ALREADY struggling to cope with the impact of the Covid-19 pandemic and rising food prices, consumers received yet another rude shock when the government increased the unified base power tariff of distribution companies by a whopping 15pc. Even though the government had been dropping hints about hiking the tariff ever since it resumed talks with the IMF for the revival of the suspended $6bn loan deal, low-middle-income consumers have reeled from the announcement. Another electricity tariff increase is expected in April. The across-the-board electricity price hike of Rs1.95 per unit, which is estimated to put an additional burden of Rs200bn on consumers, will likely help the government pay the growing compulsory capacity payments — the fixed costs of the power producers — and is expected to slow down the circular debt.
However, rather than owning the decision, the ruling PTI has put the entire blame for the tariff increase on the previous PML-N administration. Indeed, the latter is largely 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. Its predecessor may have left ‘landmines’ for it as PTI ministers claim. But what stopped it from clearing those landmines instead of blowing them up in the face of the people? The government owes an explanation to consumers who have been asked to foot the bill for its own poor performance.
The decision to increase electricity rates is yet another reminder that the crumbling power sector needs urgent reforms — not the kind of reforms focused on passing on the costs of the power sector’s inefficiencies to consumers, but those that will aim at reducing T&D losses, increasing recovery of bills, and curbing power theft through improved governance. Sadly, the 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 1.5pc and bill recovery has reduced by 5pc. Little wonder then that the circular debt has ballooned to Rs2.3tr (and is anticipated to grow to Rs2.8tr by the end of this fiscal) from Rs1.1tr when the PTI took over. The government says it is implementing a raft of measures to control compulsory capacity payments to power producers. These include negotiation with the sponsors of upcoming generation projects of 10,000 MW for staggering their timelines to provide “breathing space for consumption and payments”, changes in the terms of existing power-purchase agreements with producers, and so on. These are steps in the right direction. But they aren’t enough and need to be supported by improvements in power-sector governance to reduce the pressure of electricity tariffs.
Published in Dawn, January 23rd, 2021