Alert Sign Dear reader, online ads enable us to deliver the journalism you value. Please support us by taking a moment to turn off Adblock on

Alert Sign Dear reader, please upgrade to the latest version of IE to have a better reading experience


Electricity subsidy and the real beneficiary

January 14, 2013

IT comes again and again like a nightmare to unsuspecting, honest common consumers. They bear the burden of 45 per cent electricity lost to theft, non-payment by government consumers and faulty technical system that translates into an extremely unfair electricity tariff.

But they have to pay it one way or the other, notwithstanding the government’s claims of providing subsidy.

And with over Rs300 billion power sector subsidies now being estimated for the current fiscal year against a budgeted Rs130 billion, the financing gap has come under special focus of the visiting IMF mission.

With a shortfall in revenue collection estimated in access of Rs200 billion against budgeted power sector losses missing the target by almost similar amount, the fiscal deficit seems going beyond six per cent of GDP.

The IMF mission also estimates that real GDP growth rate may not cross 3.5 per cent compared with government’s estimate of 4.2 per cent. The two sides also have divergent views on rate of inflation.

With two major items worth over Rs175 billion on account of auction of telecom licences and recovery of PTCL proceeds, the government seems readying to take a politically difficult decision of passing on about Rs136 billion to electricity consumers.

Even though the government would like the board of directors of distribution companies to take responsibility for an unpopular decision, it would be politically difficult to satisfy the common consumer who is already feeling the heat of rising wheat flour and roti prices as a result of over 14 per cent increase in wheat support price.

The government claims that the tariff being charged to consumers is about Rs3 per unit (about 25 per cent) lower that the cost of power supply. But it seldom explains which electricity it is talking about: the electricity the honest customers really consume or almost half of electricity produced but pilfered or not paid for by the state- owned entities and powerful “thieves”, or half of generation capacity that has been built with public money but remains unutilised and even paid for capacity charges by distribution companies.

In any case, this results in buildup of subsidy being paid out of federal budget the consumers contributed by way of various taxes. The subsidy is again translated into tariff and transferred to paying consumers only.

On top of that, various expansion works to gain political support in elections are carried out “against funds received from public as deposit works, capital contributions and government grants through members of the national and provincial assemblies (mostly from ruling parties) under various development schemes”, according to official record. In many of these cases, these new connections remain un-metered.

The latest non-payments by federal institutions, provincial governments and other public sector consumers stand at about Rs426 billion, according to an official testimony before a parliamentary panel.

As has been the practice in the past, more than half of this is likely to be disputed by government departments both at the federal and provincial level and parked as circular debt.

In one of such cases, the government has directed the distribution companies to share a Rs136 billion subsidy they had received against issuance of Term Finance Certificates (TFCs) on their behalf by the government through Power Holding (Pvt) Limited, created for the specific purpose of parking disputed and unpaid electricity bills.

Instead of following legal course as required under the National Electric Power Regulatory Authority (Nepra), respective shares were assigned to different distribution companies and their board of directors were asked to approve them and then seek inclusion of these amounts in the electricity tariff petitions to be filed before the Nepra for financial year 2012-13.

The government had earlier raised Rs136.45 billion through TFCs against government’s sovereign guarantee in the name of Power Holding (Pvt) Limited (PHL), being administered by ministry of water and power as a subsidiary. The loan was disbursed by the banking consortium on February 22, 2012.

Through an order of the water and power ministry, the loan (sharing) was distributed among nine distribution companies in the form of book transfers in proportion to their shares of receivables.

As such, an amount of Rs17.04 billion was assigned to Hyderabad Electric Supply Company and Rs15.73 billion to newly created Sukkur Electric Power Company.

An amount of Rs21.51 billion was parked in the books of Quetta Electric Supply Company. Peshawar Electric Supply Company was given a loan share of Rs39.48 billion.

In Punjab, Multan Electric Power Company was given the highest loan share of Rs18.48 billion, followed by Rs9.32 billion to Lahore Electic

Supply Company, Rs6.97 billion to Faisalabad Electric Supply Company, Rs 4.27 billion to Islamabad

Electric Supply Company and Rs3.66 billion to Gujranwala Electric Power Company.

The rate of profit on new loan was set at 3-month KIBOR plus two per cent with a discount of one per cent, if additional security on Discos (distribution companies) receivable was provided to the banks. The boards of directors of almost all the distribution companies have approved the financing as assigned to them by the government.

Interestingly, even before the loans were transferred through book adjustments, the ministry of water and power through its Power Holding Company claimed the mark up of about Rs4.5 billion for the first quarter (February 22 to May 21, 2012).

This however, could not be processed because of non-execution of financing agreement and also the PHL had not disbursed the loan to companies nor had Central Power Purchase Agency (CPPA) issue any confirmation to the effect that their payables to CPPA had been reduced due to direct disbursement of loan by PHL to CPPA.

The boards of directors of distribution companies have approved in principle the government decision to approach the Nepra to pass on the impact of these loans to consumers.

Those associated with the regulator, however, believe it would be legally difficult for the Nepra to allow the cost of subsidy coming back for its approval unless the federal cabinet issued a formal policy guideline under section 31 of the Nepra Act.

The Nepra has already been finding it difficult to defend before the public during the course of hearings as to why the common consumer should be further burdened with the cost of non-payment of Rs100 billion by the provincial governments and over Rs170 billion running defaults of the private sector.

Officially, the power ministry concedes a total of 45 per cent power sector losses.

According to special secretary Hamayatullah Khan the power sector was suffering on average of three per cent of its energy each to transmission and generation, 10 per cent to distribution, 15 per cent to theft and 14 per cent to non-recovery of bills.

With such a big black hole, it hardly makes any legal, moral or economic justification for a democratically elected government to push honest consumers to the wall and force them to cross the fence towards dishonesty and theft.