It looks surreal the way the government keeps on raising the price of electricity knowing full well that the ability to pay such high rates has become extremely burdensome for even well-off people in the country. The government appears to be totally oblivious to the difficulties of the electricity consumers and is bent upon increasing the burden on them as if in state of trance. The pity of the matter is that on media the nation is assured that no more increases will come and this assurance comes from the highest political authority and yet the tariff is hiked with extreme insensitivity. This is the only dispensation Pakistan is experiencing that is completely oblivious of the actual perils the people are being put into. It becomes enraging when people notice that large amounts are paid as fine that could have been utilised for lessening the burden on them.
The latest outrage in this respect occurred when the government announced an increase of Rs1.95 per unit (15 per cent) in electricity tariff for all consumers in the country to generate about Rs.200 billion. It was lamely mentioned that tariff increase was being made despite tough economic conditions due to compulsions arising out of the landmines left behind by the previous government with ill intentions. This is such a ridiculous pretext that it even did not merit any comment. The government added that it was taking a series of measures to control compulsory payments and acting as a ‘shield’ otherwise tariff increase would have been around Rs.8-9 per unit. It will be the first time in almost two decades that base tariff for lifeline consumers using up to 50 units per month would be increased.
The government ministers stated that the PML-N government did not pass on prior years’ adjustments in tariff worth Rs.227bn that should have been recovered by 2019. This required the PTI’s government to increase average base tariff by Rs.2.61 per unit but Prime Minister decided against putting such a huge burden on the consumers at the outset. Therefore, the government increased tariff by only 23 paisa per unit at that time and had to absorb Rs.2.38 per unit as subsidy amounting to Rs.247 billion. Last year the government provided Rs.473 billion subsidy to the power sector despite economic crunch and COVID-19 to protect the consumers. It was mentioned that the annual capacity payments to independent power projects (IPPs) stood at Rs.185 billion in 2013, Rs.468 billion in 2018, Rs.642 billion in 2019, Rs.860 billion in 2020 and would reach Rs.1.455 trillion 2023. It was therefore imperative to rectify the state and this price increase is aimed to do that.
The government side highlighted key initiatives being undertaken by the government to improve the power sector and reduce the flow of circular debt. In this respect it was mentioned that negotiations to convert the memorandums of understanding with 53 IPPs into final binding contracts were in final stage that would reduce the final burden on the sector by Rs.836 billion over the next 20 years. Along with an even greater reduction in the rate of return on the government’s own power plants a total reduction of Rs.1-2 per unit was expected in the coming years. He added that all of these agreements and any payments under them would be in accordance with the law and applicable regulations. It was added that the IPPs had volunteered about 20-25 per cent discount in their tariffs. The payment of Rs.450 billion dues to the IPPs would stop accrual of 10 per cent markup.
In addition, even bigger saving of about 30 per cent in power rates was on account of reduction in rate of return on government-owned power plants in RLNG, thermal, old and new nuclear power plants. This cut on about 8,000mw would reduce burden by about Rs.6 trillion over 30 years and would be absorbed by government. The government’s recently announced industrial tariff package to boost power demand that had showed encouraging results in the first couple of months and they expected to see continued progress in the coming days. The government had also stared negotiations with power plants in the pipeline involving 10,000mw to stagger their completion to create breathing space as consumption had also declined due to difficult economic conditions.
It was also decided to impose a moratorium on gas supply to captive power units and incentivise them to migrate back to the national power grid. All pending new industrial connections are being expedited by the distribution companies (DISCOs). The government has already retired almost 50 per cent of the old and inefficient government-owned power plants to reduce their burden on the consumer tariff. Moreover, the federal government would start working closely with the provincial governments to share the burden of reducing electricity theft and improving recoveries in their jurisdictions, besides introducing private sector participation and mindset at the board and management levels. The monopoly of DISCOs would end in the next two to three years and, in the first phase, the bulk consumers would be given a choice of supplier via an electricity commodity exchange.
The latest shock has come while the country is trying to cope with the impact of the COVID-19 pandemic and rising food prices. The price hike was in the air and the government felt constrained by the pressure exerted by the IMF but it has made people very worried. Another electricity tariff increase is expected in April and it may become more painful. The pitiable aspect however is that instead of owning up the decision to increase the price, the government has shifted the blame on previous PMLN administration. Though the previous administration is somewhat responsible for ordering excessive and expensive new generation on the basis of an exaggerated forecast regarding electricity consumption and without cleaning up the mess in the power sector but that doesn’t absolve the PTI administration of its own failure to fix the power sector in the last two and a half years. The administration did not try to sort out the issue and has actually thrown it down on the people to bear the burden.
The most worrying aspect is the avoidance shown by the government to reform the crumbling energy sector. What is now required is that instead of conveniently passing on the burden to the people the aim should be reduce T&D losses, increasing recovery of bills, and curbing power theft through improved governance. It is also worrying to note that few gains made under the previous government in slashing system losses and improving bill recovery have been reversed in the last two years. The losses have increased by about 1.5% and bill recovery has reduced by 5%. It was therefore not surprising to observe that the circular debt has ballooned to Rs.2.3 trillion and is anticipated to grow. The government is pointing out to various measures to rectify the situation and some of them are in right direction such but they are not enough to tackle the situation decisively and need to be supported by improvements in power-sector governance to reduce the pressure of electricity tariffs. TW