Rising Capacity Payments Raise Concerns as Nepra Acknowledges High Losses and Weak Recoveries

Rising Capacity Payments and Circular Debt Concerns

The National Electric Power Regulatory Authority (NEPRA) has expressed concerns over the persistent rise in capacity payments, which it believes will continue as long as losses remain high and recoveries weak. This issue was highlighted during a public hearing where industrial consumers voiced their worries about the surge in circular debt. They dismissed the government’s claims of effectively managing this debt and reducing tariffs through revised agreements with independent power producers (IPPs).

During the hearing, NEPRA considered a petition from former Wapda power distribution companies (Discos) seeking approval to recover Rs8.4 billion from consumers for the first quarter of FY2025-26. The regulator acknowledged that some tariff relief had been included due to revisions in IPP agreements. However, it emphasized that rising capacity payments remain a significant concern. Member NEPRA Rafiq Shaikh stated that circular debt would persist unless losses are reduced and recoveries improved.

Industrial representatives showed frustration over the increasing costs and criticized the government’s energy policies. They argued that decisions made in Islamabad’s air-conditioned rooms do not reflect the realities on the ground. The sector also criticized the government’s incremental package, claiming it is ineffective and warning that circular debt is once again spiraling despite previous promises to contain it. Tanveer Bari, a representative, said that despite revisions in IPP agreements, capacity payments are rising again, indicating that no real changes have occurred. He urged NEPRA to reject the proposed tariff hike.

Rehan Jawed, an intervenor from Karachi, criticized the government’s incremental package for industrial and agricultural power use. He pointed out that if the package offers Rs22.90 per unit, it is essentially meaningless. He suggested that the rate should be reduced to Rs16 per unit to encourage consumption and growth. Industries continue to bear a Rs160 billion cross-subsidy burden for other consumers, he added.

Regional Consumption Trends

During the hearing, Discos reported mixed consumption trends across different regions. FESCO saw a 6.8 percent increase in overall power consumption, including a 28 percent surge in industrial use. GEPCO recorded a 1.5 percent increase, with 11 percent growth in industrial demand and 3 percent in commercial demand. HESCO’s consumption rose by 4.5 percent, while LESCO’s increased by 4.4 percent. In contrast, MEPCO experienced a 5.3 percent decline compared to the reference period, and QESCO reported a year-on-year drop. HEZCO also saw an increase in industrial and commercial demand.

In their petition, Discos sought Rs21.7 billion in capacity charges, partly offset by negative adjustments worth Rs13.3 billion resulting from savings in operations, system use charges, and lower transmission losses. LESCO posted the highest capacity charge of Rs8.45 billion, followed by MEPCO (Rs4.35 billion), GEPCO (Rs4.23 billion), and FESCO (Rs2.34 billion). HESCO reported the largest negative adjustment of Rs3.21 billion.

Regulatory Response and Next Steps

The absence of the Power Division from the hearing drew criticism from NEPRA, prompting the regulator to decide to issue a letter of displeasure. The authority will announce its final decision after reviewing the data submitted by Discos.