The first quarter of the current fiscal year has bene quite a happening one for the electricity sector. From record jump in base power tariffs to hurriedly arranged subsidies by the federal government, and from the IPPs facing everyone’s brunt to controversial subsidy by the Punjab government. The fiscal year started, on the back of hefty June power bills, as quarterly adjustment was front loaded for June to lessen the impact of base tariff increase from July onwards.
This led to nationwide protests on electricity bills, and it was in less than a week that the Prime Minister had to announce a subsidy package for all consumers up to 200 units consumption, by slashing Rs50 billion from the PSDP. The subsidy is still in play and will expire in September, as increased prices will take effect from October 1, 2024, for all but lifeline consumer categories. The Punjab subsidy of Rs14/unit on the effective tariff, that shielded those between 201–500-unit monthly consumption is also in field till September end.
As temperatures drop across the country, October electricity consumption for household typically falls by 30-40 percent from the highs of July and August. Household electricity consumption falls more sharply in the second quarter of the fiscal year – and is typically half of the first quarter. This is where the increased base tariff will not be felt as hard as it would have in the first quarter, as the consumer bills would still be lower because of lower consumption. And that is typically the time of the year when the noise around electricity bills dies, and so do the hopes of the authorities finding long-term solutions as complacency sets in. Happens almost every year, especially when base tariff revision happens in the peak consumption fourth or first quarters of the fiscal year.
While electricity is undoubtedly an affordability problem, especially after the hikes in the past three years, that have also coincided with negative or stagnant consumption growth, it is also a cashflow problem, that exacerbates the overall problem. A base tariff revision (which in Pakistan’s case will likely be upwards in the foreseeable future) in July will always raise more eyebrows and create more noise than one in October or January. Although the impact on CPI inflation will still be the same, the month-on-month change in effective bills will be much more manageable in the case of base revisions happening in 2Q or 3Q. It keeps the overall revenue equation unchanged, but lessens the noise, and with it, probably also lessens the need for unplanned subsidies as the government won’t find themselves pushed in the corner.
Another idea that has been floated is that tariffs spread more evenly throughout the year based on capacity charges and not on actual consumption. This could mean higher tariffs in winters and lower in summers – taking care of the cashflow menace that arises regularly in peak consumption periods, often leading to lower recovery rates and mounting circular debt. Many countries in the world provide an option of payments in advance to tackle the very cashflow issue. Consumers can lessen their burden during summers by paying in advance in winters – while the effective tariff stays unchanged.
This only solves of course a very small part of the problem but is worth trying. Letting go unnecessary taxes, increased focus on transmission network, finding ways to lessen the distribution losses, incentivizing higher usage of electricity particularly outside of peak consumption months, privatizing discos, are all things that must be done simultaneously. What must not happen is another two quarters of inaction and complacency, because the political and public noise dies till the temperatures start rising again.
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