Tax Reforms
ISLAMABAD: The Pakistani government has confirmed that it does not intend to introduce any new taxes or levies to recover the Rs1.56 trillion revenue shortfall that has emerged following the revision of tariff agreements with state-owned generation companies (Gencos).
The government has disclosed that this shortfall will result from significant savings for consumers, amounting to Rs1.5 trillion, after the revision of tariffs for state-owned Gencos. However, officials from the Power Division clarified during a public hearing that no new tax measures would be implemented to recover the lost revenue.
Instead, the government indicated that it may reduce subsidies given to power consumers in light of the financial hit to its income. Despite these challenges, the government and the Power Division were praised for their efforts to lower the burden on consumers by renegotiating agreements with power plants to reduce capacity payments.
The government had previously transitioned power plants from a “take-or-pay” model to a “hybrid take-and-pay” model, which further reduces the burden of capacity payments.
While there were calls for a 50% reduction in capacity payments through revised deals with independent power plants and Gencos, Power Division officials dismissed this suggestion, highlighting that the government had already made efforts to cut gas supply to the system in an attempt to lower electricity rates.
Furthermore, the Central Power Purchasing Agency (Guarantee) Limited (CPPA-G) has signed negotiated settlement agreements with several government-owned plants, such as National Power Parks Management Company – Balloki, National Power Parks Management Company – Haveli Bahadur Shah, Central Power Generation Company Limited – Guddu 747MW, and National Power Generation Company Limited – Nandipur, to reduce end-consumer tariffs. This move will result in a reduction in the tariff of Gencos by as much as Rs0.32 per unit.
In a significant development, the National Electric Power Regulatory Authority (NEPRA) has announced that it will discontinue dollar-based indexations for these plants, opting instead for rupee-based indexations fixed for the entire lifespan of the projects. This shift is intended to curb foreign exchange exposure and mitigate tariff volatility for consumers.
The revised tariff deals, including the newly adopted mechanisms for local and foreign operations, will help stabilize the power sector while ensuring that the government can manage its financial obligations without further burdening consumers.
NEPRA’s decision to implement these changes reflects its commitment to ensuring a sustainable, transparent, and consumer-friendly energy market.
