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| November 12, 2005 | Saturday | Shawwal 9, 1426 |
Political imperatives drive Wapda, KESC to impose high tariffs: ADB
ISLAMABAD, Nov 11: the Asian Development Bank (ADB) has pointed out that political imperatives drive the Water and Power Development Authority (Wapda) and the Karachi Electricity Supply Company (KESC) to impose high tariffs on their customers.
The ADB, in its report on “SME Development in Pakistan” has maintained that due to complex and unclear tariff, cross subsidization and line losses it has become difficult to regulate both the utilities.
“Power sector inefficiencies in Pakistan are also caused by prevailing opaque tariff structure,” the report said, adding that the existing power tariffs discriminate against customers on the basis of their categories (domestic, commercial, industrial or agriculture) and different slabs of power usage.
Complex and distorted tariffs subsidize some groups at the expense of others and result in non-optimal usage and inefficiencies. Farmers, domestic users (especially lifeline users) and consumers in the Federally Administered Tribal Areas (Fata) are subsidized at the cost of commercial and industrial users. “This not only discourages commercial/ industrial activity but also undermines Wapda’s sustainability”.
The report said that in addition to power theft and transmission and distribution losses, the high cost of energy is the result of cross-subsidized power tariffs. “Political imperatives dictate that agriculture consumers and households pay relatively little for the power they consume”, the report said adding that consumers tend to collude with the staff concerned to draw far more electricity than what they are actually billed for.
A consequence of this structure is that industrial and commercial sectors, especially medium and large size firms, end up paying a very high price for the energy they consume. They also end up bearing the large fixed costs of setting up private power generation capacity, which emerges as a major constraint on growth.
The main factors underlying these constraints are big line losses and unclear tariff structures. Pakistan’s line losses are extremely high (more than 20 percent of generated power is lost during transmission) for several reasons. Hydel generation is concentrated in the north of the country while most of the consumption is in the south. “This requires a longer grid and results in greater line losses”, the report said, adding that the transmission and distribution losses increase because of ill-maintained high-tension transmission lines and power theft. Poor incentives for employees to provide high-quality customer service result in frequent breakdowns, equipment downtime, and higher rates of equipment depreciation, all of which contribute to line losses.
Infrastructure-related constraints are equally binding on the retail sector. High rate of power, poor delivery and poor reliability are serious concerns for retailers. Within the retail sector, it is the micro-and small firms that are worst hit: given their size, the cost of setting up of back-up power is too high which makes investment in back-up power uneconomical.
Retailers have to pay commercial rates which are much higher than both residential and industrial tariff rates. It is not only unreliable supply of power but also its cost that emerge as constraints on firm growth in the retail sector.
The report, a copy of which was also made available to Dawn, said that the power and transport sectors (apart from road transport) in Pakistan are largely state-controlled and highly concentrated. Together, the state-owned Wapda and KESC control almost the entire electricity distribution and transmission market.
Wapda alone accounts for 55 percent of Pakistan’s power generation capacity. Similarly, government agencies dominate railways, airlines and ports. “Evidence suggests that Pakistan’s state controlled and concentrated infrastructure is largely inefficient. The country’s power transmission and distribution losses (including power theft) are extremely high by developing-country standards and the highest in the South Asia”, the report concluded.
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