power Purchase Agency Agreement (PPAA) between KE and CPPA-G and the Tariff Differential Subsidy Agreement (TDSA) between KE and the Government of Pakistan, both signed in January 2024. According to KE, since the execution of the PPAA, it has fulfilled its obligations and paid Rs 71.5 billion directly to CPPA-G for power purchases—demonstrating its commitment to enhancing liquidity and sustainability within the power sector. As a result, KE states that there are no outstanding payables to CPPA-G after December 31, 2023. Discos, KE's tariffs: CPPA-G seeks up to Rs1.5 negative adjustment Furthermore, the power utility noted that following the release of the TDC by the Power Division on KE's behalf, all dues to CPPA-G up to December 31, 2023, have been cleared. In fact, KE claims it made an excess payment of Rs 7.43 billion, which it seeks to be adjusted against future invoices under the PPAA. KE has requested CPPA-G to issue a credit note of Rs 7.43 billion, to be made directly to KE rather than CPPA-G, in line with the TDS agreement. The utility has sent multiple letters to the Power Division requesting this credit note and seeking that future TDC disbursements related to the post-December 31, 2023 period be released directly to KE, as per the effective TDSA. Most recently, on June 10, KE sent a letter to Additional Secretary (Power Finance), Mehfooz Bhatti, summarizing previous correspondence and reiterating its demand for a Rs 7.43 billion credit note and direct release of future TDC amounts. Sources reveal that CPPA-G has shown willingness to issue a credit note of Rs 3 billion to KE, suggesting that the remaining amount be discussed with the Power Division. However, a final decision is still pending, and neither the Power Division nor CPPA-G has shared any update on the matter. 'KE contends that since it is paying the full amount against invoices issued by CPPA-G, a credit should be issued to facilitate proper accounting adjustments,' the sources added. KE has also requested that the Power Division release the additional amount before June 30, 2025. For FY 2025-26, the subsidy allocated to KE has been reduced by over 28%—from Rs 174 billion in FY 2024-25 to Rs 125 billion. However, an allocation of Rs 1 billion has been earmarked for agricultural tubewells in Balochistan, up from Rs 500 million in the previous fiscal year. Copyright Business Recorder, 2025
Business Recorder
5 days ago
- Business Recorder
Power sector: federal cabinet approves Rs1.275trn bank loan to cut circular debt
Pakistan federal cabinet approved on Wednesday Rs1.275 trillion loan from commercial banks at 'the lowest-ever rate' to cut its power sector's circular debt. The decision was taken for a permanent resolution of the circular debt in the power sector, the Ministry of Energy (Power Division) said. The loan aims to offset a portion of the circular debt, which currently stands at approximately Rs2.4 trillion. 'Under the plan, Rs1.275 trillion will be acquired from banks at a historic low interest rate — 0.9% lower than the 3-month KIBOR [Karachi Interbank Offered Rate],' it said. 'For the first time, instead of maintaining the circular debt stock at a certain level through previous methods, it will be gradually eliminated with the help of banks.' Circular debt: Govt in talks with banks to raise Rs1.275trn The loan of Rs1.275 trillion would be used to clear dues of independent power producers (IPPs) and retire Power Holding Company Limited (PHL) debt, the Power Division said. 'The acquired loan will also be fully retired over the next six years. This move will not impose any additional financial burden on the national exchequer.' According to the cabinet-approved plan, Rs683 billion of the financing will be used to clear the outstanding dues of the Power Holding Company Limited (PHL) . The loan will be repaid in 24 semi-annual installments, and the interest rate will be 0.9% lower than the 3-month KIBOR. An annual repayment cap of Rs323 billion was set, while a maximum repayment limit of Rs1.938 trillion was set in case of increased interest rates in the future. Business Recorder reported earlier this month that the government had finalised agreements for a historic loan package of Rs1.275 trillion with approximately 18 commercial banks to address the growing circular debt in the power sector. How will govt clear Rs2.4trn circular debt? Pakistan government has committed to the International Monetary Fund (IMF) to clear the circular debt by end of fiscal year 2025, according to the IMF report 'First Review Under the Extended Arrangement Under the Extended Fund Facility, Requests for Modification of Performance Criteria and Request for an Arrangement Under the Resilience and Sustainable Facility' released last month. K-Electric write-offs: NEPRA allows Rs50 billion as 'full and final claim' According to the IMF report, Pakistan government has said that it's on track to achieve net zero circular debt flow for FY25 and will strive for the same in FY26, through 'a combination of timely tariff increases, targeted subsidies, and cost-reducing reforms'. As per the government commitment, the National Electric Power Regulatory Authority (NEPRA) will continue with timely automatic notifications of regular quarterly tariff adjustments (QTAs) and monthly fuel cost adjustments (FCAs) to capture any gaps between the base tariff and actual revenue requirements that arise during the year, to prevent circular debt flow. 'We [Pakistan government] will ensure the full implementation of the July 2025 annual rebasing (new SB, July 1, 2025), QTRs, and FCAs going forward. All provinces agree not to introduce any subsidy for electricity or gas.' Of the existing circular debt stock of Rs2.4 trillion (2.1 percent of GDP), the government committed to clear, by end-FY25, Rs348 billion via renegotiation of arrears with IPPs (Rs127 billion of which will be via already-budgeted subsidy for circular debt stock clearance and Rs221 billion of which will be via CPPA cash flow); Rs387 billion via waived interest fees; and Rs254 billion via additional already-budgeted subsidy for circular debt stock clearance; Rs224 billion in non-interest-bearing liabilities will not be cleared. The remaining Rs1.252 trillion (now Rs1.275 trillion) was committed to be borrowed from banks to repay all PHL loans (PRs 683 billion) and to clear the remaining stock of interest-bearing arrears to power producers (PRs 569 billion), according to the IMF report.
