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Textile industry underscores power tariff distortions

ISLAMABAD: The textile industry has identified serious distortions in the electricity tariff resulting in the build-up of billions of rupees per month of unpaid refunds, making the industry unsustainable.

In a letter to the National Electric Power Regulatory Authority (Nepra), the All-Pakistan Textile Mills Association (Aptma) has pointed out that the existing scheme of power tariff was not only creating problems for consumers, particularly the industry, but also the distribution companies.

The Aptma said the regulator had adopted furnace oil price at Rs65,769 per tonne for reference tariff for fiscal year 2014-15 instead of actual price of Rs56,000 per tonne prevailing at the time when the determination was issued.

Given the fact that Nepra was obligated to order monthly adjustments on the basis of fuel costs, Rs3-4 per unit per month adjustment has been allowed since July 2015. Sadly, the fuel price adjustment was being passed on to consumers with a lag of two to three months, it said.

This meant that distribution companies were firstly receiving billions of rupees over and above their actual cost of service in the shape of extra amount billed and collected from customers each month and returned to relevant customers subsequently.

This leads to a cash crunch for both the industrial consumers, especially the textile sector, on account of bloated initial extra payments and for the power sector that is confronted with continuing bad governance challenges to return the amounts held in trust.

All this is also onerous for the distribution companies (Discos) because of poor collections and high losses because Nepra determined performance targets are neither achieved nor its directions fully complied with.

The Aptma pointed out that while finalising the Consumer End Tariff for 2015-16, the reference fuel price for furnace oil should have been fixed at Rs23,000 per tonne as monthly notified by PSO every month. Also, the maximum price for LNG should be around Rs600 as determined by the Oil and Gas Regulatory Authority for reference fuel price adjustment instead of over Rs900 per unit.

It pointed out that the regulator had itself determined the tariff for the 425MW Nandipur project on the basis of Rs38,625 of furnace oil price.

“The difference in reference furnace oil price for a Genco plant and the Discos tariff is clear-cut dichotomy and also a negation of the ground realities,” it said.

“Actually, it is most inopportune for the Regulator to fix the furnace oil reference price at Rs47,981 per tonne in its determination issued in March, 2016, which is not only 24 per cent higher than Nepra’s own determination of January 2016 but also 109 per cent higher than RFO price in February2016” in determinations for Discos.

It contended that the Nepra decision for Nandipur’s fuel cost billing to CPPA for pass-on to Discos Rs38,625 per tonne and allowing Discos to bill the same energy to customers at a cost based on Rs47,981 per tonne was not only a contradicting assumption, but also discriminatory from the customers’ perspective.

The textile industry has pleaded that it was confronted with the high cost of doing business in Pakistan and could not afford to pay excess bills on account of inaccurate fuel cost estimation assumption to generate surplus cash flows for the poorly managed Discos.

It pointed out that the industry, textile sector in particular, for many factors was not in a position to pay an extra Rs3-4 per unit each month above full cost of service and then wait for similar refunds after some time.

“The mere payment of extra money and then wait for refunds is going to make the industry unsustainable,” it said.

The Aptma letter concluded that the industry may be compelled to seek legal remedy if corrections were not made at the institutional level.

A Nepra official when asked said the regulator normally abstains from writing back letters and could address specific issues during public hearings and in its written determinations when necessary.