By Staff Reporter
ISLAMABAD: The power regulator reserved judgment on a 2.56-rupee-per-unit increase in electricity prices for September, a decision that will test a government trying to contain costs after the Iran war disrupted gas supplies and prompted the central bank to raise interest rates this week.
The National Electric Power Regulatory Authority completed a hearing on Thursday on a petition from the Central Power Purchasing Agency, which wants distribution companies to recover about 32.76 billion rupees through the monthly fuel charges adjustment. Nepra said it will issue its decision separately. The charge would also apply to K-Electric Ltd. customers under government policy guidelines. A government official said the proposed adjustment was the highest for comparable months in recent years.
The purchasing agency said the average fuel cost of electricity reached 10.02 rupees per unit in September, against a reference price of 7.46 rupees. Officials attributed the gap largely to higher international fuel prices, saying spot liquefied natural gas cargoes were available at about $27.33 per million British thermal units. Average fuel cost rose almost 37.5% from a year earlier, as costlier, heavily taxed fuels filled the gap left by reduced LNG supplies and a greater reliance on imported coal.
The swing is sharp. A year ago, the regulator was weighing a request for a cut of 0.3681 rupee per unit for September, which reflected lower fuel costs from changes in the generation mix and easing global prices.
Total power generation costs reached 127.87 billion rupees in September. Imported coal accounted for 37.14 billion rupees, followed by LNG-based generation at 31.93 billion rupees, local gas at 13.89 billion, diesel at 13.26 billion, furnace oil at 11.81 billion and local coal at 7.95 billion.
Nationwide demand rose 6.5% to 10,549 gigawatt-hours in September, an increase of 645 GWh from a year earlier. Residential consumption grew 8.4% to 5,810 GWh, while industrial use increased 6.7% to 2,597 GWh. Commercial consumption rose 3.2%, general services 3% and bulk consumers 1%. Agricultural consumption was the exception, falling 6.7% to 376 GWh.
Industry representatives said the rise in factory demand reflects a shift from captive power to the national grid, not the effect of the government’s incremental consumption package.
Gas Shortfall
The hearing also exposed a gap between what power plants need and what they get. The sector’s daily LNG demand was 350 million cubic feet, while Sui Northern Gas Pipelines Ltd. supplied 218 million. Actual consumption was 194 million, about 90% of the allocated volume.
The shortfalls varied by plant. Haveli Bahadur Shah sought 78 million cubic feet a day and received 10.7 million. Bhikki’s demand was 130 million against an allocation of 51.8 million. Balloki, with the same 130 million demand, was allocated 129.2 million. In September, Haveli Bahadur Shah generated 29.92 GWh from LNG, while Bhikki and Balloki generated 229 GWh and 506 GWh, respectively.
Iran’s effective closure of the Strait of Hormuz put at risk about a fifth of global LNG supply, and Qatar, Pakistan’s main term supplier, declared force majeure. That forced Islamabad into costly spot purchases; the petroleum minister said spot cargoes had surged to $20 to $30 per million Btu. LNG accounts for more than 21% of Pakistan’s power generation, according to Al Jazeera.
Manufacturers and the Power Division were unusually aligned on one point: the petroleum levy on furnace oil and diesel used for power generation should go or be cut. They said it adds about 10 rupees per unit to electricity costs.
Industrial representatives Amir Shaikh, Arif Bilwani, Tanveer Bari and Rehan Javed, who spoke for various chambers of commerce and industry, said the government charges about 76,000 rupees per tonne on furnace oil and 80 rupees per liter on diesel. They said removing the levies could lower generation costs from around 62 rupees per unit to 44-50 rupees. They also argued that the levy swells the government’s own subsidy bill, effectively moving money from one pocket to another.
Officials from entities under the Power Division confirmed that furnace oil and diesel generation made up 3.6% of September output because LNG and other cheaper sources were unavailable. Diesel supplied 213 GWh, about 1.6% of grid supply, at 62.14 rupees per unit, compared with 80 GWh at 54 rupees in August. Furnace oil generation fell to 263 GWh from 321 GWh, and its cost eased to 44.86 rupees from about 46.
Naveed Qaiser, chief financial officer of the Power Planning and Monitoring Co., agreed that the levies weigh heavily on generation costs. He said the Power Division had been pushing for their removal or reduction and urged business groups to keep raising the issue with senior government officials. Reducing tariffs remained a government priority, particularly for industry, he said, adding that efforts so far had cut rates by about 10 rupees per unit for consumers generally and up to 18 rupees for industry.
Industry representatives said the prime minister had earlier removed certain charges to subsidize tariffs, but the relief was later discontinued. They also demanded an immediate end to the surplus incremental package, which they said adds about 11 rupees per unit for grid consumers.
Data Doubts
Rehan Akhtar of the purchasing agency said the net increase in the adjustment would not exceed 1.45 rupees per unit, because the existing positive adjustment in October bills would lapse and be replaced by the proposed 2.56 rupees in November.
Nepra and industry representatives questioned discrepancies in generation data submitted by the agency and called for greater transparency. They also challenged an earlier 16 billion-rupee adjustment tied to LNG prices, arguing that timely reporting of those prices could have avoided a substantial part of the current request. Officials from Nepra’s Monitoring and Enforcement Division questioned the authenticity and consistency of information supplied by government entities.
Nepra member Amina Ahmed said the regulator was aware of the inconsistencies but did not want to turn the proceedings into a “circus” by raising each one publicly.
Industry representatives also questioned coal procurement at the Port Qasim power plant, alleging that the operator buys through affiliated entities at prices well above those paid by other plants. They called for a comprehensive investigation, including by the National Accountability Bureau. Nepra said only prudent coal costs would be allowed and that the producer would bear the impact.
The hearing came days after the State Bank of Pakistan raised its key policy rate by 50 basis points to 12% on Monday, with nine of the ten Monetary Policy Committee members voting for the increase and one favoring a larger one. It was the first increase since April, when the bank lifted the rate by 100 basis points to 11.5%.
In its policy statement, the committee said global energy prices remain persistently elevated because the Middle East conflict has intensified and prospects of a near-term resolution are low. It said “geopolitical developments have worsened the inflation outlook” compared with its earlier assessment, and that risks to the external account and growth have also risen. The committee said the increase was needed to keep inflation expectations anchored, contain second-round effects of the supply shock and bring inflation back to its 5% to 7% target range.
The statement said elevated energy and wheat prices contributed significantly to headline inflation of 10.3% in September, and that core inflation has steadied at about 8.4%. It warned that high food and energy inflation could push expectations higher. The committee kept its growth projection for fiscal 2027 at 3.5% to 4.5%, while flagging that the outlook is exposed to a further escalation of the conflict and to worsening El Niño conditions.
Nepra has not said when it will rule.
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