ISLAMABAD, Nov 19: The World Bank has asked Pakistan to announce without further delay separate electricity tariffs for different power distribution companies and introduce other system improvement measures to reverse a loosing competitiveness in the world market resulting in lower economic productivity.
Sources in the finance ministry told Dawn that the government had been advised to move quickly on announcement of separate tariffs for all the distribution companies because there was still a lot of time before the next year general elections. “Unless the government takes a decision now, it would become politically difficult to issue separate tariffs before the elections next year,” a senior official of a lender agency told Dawn.
He said the bank was not concerned with increase or decrease in the power rates, but separate tariffs would make the power companies self-sustaining, predictable and independent. In fact, the World Bank is concerned about higher electricity rates in Pakistan that compromised the competitiveness of its products abroad. There were chances that electricity rates in the export-based areas would drop with separate tariffs and make these products competitive.
The World Bank had recently informed the government after a detailed scrutiny of the macroeconomic situation that energy costs were one of the principal issues facing the business community, particularly the larger established firms who were facing difficulties in getting electricity connections, besides the unreliability of supply. Frequent outages have traditionally placed an enormous burden on business.
In addition, the sector’s inadequate pricing and subsidy structure causes the burden to fall particularly hard on manufacturers, further harming price competitiveness. “Addressing the well-known and well-studied problems of Pakistan’s power sector problems poses an enormous challenge for the Government, requiring considerable political and financial resources to resolve”, says the world bank. However, slow progress in implementing power-sector reform is increasing the losses of the power system, further complicating the challenge. Furthermore, adverse impacts on the productivity and competitiveness of the sector are also considerable.
Hence, the bank has called for setting an appropriate pricing structure for distribution companies to support power sector restructuring to facilitate better targeting of subsidies, and to strengthen operational performance by reducing theft and losses, and completing the unbundling of Water and Power Development Authority (Wapda) into separate transmission and distribution companies, and continuing with privatization of generation companies.
Specifically, the bank believed that as a capital-intensive operation, spinning is affected by the high electricity tariffs for businesses. Power costs account for a fifth of total costs and 42 per cent of conversion costs. Along with the cost factors, outages at an average rate of three per day further complicate the production process, raising inefficiency and costs. To mitigate the risk of outages, and doubting future improvements, many textile mills invest in gas or diesel power generators, further raising the costs of production. In addition, particularly for integrated mills, the uncertainties and cost of power supply suppress technology upgrading at the margin.
The World Bank particularly advised to government to muster sufficient political and financial courage to resolve the power sector challenge through accelerated privatization in generation and distribution, aggressive cost and loss reducing measures throughout the system and improved tariffs and subsidies coupled with fully-funded investments in the sector.
