Federal Minister for Energy Omar Ayub Khan on Thursday announced a Rs1.95 per unit increase in electricity rates, blaming the "landmines" left for the PTI government by the previous administration for the power sector's perennial issues.

Addressing a press conference in Islamabad alongside Special Assistant to the Prime Minister (SAPM) on Power Tabish Gauhar and federal Minister for Planning, Development and Special Initiatives Asad Umar, Ayub said the rise in tariff was still "much less than the increase which should be done due to the [PML-N government's] failed policies".

He said the new rates would be applicable once the National Electric Power Regulatory Authority (Nepra) issued a notification.

Attempting to address incoming criticism of the price hike, the minister said the government had acted as a "shield" during the Covid-19 pandemic to avoid a price hike but that it didn't have a "magic wand".

He highlighted that the government had given a subsidy of Rs473 billion in the last year to the power sector alone. This had been possible because of the "planning the government did which became a shield".

Khan said the previous government had left "landmines" for the PTI government in the form of badly drawn up agreements with independent power producers (IPPs) — which he said used wrong fuel mixes, forcing the country to rely on imported fuels for power generation — and the issue of capacity or compulsory payments.

Explaining the issue of capacity payments, the minister said due to the bad deals of the previous government, power producers had to be paid whether the electricity produced was used or not. He said the PTI government had agreed that it could not place the full burden of these capacity payments on the people.

Monopolies in distribution companies to end in 2-3 years: SAPM

SAPM Gauhar, meanwhile, said that he expected monopolies in power distribution companies to be ended in two to three years thus giving consumers more choice, along with various other positive developments in the power sector which will serve to benefit consumers.

"Consumers have no choice [due to] the monopolies in [electricity] distribution companies; in the next two to three years these monopolies will be finished and the consumers will get more choice," said Gauhar.

He said people living in cities were forced to rely on their area's sole distributor with no other options available to them. He added that the government was now looking at a system of multiple buyers and sellers of electricity that he termed as a "market for electricity". The system has been approved by the government and will be introduced within 15 months, according to the SAPM.

In the proposed market, Gauhar said, independent producers of electricity who can presently "only sell to the state" will be able to search for buyers. "At first it will be at the wholesale level [and] in the next few years it will go to the retail level," the SAPM said, adding that the creation of choices will be similar to the availability of choices upon deregulation of the telecommunication sector.

"This is a very big step which has been in the works for 15 years and I'm very happy that during this government's [tenure] it will reach its completion."

The measure is just one of many steps the government has taken to bring improvements in the electricity sector and reduce the circular debt and electricity prices, the SAPM said. He further stated that the government had signed memorandums of understanding (MoUs) with 53 IPPs which would help shed a burden of Rs836bn in the next 20 years from the power sector.

He said the outstanding dues of IPPs amounting to Rs450bn will be paid off by the end of the year which will also help take off the pressure of loans and interest from electricity prices. The IPPs have agreed to a reduction of 20-25 per cent in the payments due to them "which is a great success of this government", Gauhar aded.

Among other steps taken to reduce inefficiencies and pressure on electricity rates, the SAPM said old and inefficient power plants will be closed down and "the main effect of this will be felt in electricity prices since the costs of [old power plants] will be taken out from the prices."

He added that supply of gas will be cut to IPPs that use inefficient methods using natural gas to produce electricity; domestic suppliers will have gas supply ceased by February 1 while exporter' supply will be stopped by March 1.

Gauhar hoped that with all the measures the government has taken, "there will be a decrease of Rs1-2 per unit [in electricity prices] in the next few years."

'PTI govt making mafias stronger'

Soon after the announcement of the power tariff hike, Sindh government spokesperson Murtaza Wahab hit out at the Centre, saying this "incompetent government has been creating difficulties for the people from day one".

"On one hand, there is a gas shortage. On the other hand, the government has increased the per-unit price of electricity. The prices of items of daily use have already been increased beyond the reach of people. The prices of lifesaving medicines are skyrocketing and there is no one to question it," he said in a statement.

"The incompetent PTI-government is making mafias stronger and the people weaker. The selected rulers have no concern for the public. The incompetent government [should] immediately take back its decision to increase prices," Wahab demanded.

With additional reporting by Imtiaz Ali in Karachi.