Research Analyst
July 05 - 11, 2010

Energy sector issues and developments continued to hamper growth of Pakistan's economy in 2009?10. A sharp increase in the international price of oil throughout the year 2009 put enormous upward pressure on the cost structure in the power generation sector in particular large domestic supply shortages of electricity and gas occurred. Lower accumulation of water reserves in dams compounded the severity. The cumulative effect of the energy crisis on the economy is estimated at upward of 2 per cent of GDP during 2009?10 alone.

In Pakistan, the lower availability of hydel resources for generation, and a higher than normal shortage of gas was skewed the fuel mix of the electricity generation sector towards fuel oil.

Since this occurred at a time of a doubling of the international oil price, the effect on the cost structure of the utilities was amplified greatly.

With no change allowed in the electricity tariff between 2003 and 2007, the compounded effect on the viability of the energy sector has been devastating.

Prior to the most recent tariff increase, the gap between average generation cost and recovery was close to 30 per cent.

Despite hefty increases in end-user electricity tariffs over the past two years, a significant gap still exists between generation cost and recovery, due in large part to the adverse developments.


Nepra has processed ten applications for the grant of generation licenses, including thermal and hydropower plants with a cumulative capacity of 311.4 MW during July-March 2009?10. The authority has allowed 17 per cent IRR to hydel and indigenous coal and 16 per cent to imported coal power projects as against the 15 per cent IRR for oil and gas based thermal power projects.


2007-08 43.21 6.55 26.00 12.59 0.51 5.01 0.01 6.12
2008-09 42.56 6.44 24.56 13.32 0.53 4.90 0.01 7.68
2008-09 42.20 6.40 25.20 13.30 0.50 4.90 0.01 7.50
2009-10 42.15 6.45 23.92 14.03 0.57 4.92 0.01 7.94

Furthermore, Nepra has issued twenty seven tariff determinations and 169 tariff adjustments in respect of generation and distribution companies in July-march 2009-10. During the period, Nepra has also processed the tariff petition in respect of 80 MW cogeneration power project based on bagasse and imported coal.


Ogra was mandated to fix prices of petroleum products in March, 2006. Furthermore, the consumer prices have been notified by Ogra on monthly basis from February, 2009.


Nepra has allowed 14 paisa per unit increase as fuel cost adjustment in the consumer tariff of eight distribution companies of Wapda from the month of May this year to be recovered from consumers in next month's bills. The regulator determined the fuel cost adjustment of 91 paisa per unit for May 2010. Since the consumers were already being charged 77 paisa per unit as fuel cost in the existing bills, the net additional increase in tariff on account of fuel adjustment would be 14 paisa per unit. This increase would be charged with effect from July 1.

The government has already announced a sizable reduction in power subsidies. The tariff increase has to be introduced in a gradual manner. The government and the international lenders has estimated that the power tariff would need to be increased by a cumulative 50 per cent during the next fiscal year.

The government has already increased electricity tariff by about 60 per cent over the past 15 months, starting March 2009. The series of tariff increase would need to be passed on to consumers to contain ever rising circular debt that had choked the operations of most of the energy sector organisations both in public and private sectors.

In Pakistan, the dependency on thermal power increased during the last many decades and per unit cost of electricity generated through oil was Rs10.02 as compared to Rs3.25 per unit of gas and Rs2 per unit hydel.

The government has undertaken projects for generating electricity through hydel projects and work on Diamer Basha dam would be started by next month, which enables the country to generate 4500 MW electricity.


Currently, the government has announced power tariff rates determined by Nepra which will seriously affect the consumers. Since the consumers were already being charged 77 paisa per unit as fuel cost in the existing bills. The fuel cost is the major factor for high electricity tariff in the country on the back of imbalance in energy mix. The government should review their policy and give the benefits to the power consumers.