a few winners, a lot of losers



The year 2021 ended with deep scars on the energy sector but it was not without significant gains for a few.

Independent Power Producers (IPPs) could be called the winners while ordinary people and government were the losers. The year was a blessing in disguise for some energy moguls as consumers continued to suffer.

Despite the payment of billions of rupees to PPIs, electricity prices have remained high, which mainly contributed to the rise in inflation and could prove to be a setback in the government’s efforts to win the elections. from 2023.

Consumers paid a high cost for electricity as the base rate increased on top of the increase in electricity prices due to monthly fuel cost adjustments.

The high energy tariffs and the winter gas cut-off made the plight of the people worse, although the Pakistani government of Tehreek-e-Insaf (PTI) came to power with a promise to come to the aid of the nation. ordinary man.

It cannot be denied that the whole world has suffered from high energy prices in the recent past, but Pakistan’s case was different.

A sharp increase in the value of the dollar against the Pakistani rupee was another factor that led to high energy prices. Pakistan is a net importer of petroleum products and liquefied natural gas (LNG), and the soaring dollar is impacting the cost of imports.

Electricity tariff

In 2021, the base electricity tariff increased from around Rs4 to Rs16 per unit, which was reflected in consumers’ monthly bills.

The government introduced new tariff brackets as part of the first phase to reduce subsidies to the electricity sector. This was apparently part of the commitments made to the International Monetary Fund (IMF) under the $ 6 billion loan program.

Read Electricity company supports transition to open markets

The government divided the 301-700 unit slab into four categories – 301-400 units, 401-500 units, 501-600 units and 601-700 units.

Under the new slabs, 13.9 million electricity consumers were taken out of the subsidy net. Previously, 22 million consumers received the subsidy.

Apart from that, consumers were forced to pay the highest electricity tariff, mainly in the face of soaring fuel prices, which power producers used for power generation.

In a big shock to consumers, the National Electric Power Regulatory Authority (Nepra) allowed electric utilities to increase tariffs by Rs 4.7446 per unit as an adjustment to the cost of fuel, which has resulted in the collection of an additional Rs 61 billion from consumers until the December bills.

The private electric utility K-Electric has also requested a tariff increase of 5.449 rupees per unit due to monthly fuel cost adjustments and a quarterly tariff adjustment. This will prove to be another big blow for consumers in Karachi.

Energy sector winners

The Electricity Sector Inquiry Committee pointed out that PPIs had exceeded Rs 1 trillion under various policies and recommended that the amount be recovered from them.

Read more The gas subsidy for exporters will cost Rs41b

But instead of recovering the amount, the government reached an agreement and decided to pay Rs 403 billion to 46 IPP. In the first installment, the government paid 89 billion rupees to divert the subsidy intended for electricity consumers.

Circular debt

Growing circular debt continued to haunt the entire energy chain in 2021. In its report for 2021, Nepra said circular debt is adding to the miseries of the power sector and hitting the entire economy.

As of June 30, 2021, the circular debt stood at Rs 2.280 trillion, compared to Rs 2.150 trillion as of June 30, 2020. It was around Rs 1.6 trillion when the PTI government came to power. in August 2018.

The oil and gas sector also suffered greatly as its debt exceeded Rs 1.6 trillion during the year, prompting the government to form a committee to resolve the issue, but to no avail.

For the first time in history, claims of the state-owned petroleum marketing giant Pakistan State Oil (PSO) reached 420 billion rupees. The supply of LNG in addition to electricity producers has largely contributed to the swelling of debts.

Refining sector

Oil refineries suffered the most during the year under review, which were forced to scale back operations as PPIs were reluctant to source heating oil.

Although the country faced a shortage of LNG due to high prices in the world market, heating oil was in surplus. The oil was still not consumed.

Read also Electricity tariff increase of Rs4.33 on the cards

As heating oil inventories increased, Pakistan Refinery Limited (PRL) was shut down while other refineries carried out partial operations.

In the field of oil and gas exploration, the country has not experienced any major discoveries. On the contrary, the dependence on LNG increased, but further imports could not be made.

Oil price

During the year under review, the prices of petroleum products reached record highs, impacting all consumers, from manufacturing units to ordinary citizens.

In January 2021, the price of a liter of gasoline was Rs 106, high-speed diesel Rs 110.24, kerosene Rs 73.65, and light diesel Rs 71.81. In November, the price of gasoline was Rs. liter of gasoline reached Rs 145.82, high speed diesel Rs 142.62, kerosene Rs 116.53 and light diesel Rs 114.07.

Gasoline and diesel are used in cars, large vehicles and the agricultural sector. Kerosene oil is consumed in remote areas for cooking purposes where liquefied petroleum gas (LPG) is not available.

Now the government will take more action to cut subsidies, which will make life harder for people in a time of soaring inflation.

Posted in The Express Tribune, January 1st, 2022.

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