NEPRA Demands Overhaul as Capacity Payments Hit Rs500 Billion Amid Ongoing Disco Crises

Daftar Isi

Rising Capacity Payments and Systemic Challenges in the Power Sector

The power sector is facing a complex set of challenges that are driving up costs and creating a cycle of inefficiency. One of the most pressing issues is the increase in capacity payments to power plants, which rose by Rs19 billion year-on-year, reaching Rs500 billion in the first quarter of the current fiscal year. This marks a significant jump from Rs481 billion during the same period last year. The rise in these payments has raised concerns about the financial sustainability of the sector and the impact on consumers.

According to Member Technical NEPRA Rafique Ahmad Shaikh, the reduced utilisation of thermal power plants under 'Take-or-Pay' contracts is not solely due to lower demand. It is also influenced by ATandC-based load-shedding by distribution companies (DISCOs). This practice shifts inefficiencies from DISCOs to law-abiding consumers, increasing electricity costs and further suppressing demand. As a result, plant utilisation declines, leading to higher tariffs—a vicious cycle that continues to escalate.

Inefficiencies in Power Plants and Financial Burdens

The issue extends beyond thermal plants. Capacity payments for old, inefficient, and non- or under-utilised public sector power plants, including old GENCOs and WAPDA Hydel, need urgent review. These plants are placing an undue burden on the power sector, contributing to rising generation costs. Additionally, the dispatch of costlier plants in violation of the Economic Merit Order (EMO) is exacerbating the problem.

Renewable energy (RE) power plants are also facing challenges. Seasonal and hourly variations in generation affect the overall performance of the power sector. The cost of electricity from newly commissioned hydropower projects, as well as wind and solar plants still in their debt-servicing period, is placing a significant strain on consumers. In many cases, the per-unit power purchase price (PPP) is substantially higher, adding to the sector’s financial pressure.

Recommendations for Sustainable Solutions

To address these challenges, any new addition to the generation mix, including renewable energy, must be carefully evaluated to avoid further financial burdens on the power sector. Rafique Shaikh emphasized that the costs arising from inefficiencies within power sector entities should not be passed on to consumers. Instead, the responsible organisations should bear these costs themselves. Transferring such costs could lead to industrial slowdowns, reduced GDP growth, increased unemployment, and other negative socio-economic impacts.

The continued under-utilisation of thermal power plants is contributing to an increase in the per-unit Capacity Purchase Price (CPP), further straining the system. This phenomenon requires careful examination to determine whether the under-utilisation stems from genuine demand issues. Evidence suggests otherwise: seven out of twelve distribution companies are still enforcing load shedding exceeding 12 hours per day in certain regions. Such extensive load-shedding penalises law-abiding consumers, undermines confidence in the grid, and pushes consumers towards alternative sources of electricity.

Addressing Operational Inefficiencies

The ineffectiveness of ATandC loss reduction efforts as a remedy for improving the sector has been highlighted. Focusing solely on reducing ATandC losses without addressing broader operational inefficiencies has proven insufficient. The quality of service provided by distribution companies remains suboptimal, compounded by heavy taxes, levies, and surcharges—particularly the Debt Servicing Surcharge. These factors collectively inflate electricity costs for consumers.

As a result, there is a growing shift towards decentralised or off-grid solutions. On-grid solar installations have surpassed 6,000 MW, and total solar capacity, including both on-grid and off-grid systems, has reached approximately 13,000 MW.

Additional Factors Contributing to the Crisis

Other factors, though beyond the immediate scope of this decision, also exacerbate the situation. These include payment obligations such as PLAC and NPMV, higher TandD losses, short recoveries of the billed amount, high receivables, transmission constraints, and the operation of plants in violation of the economic merit order. Under-utilisation of assets across all power sector segments contributes to rising electricity tariffs, creating a cycle where higher tariffs suppress demand, and low demand increases tariffs.

Call for Reform and Fairer Practices

Member Technical has recommended the elimination of cross-subsidisation for industrial consumers. Industries should be relieved from the responsibility of subsidising other consumer categories until the power sector can offer truly competitive tariffs. Industrial consumers must not be weighed down by excessive taxes, levies, and surcharges—particularly the Debt Servicing Surcharge—which significantly inflates their effective electricity cost.

These recommendations highlight the urgent need for systemic reforms to restore the health and long-term sustainability of the power sector. Without meaningful action, the cycle of inefficiency and rising costs will continue to harm consumers and hinder economic growth.