Electricity tariffs

In Pakistan, it is a known fact that electricity is costly as compared to other countries of the region and its cost is ever inflating, but it is not the case for every electricity consumer. If we closely monitor, it is totally cost free or comes with a minimal charge for some consumers and on the other hand cost impact is humongous for another consumer category.

This consumer segment, in addition to their own consumption cost of electricity, is compelled under the tariff structure to carry other consumers’ burden. So, who are these “Children of a lesser god” facing discrimination and resultantly are levied with one of the highest tariffs in the region? To figure this out, first we need to identify the privileged ones.

The first category of privileged ones is composed of those consumers who simply don’t pay anything against electricity they consume. Average T&D losses of Discos as per power regulator Nepra’s SOI 2023 Report are 16.45 percentage as compared to Nepra-determined benchmark of 12 percentage and global benchmark of 6~7 percentage.

Similarly, recovery rate is 92 percentage as compared to Nepra-determined benchmark of 100 percentage. It implies that if 100 units are generated, after adding transmission losses, DISCOs receive payment of only 73~74 units as compared to global benchmark, i.e., 92 units and delta of 20 units is paid by regularly paying consumers (mostly middle class, commercial and industrial users). Major share of this delta basically is energy theft by a certain segment of consumers, which is ultimately translated into an ever-raising circular debt.

The second category of privileged consumers (or least privileged consumers in broader sense) is protected consumers and Agriculture Consumers. These are consumer who consume less than 200 units and are charged max. Rs. 10 /Kwh instead of national average determined tariff of approximately Rs.30/Kwh. This consumer category also doesn’t contribute to periodic tariff adjustments called Fuel Adjustments and Quarterly Adjustments. The differential is paid through a subsidy mechanism which is two-part (i) The government subsidy of around 150 billion (ii) Cross- subsidy from other consumers of around 550 billion for current fiscal year.

Although lower segment of society should be protected, especially in vulnerable economies, it is observed that Protected Consumer Category is grossly exploited by both electricity and gas consumers. It is suggested that the government should disburse direct cash subsidies under BISP (Benazir Income Support Programme) or any other social protection mechanism instead of creating these protected consumer categories in electricity tariff.

Third category of privileged consumers is Net Metering Consumers, who become privileged due to governance inefficiencies and wrong broader policies, especially surplus generation capacity. After installing an On grid solar system, Net Metering Consumers can net off their electricity from the grid and don’t have to pay any bills except for peak hours.

This aspect is very debatable and has its pros and cons, but the ultimate fact is that these consumers don’t contribute much towards the capacity burden, which is around 60 percentage of our tariff. There can be a debate on rationale of installing such high capacity, but ultimate reality is that this capacity burden exists and has to be paid by other consumers which are using the grid as main source (broadly consumers using 300 Units and above specially on ToU (Time of Use) mechanism either residential, commercial or Industrial).

Fourth privileged consumer category is government officials who get free or subsidized units of electricity and ultimately burden the tax paying citizens of Pakistan. Another addition is Captive generation consumers having grid connection in parallel.

The government has installed certain capacity considering these consumers as potential users but due to captive being cheap generation source these consumers also don’t contribute much towards capacity component cost of the national grid.

Remaining electricity consumers bearing all the burden of electricity cost are most impacted from high electricity costs and are to be considered as “children of a lesser god” in our society. They are consumers from non-protected, non-net metered category, industry and commercial categories. If we analyse category wise, in the first case due to all the losses and inefficiencies Circular debt continues to pile up.

The government, in running fiscal year, has levied a Power Holding Surcharge (Financial Surcharge) of Rs 3.43/Kwh to pay the interest of circular debt parked in PHL (Power Holding Limited), on the consumers who are already paying their bills regularly, on time.

Now imagine the misery of a citizen who after paying his bill on time has to again carry an extra burden of Rs. 3.43/Kwh for another beloved country man, who is not paying bill as government is unable to assert its writ. In the second scenario, a consumer has to pay extra in lieu of cross subsidy (80 percentage by industry & commercial and 20 percentage by domestic) to support protected consumer category. On top of that, these consumers have to pay 18 percentage GST on this cross subsidy.

Similarly, in the third category again the burden of capacity payments for major part of those consumers who have installed solar panels through net metering are being borne by those consumers who haven’t installed net metered solar panels.

All in all, the government needs to step in and ensure that electricity tariff is equitably applied to all consumer segments and anomalies and inefficiencies are reduced to achieve an optimum tariff level. Another aspect is that if we closely monitor our electricity tariff, the average per unit electricity cost even after including periodic adjustments is close to Rs 37/Kwh which is approximately 13 cents. However, it is the additional social cost in lieu of cross-subsidy, taxes, surcharges and implied subsidy in form of T&D losses and recovery shortfall that almost doubles net resultant tariff.

It is also suggested that since generation tariff is two parts, i.e., capacity and energy component, correspondingly consumption end tariff should also be in two parts accordingly. A two-part tariff arrangement will reduce substantial discrimination and will result in a more equitable tariff mechanism. Need of the hour is that all these inefficiencies should be removed to make electricity more economical and accessible for all consumer segments.

Copyright Business Recorder, 2024