August 19, 2002	Monday	Jamadi-us-Saani 9, 1423

No doubt that the grant of Rs. 30 billion to the ailing Wapda and the KESC has lessened to some extent the burden of high cost of power at domestic consumers but the question is how long the government could come to the rescue consumers from such increased tariff which has become a routine feature. It is the twelfth upward revision of power tariff during over three-year tenure of the present army-led government.

In response to the President’s instruction to review the 39 paisa per unit tariff hike announced by the National Electric Power Regulatory Authority (Nepra) for domestic consumers, the government has reduced power tariff to 19 paisa a unit. However the Nepra decision of 19th July for increasing tariff for various other categories like agricultural, industrial, the KESC and Azad Jammu and Kashmir would remain unchanged.

This reduction of 20 paisa per unit in electricity tariff increase would result in Rs4.1 billion less revenue for WAPDA, which would be covered through government’s budgetary assistance in contrast to the reported agreement of the government with the IMF, which is against any such assistance to power sector for plugging the gap between income and expenditure.

It is worth mentioning that a raise in consumer tariff will not only just impact the energy charges, which forms only a part of the consumer’s power bill, but all the other charges like fuel-adjustment charge, surcharge, additional surcharge, electricity duty, fixed charges and the GST would increase correspondingly. With the increase in tariff, most of them would be proportionately pushed forward so that the bottom amount payable by the consumer would multiply manifold.

Not only this increase in the power tariffs would impact adversely on the input costs of manufacturing and services industries rendering their products less competitive in the export markets and out of reach even for large sections of the middle classes in the domestic markets. So, the challenge is not only to keep Wapda and the KESC afloat but also to keep the economy running in good health.

The rampant unemployment, price spiral of consumer goods and increase in POL prices have already made the lives of the poor people miserable and the enhancement in the power tariff has come like a bolt from the blue to already over burdened people as well as the business community. A unit cost of Rs8.48 which our industrial sector pays is almost four times higher then power tariff charged in the USA for the same category.

The widening gap between incomes and expenditures of the Wapda and the KESC has made it extremely difficult to meet their burgeoning payment obligations to their suppliers, especially of furnace oil. To meet their revenue deficit both the organizations have adopted an easy way out by raising power tariff every now and then. Currently, Pakistan depends on oil imports for its domestic energy requirements, costing Rs. 80 billion annually.

Since a substantial number of the power stations are on imported furnace oil, they have contributed significantly to making the operations of Wapda and the KESC largely uneconomical. Because of the failure of the government for pursuing an indigenous water and power development policy, thermal power production has far outnumbered the hydroelectric power plants. Of the total 17712 MW power generation installed capacity, around 70 per cent comes from thermal, 28 per cent from hydel and 2 per cent from nuclear power.

The frequency with which the two utilities have been asking for permission from NEPRA to hike their tariffs has made it look as if without such hikes these two organizations would not be able to continue to remain in operation.

The performance of Wapda and the KESC remained satisfactory till early 90s when inadequate power generation capacity and transmission infrastructure resulted in power breakdowns and load shedding especially among the industrial and commercial sector. The economy and the manufacturing sector were adversely affected due to this power shortage. The estimates of the economic loss of one kWh of power to the economy were between five to ten times the generation cost of one kWh of electric power at that time.

This shortage of electric energy led to the emergence of Independent Power Producers (IPPs). Since power produced by IPPs was thermal based therefore it caused a great strain on the financial viability of Wapda and the KESC.

The main objective of the privatization of the power sector was to meet the socio-economic needs of the country and achieving improved quality of service at affordable price. But this objective has not been achieved as yet due to a failed power policy. When the IPPs were being planned, the idea was actually to fill the immediate gap of about 3000MW that had emerged in the late 1980s and early 1990s between production and requirement of power that has put the national economy at stake.

But unfortunately Wapda did not profitably use the respite provided by the IPPs and failed to add additionally hydel power to the national grid. Rather, it is still going with costly oil based thermal power production even after announcement of the Vision 2025 programme, which calls for striking a right balance between hydel and thermal power generation to bring down the average cost of electricity.

It will be interesting to note that the Nepra was established in 1995 to safeguard the interest of power consumers from the exorbitant power rates but at present it seems that Nepra has been acting to protect the rights of power producers instead of consumers even then running expenses of NEPRA are being attempted to be charged from consumers by introducing a levy of 0.125 paisa per unit in the tariff.

It seems, now, that the situation of early 90s has started to repeat itself. Both the utilities i.e. KESC and WAPDA are suffering from acute transmission and distribution system inadequacy. Gross mismanagement of resources, mounting receivables, increasing cost of power generation and, above all from very high transmission and distribution losses which were officially claimed to be around 30 per cent.

During the year 2001-02, line losses of Wapda remained as high as 25.8 per cent and receivables went up from Rs43.885 billion to Rs51.148 billion. It was despite the commitment of Wapda with Nepra during the previous hearing of its tariff petition to bring the losses down to 23.6 per cent by the end of fiscal year 2001-02.

Both the corporations keep on increasing the tariff, as the domestic consumers offer no resistance. A high number of consumers enjoy free of cost electricity through illegal connection and are, therefore, least bothered at which rate they are billed. Non-payment of monthly electricity charges by the consumers, power theft and non recovery of dues costs billions of rupees annually to both these corporations.

Analysts estimate that one percent T&D loss equals Rs 450 million. It means that if Wapda and the KESC were to eliminate their respective line losses they could plug the gaping hole on their balance sheets, by as much as Rs 32 billion a year. Then there would be no need to threaten domestic consumers with higher tariff. Moreover an incentive packages for agriculture and industrial consumers to boost production can also be delivered. Therefore any increase in tariff rates, without reduction in T&D losses would be meaningless.

Contention of Wapda that enhancement of electricity tariff is largely due to increase in the prices of furnace oil as power generation is being transferred to thermal instead of hydel stands incorrect by its own annual report for the year 2000-01 which negates all such arguments. It shows that it was only the neglect and lack of ability to run the organization efficiently that led to the closure of large number of its hydro electricity and thermal generating units. The report shows that underutilization of installed power generation capacity inflicted a loss of some 55 billion to WAPDA during reported year. It will be worth noting that realizing the abundant water & power resources of the country, Wapda was specifically created for developing these resources. But a general review of countrys water and power sector suggests that the main function of WAPDA, water & power development has been completely ignored for all these years. The current ration of hydropower generation to the thermal power generation does not bode well for economy.

In this scenario the government needs to clearly take stock of the situation by adopting concrete steps to pull the power sector out of its current state of decay. Hydroelectricity being more economical and easier to produce is considered to be capable of providing tariff relief to the consumers. But massive investment is required to meet short and long-term demand of the system for renovation and replacement.

However, more electricity can still be made available without increasing the production capacity if better and more efficient generation and distribution are ensured. This the authority can do by removing the inefficiencies inherent in its working without asking for periodic tariff increases.

This is the only way to overcome the problems now being faced because of the burgeoning cost of power and the need to keep the overall production cost at a level where its manufactures do not become uncompetitive in the international market and they remain within the reach of the common consumers.