ISLAMABAD: The National Electric Power Regulatory Authority (Nepra) has rejected a request of the telecom and cellular ‘industry’ to change its power tariff from commercial to a cheaper industrial electricity tariff.

Nepra reached the conclusion after the ministries of energy and finance opposed the telecom industry’s petitions due to an expected loss of over Rs20 billion in annual revenue and the resultant need to pass on this financial gap to other consumers or be booked against circular debt that already stands close to Rs2.5 trillion.

The Pakistan Telecommunication Company Limited (PTCL) and the four other cellular companies — Telenor, Ufone, Jazz and Zong — with support from the IT ministry had been advocating change in tariff over the years during all public hearings on power tariff and then filed formal petitions.

They pleaded that the telecom sector had been declared an “industry” through various decisions and laws and therefore should be charged an industrial tariff instead of a commercial one.

Telcos currently paying commercial electricity rates of up to Rs33 per unit

The commercial tariff currently ranges between Rs29 and 33 per unit, or kilowatt-hour (kwh), excluding taxes as compared to the industrial tariff of Rs24-29 per unit.

The petitioners contended that through the Finance Bill 2021, an amendment was made in Section 2(29c) of the Income Tax Ordinance (ITO) 2001 and new clause ‘c’ was inserted to declare the telecommunication sector as an “industrial undertaking”. Based on this, they asked Nepra to direct electricity distribution companies (Discos) throughout Pakistan to charge industrial tariff instead of the existing commercial tariff from telecom operators.

However, after taking input from all stakeholders, the power regulator ruled that “the outfits of the telecommunication sector cannot be termed as factories” and hence they did not qualify for “the criteria for the application of tariff under the ‘industrial supply’ category”.

Nepra said that besides telecommunication companies, construction and hotel businesses had also been included in the definition of ‘industrial undertaking’ under the ITO, but both of them were not included in the industrial category of consumers when it came to the electricity tariff.

“After going through the referred Finance Bill/Income Tax Ordinance, the authority is of the view that the inclusion of these sectors in the definition of industrial undertakings in the Income Tax Ordinance is for the purpose of extending tax incentives available for the industrial sector,” Nepra said. “However, it does not confer on these businesses the right to avail the industrial supply tariff for the use of electricity.”

Also, after the changes to Nepra Act in 2018, “the powers to prescribe consumer categories have been specifically vested in the federal government”, the regulator said, adding that under the consumer-end tariff determinations, the “industrial supply” meant the supply for bona fide industrial purposes in factories, including the supply required for the offices and for normal working of the industry.

Moreover, the “industry” was defined as “a bona fide undertaking or establishment engaged in manufacturing, value addition and/or processing of goods”.

Also, as per the Pakistan Factories Act of 1934, a “factory” means any premises where ten or more workers are working, or were working on any day of the preceding 12 months, and in any part of which a manufacturing process is being carried on or is ordinarily carried on with or without the aid of power, but does not include a mine, subject to the operation of the Mines Act 1923.

The energy ministry opposed the telecom industry’s request for a lower tariff for their nationwide installations, noting that the industrial tariff applied to the industries’ production facilities while warehouses used to transmit the products to the retailer distribution network were considered a commercial value addition.

It contended that the proposed relocation of telecom companies from the commercial to the industrial category was against the economic objectives underlying the various industrial concession packages and “will result in the revenue gap of Rs20bn that would put an extra burden on other consumers or fiscal space”.

It said other specific sectors like “film” and “banking” had also been declared as an industry for specific incentives and facilitations, and feared that changing the power tariff for the IT and telecom sector would open the floodgates for similar petitions for discounts.

The Ministry of Finance said telecom companies/cellular mobile operators were doing commercial activities and electricity cost was a passthrough item. They “fix their consumer-end tariff without consulting the regulator”, it said.

On the other hand, the Ministry of IT and Telecom told Nepra that an order of the prime minister had concluded that, like any

high-tech industry, telecom operators used electricity for their infrastructure, i.e. data centres, exchanges, points of presence (POPs), base transceivers stations (BTSs), mobile switching centres, base station controllers (BSCs), etc., and therefore should be treated as industrial consumers.

The telecom companies also asserted that they were eligible for an industrial tariff because of the value addition carried out by them. They contended that they last year achieved the export target of $2bn, set the current year’s target at $3.5bn and had the potential export estimate at $20bn by 2030 but were forced to shut their facilities in rural areas because of expensive electricity needed to ensure uninterrupted connectivity.

Published in Dawn, September 19th, 2022