January 13, 2003	Monday	Ziqa'ad 9, 1423

The power sector — particularly utilities like Wapda and the KESC — had to bear the public wrath, especially since the last four years, due to continued inefficiencies, corruption, tariff hikes and losses, all falling on the public. Along with it is the near demise of industrial and agricultural sectors, due to high electricity tariff.

In a large percentage of failing industries, electricity remains the main input. Various incentives offered in the UAE, specially cheap electricity, contribute to this opinion. Though, Wapda and the KESC had chances but these came up with feeble attempts to put forward something innovative. As both lack will and expertize in tariff formulation, the proposals fell flat. Example is Wapda’s rationalization of tariff in 1999, which gave little reduction in per unit rate for some categories, but increased by 10-fold the fixed or minimum charges. Only Wapda, or a small percentage of its 11 million customers could benefit from it. The KESC could not follow, rather accepted what Nepra could dole out for it. To professionals these were gimmicks to defraud the customer. Actually, the concept of consumer paying for the reservation of power through prohibitive fixed or minimum charges needs a change. Different options should be made available, wherein fixed or the minimum part of the tariff, on request, could be amalgamated into the per unit charge. Appropriate financial models would not be difficult to come up by.

Present electricity tariff is based on the load suppression model — to ensure conservation and is a vestige of the brown-outs period. As the conservation period ended in 1996 with the inception of the IPPs, there has been a need to revise the electricity tariff. However, nothing happened. On the other hand, the West, after the damaging privatization of the UK’s power sector, came up with the expertize in tariff formulation studies. It was hoped that we would also be able to come up with our own specialists after the setting up of Nepra, the PTA, and the Ogra. Instead, the retirees of power and energy sectors filled in the slots ending all chances of change. No one was ever sent for training in tariff formulation studies. Though, the Hamdard University came up with a master’s degree for tariff formulation, but the programme was shot down as none came forward for enrolment, even though the university contacted power and energy sector.

The IPPs have helped in increasing the generation capacity to 15,833 MW, but the peak hour and average demands remained between only 9,000 to 10,000 MW. Thus, we see an unutilized capacity of 6 to 7,000 MW and at least 1,000 MW difference between the peak and the average demands. As such any power utility manager would see the need to utilize first the 1,000 MW difference between the peak and the average demands, and then would think of selling 6,000 to 7,000 MW of the spare capacity. Both these issues are urgent as the IPPs, on average, are paid a capacity charge of 60 per cent. Moreover, the reduction in sales from 8 to the 4 per cent has hasten the need to act soon. It is thus evident that the high tariff contributes to diminished electricity usage — more specifically in industrial and agricultural sectors. The domestic sector has taken over these sectors in power usage which is a serious and non-productive development.

The issues as how to sell the surplus power, ensure sustainable growth in usage, correct the lop-sided ratio of industrial, agricultural and domestic usage, make viable the loss-making utilities and to somehow create competition between the gas and the electricity produced through imported oil. The answers lie with power sector experts and not with the economic or political wizards.

The existing tariff based on load- suppression model needs to be scrapped and replaced with a tariff which raises demand. The action has to be preceded with reduction in rates, as much as by 20 per cent. Thereafter, slabs need to be created in each category, which should be based on usages during different time periods and also in accordance to types of users under any particular tariff. Eventually, the basic slabs would retain reduced rates, while the incremental decrease would take place in higher slabs. This way the power utility would gain in the shape of increased sales through individual increase in consumption, and addition of consumers.

The main constraint is the mindset of the managers and the badly constricted transmission and distribution networks/infrastructure. Keeping in view the financial positions which show huge deficits or losses with no respite in view, improvement in infrastructure — a prerequisite for sale of surpluses can only take place in case finances are arranged through commercial loans.

