EDITORIAL: Managing power tariffs is one of the biggest challenges for the government. The government claims it will reduce the tariff by Rs 11 per unit through revisions in contracts with the Independent Power Producers (IPPs).
At the same time, it is considering shifting the annual rebasing to winters to avoid the double impact of fuel price adjustments and base tariff hikes during the peak consumption summer season.
In essence, the reduction would be marginal (nowhere near Rs 11 per unit from IPP revisions), and the overall annual impact on consumer bills would be negligible, if not zero, by changing the rebasing to January.
The government continues to juggle policies while ignoring the core issue. Any revision in power tariffs through renegotiating the generation-side contracts will not address the losses stemming from transmission and distribution (T&D) inefficiencies. Power regulator, Nepra, allows certain T&D losses based on the assumption of 100 percent bill recovery. The reality, however, is starkly different.
The gap between allowed and actual recovery becomes part of the circular debt, which will continue to grow despite revisions in IPP contracts. Even if power tariffs are reduced significantly — through a combination of old IPP revisions, debt reprofiling on newer IPPs (mainly Chinese), retiring government-owned Gencos, and reducing taxes on electricity bills — the distribution network’s inefficiencies will persist, and circular debt will keep accumulating.
Therefore, addressing the distribution puzzle is critical; without doing so, all other efforts will prove to be futile. Worse still, at present, losses in one jurisdiction are being passed on to all consumers, creating a free-rider problem. Within a single Disco, loss-making feeders are compensated by overbilling honest, paying consumers. It is a complete mess, with no regard for those who pay their bills on time. Privatisation and corporatization of Discos remain mere discussions.
The government has failed to learn lessons from the improved performance of KE post-privatisation. Now, to reduce losses, partial operations of some Discos are being handed over to agencies. This highlights the collapse of civil administration.
The government has failed to privatise PIA, and now the establishment is managing it. Perhaps, ultimately they would be tasked to take charge of addressing the Disco mess too.
The policy of maintaining uniform tariffs across the country also needs to be revisited as this is the root cause that shapes policy formulation that is responsible for all the ills and distortions. It has distorted the incentive structure, giving no advantage to utilities with good recovery rates over poorly performing ones.
This fault line breeds corruption, as seen in the petroleum sector, where the notorious Inland Freight Equalization Margin (IFEM) has been grossly abused in the past — and the situation is no better today. Cross-subsidisation is another flawed policy.
Today, paying consumers — whether residential, commercial, or industrial — are burdened with exorbitant bills, while cross-subsidies for others are loaded onto them. Consequently, good-paying consumers are increasingly turning to alternative energy options, moving away from the national grid.
The marginal cost of power production is lower in the south, while demand is higher in the north. However, limited infrastructure restricts the evacuation of power from the south to the north.
A logical solution would be to offer lower costs in the south to attract higher demand, partially addressing the underutilization of idle power capacity. Unfortunately, this is not happening. It’s a circus, to say the least. There is no easy solution as we all know from experience there is no easy answer to power sector’s problems.
Copyright Business Recorder, 2025
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