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| Kathmandu, Tuesday February 18, 2003 Falgun 06, 2059. |
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NEA works on new pricing mechanism
Post Report
KATHMANDU, Feb 17 : The
government is preparing to make changes in the electricity tariff fixation process. With
the new mechanism coming in force, domestic electricity tariff would be reviewed on a
scientific and rational basis at the beginning of each fiscal year.
Nepal Electricity
Authority (NEA), the state-owned monopolist power distributor, and Ministry of Water
Resources are presently carrying out the necessary homework.
The NEA has formed a
committee to carry out the groundwork to develop the tariff review mechanism. The
committee after completion of work would report to the NEA Board and Electricity Tariff
Fixation Commission (ETFC).
The changes come in a
bid to meet the conditions laid down by the Asian Development Bank (ADB), the principal
financier to Nepal’s Power Plans, which has demanded a financially strong and
sustainable NEA.
Among others, the ADB
during the signing of the loan for the Rural Electrification, Transmission, Distribution
and System Reinforcement Project had asked the NEA to maintain its self financing ratio at
23 per cent, rate of return (ROR) of 6 per cent and debt service coverage ratio at 1.2 per
cent.
However, the NEA is
presently far below the financial health benchmark laid down by the ADB. While its
non-technical losses amount to over 23 per cent, the NEA’s self financing ratio
stands at 6.2 per cent, rate of return at 1.2 per cent and debt service coverage ratio
around 2 per cent.
The latest effort is
geared at strengthening the poor fiscal state of the NEA. The corporation in the past had
hiked electricity tariff a number of times in a bid to meet the ADB specifications. In the
past two years alone, the NEA has hiked tariff first by 25 per cent and then by 10 per
cent.
According to a
high-level government source, the exercise is made in an attempt to prevent any
unwarranted and sudden hike in domestic electricity tariff. "Once the changes are
made, cross subsidies that are presently being provided will be minimized and the
NEA’s health improved," the source said.
As of present, the
average cost per unit of electricity stands at Rs 6.81, the NEA has been adopting a
differential pricing mechanism depending on the sector to which it is supplying power.
Household consumers, temples, street lights, community groups, industrial estates,
irrigation and drinking water projects, among others, are presently subjected to
differential pricing.
"The current
homework aims to create a pricing system based on the cost and to reduce the disparities
in the prices paid by different sectors. The gap in cross subsidies will be minimized
considerably," said the government source, talking to The Kathmandu Post. "Under
the new system, electricity tariff will be more logical and justifiable."
Till date, in order to
meet the financial health standards laid down by the ADB, the NEA would need to hike
electricity tariff by over 8 per cent. If prompted, electricity then would be costlier by
Re 0.69 per unit. The NEA is, nonetheless, empowered by the Electricity Act to annually
raise tariff by a maximum of 5 per cent.
Tara Bahadur
Pradhananga, Chairman of the ETFC, said that sudden and untimely hike in electricity
tariff hits hard not just the household consumers, but even industrial settings.
"Only control in losses and leakage can help contain unwarranted tariff hikes,"
he said.
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