The power tariffs are on a continuous rise. This is despite the fact that the marginal cost of power production in dollars (fuel charge) is declining, the share of indigenous fuel is increasing, and the overall power mix is becoming environmentally more sustainable. The elephant in the room is capacity charge which in terms of payment is now making up 65 percent of the base tariff.
Power Division sources are reporting that an increase of Rs6.9 rupees per unit has been proposed in the base tariff by the regulator which will be applied to customers across Pakistan. One may not have internalized the increase of up to Rs8 per unit in the electricity cost in the beginning of the last fiscal year.
It is pertinent to note that the increase in the base tariff is one component but there are also associated charges like Quarterly Adjustments, Fuel Charge Adjustments etc that are added to the bills retrospectively. Hence, consumers are paying a higher cost for the electricity they have used this month and paying for previous months’ consumption.
Then there is the brunt that customers have to bear for the sector’s own delays in taking decisions. Recently the ECC approved a Rs1.52 rupee per unit surcharge for KE customers. The rationale is that between 2019 and 2020, tariff changes that applied to XW-DISCOs and have already been paid, were not passed on timely to KE customers. This created a deficit of Rs24 billion; as per Power Division directives, this cost has to be recovered now.
There are unintended consequences of passing these cost increases to consumers. There are indications that demand is on a decline with the increase in rates last year, as affordability is declining. Not much can be done in the short to medium term due to growing capacity payment without restructuring the front-loaded debt of newer IPPs.
Although the move is to comply with IMF conditions and curb circular debt, it raises questions on its efficacy.
Increasing costs are pushing a greater number of customers towards energy poverty. Estimates suggest that 30 percent of the customer base in the country is using up to 300 units per month and is dependent on subsidies to keep electricity affordable. They are now at increasing risk.
Then the upper classes are reducing electricity consumption and are converting to solar solutions. The other problem is to resort to defaulting on bills, or increasing theft, behavior that may be observed more for those at the bottom of the pyramid. Data for 11MFY23 shows that under-recovery by DISCOs has surged by Rs90 billion compared to same period last year. Inefficiency due to losses has also increased by Rs25 billion. This could be a proxy for increase in theft.
The recovery in XW-DISCO territory closed at around90 percent for FY22, which will take a hit in FY23. Industrial productivity has also dropped. It remains to be calculated what the national impact will be. Notably, dips in recoveries and consumption both adversely impact the sector which still has to buy imported fuel to generate power.
The situation is becoming increasingly untenable, and serious strategic interventions need to be planned and enforced to bring us back from the brink. Whenever that happens, it may be too late.
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