May 122008

By Sabihuddin GhausiThe industry is angry over abrupt and arbitrary decision of the privatised Karachi Electric Supply Company (KESC) for increasing the Fuel Adjustment Surcharge (FAS) by almost 100 per cent from March. Its representatives say that they are approaching the Competition Commission (CC) to look into this ‘’unethical trade practice’’.
The general perception in local business is that it is not only the rising world oil prices that is impacting on production cost but also the government’s growing appetite for revenue that has made imported oil one of the convenient source of taxes. The industry is therefore trying to make a case for reducing taxation on fuel.

Pakistan Hosiery Manufacturers Association (PHMA) has taken the initiative to seek immediate intervention of the Competition Commission to waive ‘’these exorbitant charges and stop KESC from such unethical trade practice in the future’’.

During peak hours, the KESC has increased B-3 tariff on those having a sanctioned load of 11,000 volts to Rs1.29 per unit from Rs0.66 per unit. The manufacturing units with sanctioned load of 400 volts are now paying Rs1.42 per units instead of 0.71 per unit.

During off peak hours, the KESC is asking for Rs1.04 for a unit from industries with sanctioned load of 400 volts as against Rs0.53 per unit. For industries with sanctioned load of 11,000 volts, the KESC is levying Rs0.91 per unit FAS as against Rs 0.40.

PHMA wants that while reviewing electricity tariff, the National Electric and Power Regulatory Authority (NEPRA) should give industry and business an opportunity to present their point of view. “ The rise in electric power tariff needs to be discussed in context of the government’s taxation on import and commissions being given to oil marketing companies and petrol pumps’’, a representative of the SITE Association of Industry asserted.

‘’Our dependence on furnace oil is increasing because of reduction in gas supply’’ the Chief Executive Officer of KESC (retired) General S.M. Amjad had informed this correspondent last month while trying to explain the mounting operational cost and cash flow problems.

Countrywide, 30 per cent of national power generation is based on furnace oil while 48.5 per cent depends on gas-run generators. While Wapda has a mix of power generation sources including about 38 per cent from hydro sources, the power generation cost is much less than that of KESC where bulk of electric power is being generated by furnace oil-fired projects. Fuel cost is pass through and consumers have to bear the impact of rising cost of furnace oil. A senior executive of Hubco disclosed that furnace oil price has gone up by more than ten times since 1997 when the project was commissioned. The furnace oil cost was Rs2,250 a ton in 1997 and is now Rs45,000 a ton. The high cost has impacted upon the cash flow position of Wapda which is not paying Hubco’s bill for supply of power. The Hubco and other IPPs suffered on account of Wapda’s default and failed to pay furnace oil bill of Pakistan State Oil (PSO). In retaliation, the PSO stopped oil supply to Hubco and eventually the federal government had to intervene to restore oil supply to Hubco and other IPPs.

The federal government is paying subsidies of about Rs275 billion to Wapda, KESC and IPPs to reduce the impact of rising oil prices. But businessmen wonder as to why the government should pay such a huge subsidy and also collect 15 per cent sales tax plus development surcharge, excise and other levies. The convenient way would be to reduce or rationalise tax on oil. The impact of 15 per cent sales tax on oil, when international price was $60 a barrel and now when it is $120 a barrel, is much different and more significant. Similarly, the impact of 15 per cent tax and margins for oil marketing companies and for petrol pumps increases sharply as international oil prices soar. The business now wants a rationalisation of tax on oil.

As Wapda and KESC suffer from power shortages, the textile sector has come forward to offer its surplus power from the captive power plants installed in factory premises. “A dormant capacity of approximately 325 megawatt can be brought on line immediately’’ a leader of All Pakistan Textile Mills Association (APTMA) disclosed. In Punjab, agreements for supply of about 75 megawatt power from oil run captive power plants have been reached with Wapda.

In Karachi, the KESC’s chief executive is being blamed by the textile industry for putting one condition after the other rather than going for a quick increase in power supply, though in smaller quantity, from captive power plants. There have been a few round of negotiations between KESC and the representatives of APTMA and SITE Association. This team has been talking to Hyderabad Electric Supply and Distribution Company (HESCO) which is said to be far more responsive and accommodative than KESC.

The operators of captive power plants now want the same level of subsidy from government as is given to Wapda, KESC and IPPs. ‘’The captive power operators are purchasing furnace oil at fast escalating prices that is rendering them uncompetitive and driving them to bankruptcy,’’ an APTMA leader remarked.

While the local industry seeks support from government to generate and supply electricity to KESC and Wapda systems, there is a rising demand for exploring alternate sources of energy. On Wednesday, a delegation of All Pakistan Hosiery Manufacturers Association met Sindh Environmental and Alternate Energy Minister Mr Askari Taqvi to explore government’s co-operation in installing wind or solar energy units in their factories.

The installation of wind and solar energy units involve heavy capital investment but recurring cost is insignificant and is free of any environmental hazards. For the last several decades, the government has been exploring possibilities of alternate energy. Now that the world oil prices are over $120 per barrel and rising, the cost of alternative energy is becoming competitive. The need for alternative energy is also being felt now more than ever before.
Courtesy: Daily Dawn, 12/5/2008

 Posted by at 9:32 pm

  5 Responses to “How to make power cost affordable in Pakistan?”

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