EDITORIAL: There is no stopping the electricity bill hikes and power sector managers don’t seem to care much about the impact of this on the consumers. Reportedly, CPPA-G (Central Power Purchasing Agency—Guaranteed) has sought a massive Rs7.13 per unit increase in Discos’ power tariff as fuel cost adjustment (FCA) for January 2024 to be billed in March 2024. This is almost double the pre-fixed fuel cost of Rs7.5 per unit.
This vividly reveals the extent of deviation of the government’s forecast from reality and reflects extremely poorly on its competence. Meanwhile, nothing is being done to reduce the inefficiencies of Discos and others in the energy value chain. This is alarming and may spark a crisis similar to the one that happened in the summer of 2022.
Interestingly, the National Transmission and Distribution Company (NTDC) system has lost 352 GWh to transmission losses in January 2024 alone, which is almost equal to combined production from HSD, wind, import from Iran and Bagasse. Great attention is needed on reducing transmission and distribution (T&D) losses; otherwise, it seems some plants are being operated only for the units produced to be wasted.
One reason cited for higher FCA is the growing cost of insurance cover due to attacks by the Houthis in the Red Sea. Additionally, the increased local HSD and gas prices are also mentioned as a cause behind higher FCA.
Whatever the reasons, these should have been foreseen and factored these in the forecast. The big issue is that power prices are beyond the paying capacity of nearly all consumers. This FCA is in addition to 26 percent increase in the annual tariff and an 18 percent hike in the quarterly tariff adjustment (QTA) is and simply becoming unbearable. The government is thinking of staggering the increase over a few months to blunt the impact. This is going to be a challenge for the incoming ‘weak’ Pakistan Democratic Movement (PDM) coalition and it may face similar challenges that PDM 1.0 faced in 2022.
In another news report, the government is once again considering cutting tariff for solar net metering. The stated reason is that with a shift of affluent consumers to solar, the capacity payment is to be borne by the remaining consumers on the grid. The government should have thought about this when it prepared and instituted the net metering policy. Many households and even industries have heavily invested in solar panels to accrue the benefits of net metering. Now they may have to suffer.
This is a classic case of inconsistency in policies which hinders investment. It does not matter who or which political party was in government at the time of policy, the sanctity of the policy (i.e. the government’s commitment) should be respected.
The issue is that the successive governments have failed to do much needed structural reforms as each government was required to increase recovery of power bills, stop theft and reduce the transmission and distribution losses. In addition, the new power projects are being installed in IPP (Independent Power Producer) mode in large numbers without giving any regard to macroeconomic reality of the country.
As it is the cost of power is increasing due to huge capacity payments, which are required to be negotiated by extending the debt payments to match the life of the projects. The government needs to deregulate and privatise the power sector and reduce its footprint. However, nothing of the sort is happening and there appears to be no political will to do so.
All that is being done is to pass the increase in the form of tariff increases in one form or another on to the consumers to reduce the flow of the circular debt. With every round of increase, there is ample evidence now that power consumption will fall. Many may move out of the system to own generation, and others will be forced to curtail their consumption. This will compound the problem of capacity payments.
The system is crippling. The new government should get its act together to resolve the woes of power sector. Otherwise, the power sector will get buried beneath its own weight, and, in the process, exact a heavy toll on the national economy.
Copyright Business Recorder, 2024
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