In addition, a large number of consumers face the present commercial tariff which is prohibitive. Experts say that the present commercial tariff should be scrapped and replaced with as many as five categories. Here Wapda’s variation invented in 2001 catering for a mix of general and motive loads is of note. The new variations replacing the existing commercial tariff would depend upon the usage and the kind of loads to be used. Plazas, markets, highrise buildings, close proximity consumers — specially those in commercial areas/districts need to be considered for billing through these new tariffs. In order to save the utility from rampant thefts a special commercial tariff where the plazas or group of s h o ps/establishments/offices would opt for a one point supply to be distributed/billed by the consortium themselves. In this case the utility would save itself from the losses whereas the cooperative would benefit in shape of lesser rates.

The peak demand and the off-peak hours, especially during 10pm and 6am show a difference of up to 1500 MW. This spare capacity, for which infrastructure is available, can be utilized for industry and agriculture. Industrial connections of the two or one shift variation can be offered on special discounted night-time tariff, while all agricultural consumers can enjoy discounts on night-time usage. The envisaged reduction can be up to 25 per cent. The existing Time of the Use (TOU) tariff applicable for three-shift industry is a source of loss to Wapda. It has been mindlessly applied with millions squandered for the purchase of the requisite equipment.

The seasonal industry is another type of electricity consumer, which has slowly drifted away to self-generation. From 10,000 consumers only 3,000 are now left on board. The reasons are the high rates — inclusive of the rate per unit used and the fixed charges on the basis of the sanctioned loads. The minimum charging for a period of six months is another problem. The rates, which include 25 per cent extra in seasonal charges need to be revised downwards by doing away of the seasonal charges. The utility should balance out different categories of the seasonal industry to avoid extra charging. The six months minimum charging should also be reduced to three, specifically in the case of cotton ginning. A class of industry which has left Wapda should be approached for re-enrolment. However, the PCGA-Wapda parlays are on since the last 10 years with no results.

Another issue is the industrial trend towards complete or partial generation of power through oil and gas, as fuel. The utilities feel it to be an infringement and try to stop such activity. In some cases the situation may be so, but we must also take the dynamics of profit or viability of any sector in view before any edict is delivered. As this issue cannot be resolved by the present near stand-off between the utilities and the industrial sector; more so because of Nepra bid to ward-off untoward advances, there is a need to set up a commission comprising representatives from the utilities, ministries of water and power, industries, petroleum and natural resources, finance and Nepra, with the industries acting as the coordinator. An appropriate report can solve the issue, once and for all, pending which Wapda may just sell its wares and may not act as a regulator. An emergency supply tariff would be favourable for the self-generation category — hence the utility can always charge heavily. The impending implications of the WTO makes all the above more important.

A ticklish issue remains to be addressed in regard to the tariff for night-sports, weddings and similar functions, construction of houses and other edifices, usage during exercises conducted by the military and so on. The present tariff structures are prohibitive. Such connections are easy to get but the tariff has no relevance to rates fixed for similar activity under permanent tariff. The utilities need to come up with new combinations here. The bulk and other high users such as the cement, polyester, fertilizer and chemical industries are hard hit by tariffs. These merit special attention with lesser rates than the present B-4 tariff. Here the lowest possible rates would still be beneficial because of zero loss position.

Another option for both the utility and the consumers would be the tariff, which includes small portion covering the initial capital cost, to be expended for getting new connections, especially industrial and agricultural where separate transformers are needed. As the capital cost is huge, it is acting as a negative factor. By doing something about it in the shape of a tariff, inclusive of the capital cost would do wonders. The reduced lending rates would be handy, if in case the capital cost is not adjusted in the tariff, the utilities can enter into an alliance with the banking sector and can offer packages. Statistical and actuarial studies can help in the formulation of necessary tariffs i.e. after due consideration of risk factors, percentage of default etc,. Hopefully, this can easily materialize because of the current diversity in consumer banking these days. The availability of easy and inexpensive finance can also go a long way.

On the other hand due liaison with the chambers of commerce and industry would help utilities in developing new tariffs with the chambers itself, acting as the guarantors etc,. The crux remains that the utilities would have to enter into a dialogue with the trade, commerce, industries and agriculture bodies on one hand and the banking sector on the other hand. In such a manner, viable options would emerge leading to the required profitability of the power sector through the sale of surplus power. The application of innovative tariffs would further enhance this profitability.

The writer is an ex-Member (Power), Wapda.