Anatomisation of power tariff

Power Sector as a whole and specifically the electricity tariff is under discussion every day. All and sundry are challenging the validity and veracity of DISCO billing as being patently unfair.

Most of the people consider that they are being unjustly penalised for the inefficiency of Discos and the non-payment culture of huge swaths of areas, where illegal abstraction of power happens too often.

The experts on being asked, basically blame the tumbling PKR and the spike in international fuel prices as the culprit. A little foray into the works reveals that there are many other reasons for the unaffordable power bills.

The sad part is that most of the weight of these reasons cannot justly be billed to the unsuspecting power consumers – rather, the requirement is to somehow or the other ameliorate the negatives.

The first of these add-ons relates to the most un-imaginative format of the power tariff which has its roots in early 1960s, when this load suppression model of power tariff was first evolved and then implemented.

It was the time when the Country’s industrial base and urban areas were flexing their muscles, while the available MWs could not cope with the onslaught. It was though that the tariff would curtail non-productive usage. Unfortunately, the same style of things continues, which on face of the surplus energy regime, does not fulfil the requirements.

The continuing tariff model is based on the mantra that the more you use the more you would be paying, or it does not cater for any premium on high usage. It needs to be understood that it has become a dead weight when the sector is unable to sell the already contracted power generation. It further proves that the tariff has been allowed to continue beyond its expiry date and its continued usage translates into extra burden for the compliant electricity consumer these days.

The second of the issues relates to the government’s penchant for using the electricity tariff to discharge its socio-political obligations. This is done through the provision of cross-subsidising the so-called lifeline customers and some other protected classes (a new jargon), while the right way is to base the tariff on the actual cost of service and lifeline customers, or other protected classes could be taken care off through direct subsidies from the national budget.

This obligation is unfortunately being mitigated through cross subsidization so much so that not even the industry – specially, LSM—is being spared. Whatever the policymakers would say, it is more than a conclusion that such additional charging (besides the load suppression part) is illegal and that this is causing problems for the Sector through stunted power sales, etc.

This is an onerous burden for the industry because such add-ons/cesses cannot ever be exported. Here, reference is made to the industry’s clamour for Regionally Competitive Energy Tariffs (RCET), which envisage tariffs based on actual cost of service.

Thereafter, is a huge portion of the generation cost – primarily, based on the badly negotiated IPP contracts and the straight-jacket in which Pakistanis find themselves at the moment. According to experts, this burden equals more than Rs 200-400 billion per year or has a value of at least Rs 1.75 per unit of sales. Herein lies the case for some final negotiation with the IPP sponsors.

Recently, another fee has been added, whereby the consumer tariff gets bloated on account of the posting of raw capacity charges for contracted IPP MWs, which are not being used due to many reasons having nothing to do with the compliant consumers. We are told that this is so because of low demand, as if such a condition is because of the poor Pakistani electricity consumer.

It is forgotten that the responsibility for paying this amount lies with the entity which contracted extra MWs without calculating or casting the demand or does not know what to do with the same but for burdening the poor consumer for this lapse and that too of gigantic proportions.

Incidentally, no effort at all is being done to spur sales. According to experts, just a little tweaking of the existing tariff can increase the demand quantumly.

Not to be left at that, the poor Pakistani consumer is then being made to pay for the Power Sector’s inability to recover its billing and to curb illegal abstraction of power on account of which the sector is unable to pay-off its debts/obligations and that the sector has then to seek loans for making the ends meet.

At present, both the principal and its mark-up (as assets of the power holding company) are being got paid again by the most compliant power consumer, as a legitimate charge, in shape of the Financial Charge (FC).

Thereafter, it was decided that we will have uniform electricity tariff in the country due to which the consumers of the so-called efficient DISCOs will have to bear the brunt and underwrite DISCOs, where the NEPRA determined tariff was high.

This again can be considered as a political obligation of the government and nothing else. The strange part is that KE operations too are considered as an obligation of the GoP, which has budgeted a colossal Rs. 379 billion as subsidy for the FY 2023-24 – so much for the privatization of this utility.

As Pakistanis love the easy way out and FBR being Pakistani to the core, it was decided that the Power Sector would collect 18% GST, withholding tax, additional tax and further tax on behalf of the tax authorities.

Incidentally, these amounts are then deducted on accrual, whereas some 15% of the same never gets recovered. It is another gap that needs to be considered for filling. Whereafter GoP decided to chip in through charging of TV fee (PTV thrives on such collections alone) and the provincial governments required their pound of flesh in shape of the electricity duty.

The last of these add-ons / collectables is presently under attack before the Lahore High Court, which has sought information about the rules under which the provinces are asking for their share in burdening of the electricity consumer. For some category of consumers cases, all of these add-ons contribute to a hefty 35% of the electricity bills.

Coming over to the Electricity Policy of 2021, we see that it emphasises the health of the Power Sector entities in very clear and unambiguous terms, but just perfunctorily talks about some hitherto unknown plan to arrange affordable energy through some addition of renewables for the poor blighted consumers.

That renewables need a very robust grid to sustain the negatives is forgotten and probably will remain below the radar in the near future. As a consequent of the policy, the poor consumer is obligated to pay what is labelled as the QTA and the FCA.

The Quarterly Tariff Adjustments cater for changes during a particular quarter in the consumer tariff mix and other such charge in the assumptions earlier considered during the yearly tariff determination by Nepra. Such QTAs have been anything between Rs 2-5.49 per unit for the FY 2022-23.

That all of these depict a very serious skew in assumptions proves the point that DISCO petitions are perfunctory at best and that the Regulator may also be lax in its audit and scrutiny. As projections can be made most accurately, continued declaration of the earlier Discos’ assumptions as off-mark proves the laxity of both – DISCOs for posting incorrect figures and NEPRA for continuously accepting whatever the DISCOs say.

The resultant QTAs are a bombshell as these are never figured in the domestic or industrial budgets. Experts clearly opine that all this is wrong and much of the QTA values are a result of DISCO mismanagement having no nexus with the consumers. The FCA or the Financial Cost adjustments are a result of the re-payment of the loans garnered by the Sector to fill in the gap of less or low recoveries.

In view of the above narration, the complaint electricity consumer would rightly seek not to be forced to pay for the trite tariff model in vogue, the requirement to fulfil any socio-economic or socio-political obligations of the government to underwrite the lifeline or the protected class and not to be burdened with the bitter fruits of badly negotiated IPP contracts or for the extra contracted capacity (not even in his knowledge).

He is further in a quandary to comprehend as to why he is obligated to pay for the various shenanigans of the DISCOs which result in the backbreaking QTAs etc.

He is right to ask as to how he could be made to pay for the inefficiency and laxity of the DISCOs for any less recovery or for being not able to stop the endemic illegal abstraction of energy.

The compliant electricity consumer would also seek respite from any charging on the basis of the requirement to have uniform electrify tariff in the Country or for that matter to also underwrite the debt parked in the Power Holding Company Limited.

The compliant consumer calculates that the present power tariff can become less than half of what is being charged because the average fuel price for the on-going fiscal is less than Rs 7 per unit and whatever one adds to it in shape of the capacity price, the chargeable tariff cannot be more than Rs 17 per unit (all told), whereas the average tariff without add-ons is being touted as Rs 27 per unit.

The question is that why should the compliant customer be required to pay for all of the above add-ons, which have no connection at all to the him? He also remembers that the Power Sector is being subjected to the erstwhile FCR – once the scourge of FATA and all democrats. This is so because the consumer is being held responsible for the faults of others.

Copyright Business Recorder, 2023