Uniform power tariff

President Asif Zardari and Prime Minister Yousuf Raza Gilani, taking a serious note of different power tariff in different parts of Pakistan, have directed the Ministry of Water and Power to ensure enforcement of a uniform tariff structure across the country, to remove the consumers' grievances. They have also ordered Pakistan State Oil to ensure timely supply of furnace oil to the Gencos.
Meanwhile, the federal government has directed KESC to reduce power tariff from 70 percent to 5.5 percent for consumers who use up to 100 units a month. A KESC spokesman has said that the drastic tariff cut will not only benefit more than 15 percent of the "lifeline consumers" but will also benefit those falling in other slabs.
Interestingly, despite a mandatory ban on an increase in tariff imposed seven years ago at the time of privatisation of KESC, the government has allowed the utility to raise the tariff which is expected to double power bills in the coming months. The tariff rate for consumers using up to 100 units was increased from Rs 2.92 to Rs 4.97 per kilowatt-hour, excluding taxes.
However, commercial consumers using up to 100 units were to be charged at the rate of Rs 9.93 per unit while those using between 101 and 300 units were required to pay Rs 10.04 per unit. Under the new tariff structure, there will be minimum monthly charges even if no energy is consumed during a month.
However, confusion prevails in some circles over whether the government is legally authorised to fix power rates, which is essentially the prerogative of Nepra, just as fixing petroleum prices falls within Ogra's domain. Therefore, what is the legal position of the order issued by the holders of two highest offices in the country? There is meanwhile a perception that thermal power will be subsidised by hydel power for the sake of tariff equalisation.
So expensive has power generation in Pakistan become that, according to one estimate, the consumers have to pay as much as 14 cents/kWh just for the fuel cost of thermal power plants. However, if other expenses are factored in, the total cost goes up to a hefty 18 cents/kWh, which has seriously eroded competitiveness of our exports.
This has also sharpened inflationary trends in the country, as every 10 percent increase in fuel cost adds one percentage point to the inflationary pressure, with all its deleterious impact on the economy. In fact, it is the fuel cost that is the key determinant of inflationary trends in a country, be it furnace oil or other POL products. This is a major cause of galloping inflation in the country.
Pakistan's energy requirements over the next five years are likely to grow at the rate of 7.4 percent per annum, which in effect means that even higher tariff rates are in store for the consumers, if power consumption is to be kept within acceptable limits. There is also a discrepancy between the perception in government circles and what the captains of industry think.
While the government believes that an increase in power tariff will discourage excessive use of electricity by consumers, FPCCI maintains that any hike in power tariff will increase the cost of production which in turn will lead to a cut in export orders, and severely hamper the country's industrial productivity.
Increased power tariff has created unrest in the industrial sector at a time when manufacturers are already hit hard by the high cost of inputs, including gas, petrol, electricity and imports of raw materials because of the widening rupee-dollar parity.
An analyst has quoted figures from the World Bank's "Doing Business 2009" report to prove that Pakistan has already slipped three positions among the 181 economies, and stands at 77th position in providing an environment conducive to investment.
Above all the government's decision to borrow from the banking sector at high interest rates to ensure fuel supplies to the Gencos and the IPPs will add to the overall borrowing cost. There is a need to address these issues on a priority basis. Enforcement of a uniform power tariff structure across the country is conceptually a good move, though it ought to have been made by Nepra to provide it the requisite cover of legality.
Even now Nepra should be asked to issue a formal notification in this regard. However, the socio-economic status of a region too should be kept in view while fixing power tariff, while some sort of relief to low-income groups should be allowed by subsidising thermal power by hydel power for the sake of equalisation.
There is a need also to undertake fast-tract implementation of alternative energy projects to cut the cost of energy in Pakistan, which is already among the highest in the region. The government should take all the stakeholders into confidence before a final decision on power tariff is taken.