The federal government has approved increase in electricity tariff for the K-Electric consumers by nearly 26% with immediate effect and decided to shut down the Roosevelt Hotel, New York, by paying its debt and severance cost totalling $142 million (Rs23.6 billion).
The decisions were taken by the Economic Coordination Committee (ECC) of the Cabinet, chaired by Adviser to the Prime Minister on Finance Dr Abdul Hafeez Shaikh.
“The ECC approved the summary moved by the Power Division for the rationalisation of eleven quarterly adjustments of K-Electric Limited from July 2016 to March 2019”, according to a handout issued by the Ministry of Finance.
The quarterly adjustments of K-Electric for period from July 2016 to March 2019 would be notified with effect from September 1, 2020 to bring the K-Electric tariff on a par with 10 other power distribution companies, according to the ministry.
The base tariff for the K- Electric was Rs11.22 per unit, which would be increased by up to 25.75% or Rs2.89 per unit after the ECC’s decision. Nepra has determined an increase in power tariff for K-E consumers by Rs4.87 per unit or 44% on account of previous years’ adjustments. The total revenue impact of the tariff hike of Rs4.87 per unit was nearly Rs106 billion.
Now, the K-E consumers would pay additional Rs80 billion on account of increased prices, while the government would pick a total Rs30 billion cost, including Rs4.7 billion on account of delayed increase for the month of July and August of this year.
The power minister sought Rs4.7 billion cash injection to compensate the two-month delay in increasing the electricity prices by the K-E. The finance division would release the amount subject to verification of the claims.
In addition to these 11 quarterly adjustments in the tariffs, the KE consumers will also have to bear the brunt of increase in electricity prices for four more quarters (July-June of 2019-20), the ECC was informed.
In March, the ECC had allowed increase in electricity prices for K-E consumers with effect from June 26, 2020 but the federal cabinet did not ratify the decision. Subsequently, in July, the Cabinet Committee on Energy, chaired by the prime minister, decided to defer the tariff increase till August 31.
Since its privatisation, the K-Electric has been struggling to provide uninterrupted power supply to its consumers. The company has not been able to make full equity investment as per the privatisation deal and it undertook some expansion projects by taking loans, which would eventually be recovered from the consumers.
In March this year, the power division had recommended to increase the K-E prices by Rs4.87 per unit as differential between the scheduled tariff recommended by Nepra for April-June 2019 and scheduled tariff earlier recommended by the Nepra and reflected in the K-E notified tariff.
It had proposed to increase electricity prices in the range of Rs1.09 to Rs2.89 per unit for various categories of consumers. The federal government would pick the subsidy of Rs26 billion that will bring the tariff down by Rs1.98 per unit. Effective increase in electricity prices will be Rs2.89 per unit for K-E consumers.
The residential consumers electricity bill will go up by 20.6%. The commercial consumers cost of electricity has been increased by 19.8% and the industrial consumers prices would shoot by 19.2%, according to the power division summary for the ECC.
In order to meet the financial challenges faced by the Roosevelt Hotel, New York, the ECC approved the amount up to $142 million for PIA-IL on the recommendation of a committee constituted in an earlier meeting of the ECC, headed by Deputy Chairman Planning Commission and including secretaries of finance division, aviation division and law and justice division”, according to the finance ministry.
By virtue of its decision to give $142.1 million to the Roosevelt Hotel, the ECC decided to close the facility, which is located at a prime location in New York and has remained in the news for all the wrong reasons. The ECC approved to prematurely repay $105 million loan and also cleared $37 million in severance cost.
The aviation ministry had sought $125 million injection for Roosevelt Hotel. But on August 25th, the Pakistan International Airlines-Investment Limited (PIA-IL) sought $142 million. The PIA chairman had said that the financial health of the PIACL did not permit to repay $50 million loan.
The PIA-IL management had apprised the ECC-constituted committee that its advisers had deliberated on the financial and legal implications of the loan repayments. The advisers had recommended to pay off $105 million loan and also close the hotel by bearing all the cost.
The ECC approved to pay $37.1 million cost associated with shutting down the hotel. This includes $13.7 million severance cost of the employees, $18 million pension liabilities, $34 million cost to creditors and $2 million closing cost, according to the aviation division summary.
After the ECC’s approval, the PIA-IL will give notice before 9th September as payment date to the lender for prepayment of $105 million in one month.
A July 2019 feasibility study, conducted by Deloitte Transactions and Business Analytics, recommended that the “highest and best use of Roosevelt Hotel property is to redevelop the site into a mixed use of primarily office tower over retail and condominium”.