EDITORIAL: National Electric Power Regulatory Authority (Nepra) approved a raise in electricity tariffs for five months and a reduction in tariffs for three months under fuel adjustment mechanism to be passed onto the consumers in August and September bills. The decision will now have to be endorsed by the government.
Nepra on 23 June decided not to raise K-Electric tariffs till 30 June on a petition filed by several distribution companies, including K-Electric that had requested Rs 1.60 per unit tariff increase under monthly and quarterly adjustments. The reason given by Nepra Chairman at the time was that the federal cabinet had decided not to increase rates of any distribution company till 30 June 2020 due to the liquidity crisis facing lower middle to middle income households as a consequence of Covid-19. While there has been no such directive issued by the federal government this time around, yet sources argue that as the economic fallout of the pandemic continues on households the government may feel compelled to defer the decision for another month. However, another set of opinion makers is arguing that the government would have to go along with Nepra's decision if it wants the International Monetary Fund's (IMF's) 6 billion dollar thirty-nine month Extended Fund Facility programme to resume. And, needless to add, the economic compulsions of the government with respect to resumption of the EFF are significant as it enables the government to access programme/budgetary support from multilaterals as well as bilaterals including from friendly countries.
Nepra Chairman expressed annoyance at the use of expensive fuel over cheaper fuel, a major source of concern for previous and incumbent governments that continues to contribute to the steady rise in circular debt. Other issues plaguing the power sector include capacity payments irrespective of units purchased in any given month, quick repayment of loans on several China Pakistan Economic Corridor projects, transmission and distribution losses, and the use of furnace oil by obsolete government run power generation companies. Additionally, the energy sector's performance remains below par and the consumers are paying higher tariffs as a consequence. These problems were acknowledged by the government and it began renegotiating contracts with several Independent Power Producers (IPPs) last year. However, there has been no positive outcome to date and there is a need to expedite the process.
What was interesting during the hearing was Chairman Nepra's pledge to minimize the impact of a tariff raise on the general public by suggesting that the positive and the negative tariff adjustments be cobbled together. This view was challenged by Vice Chairman Nepra who stated that it is not the regulator's role to determine the impact of FCA, positive or negative, but that of the Ministry of Energy. The Vice Chairman added: "we have done our work as per the specified formula...we should proceed in accordance with our normal course." While one can support the sentiments expressed by Chairman Nepra as a Disoc consumer yet it is relevant to note that institutions must not take on any additional roles, however salutary, which is not within their purview but falls within the purview of a higher decision making authority.
The performance of the power sector as a whole remains abysmal and continued delays in implementing reforms, highlighted by domestic and international experts time and again have and continue to add to the sector's losses. Pakistani government after government has opted to pass on these inefficiencies to hapless consumers that in turn has made our products uncompetitive in world markets and fuelled inflation domestically as electricity is a major input for industry. The resolution of these issues lies in renegotiating contracts with power producers, shutting down inefficiently run Gencos and supporting upgrade/enhancement of a transmission/distribution network enabling vacating existing generation capacity efficiently.
Copyright Business Recorder, 2020
Comments
Comments are closed.