EDITORIAL: There are some positive developments in pricing on the energy front. However, that is mainly due to tweaking taxes and reaping the benefits of macroeconomic stability (falling inflation and interest rates), while the much-needed tough reforms in the transmission and distribution system are missing.
The government has announced a significant reduction in the power tariffs across the board, including for industrial, domestic, and commercial users. The reduction is primarily for three months in the form of TDS (tariff differential subsidy), QTAs (quarterly tariff adjustments), and FCAs (fuel cost adjustments).
Some of these will likely become part of next year’s base tariff. For example, the QTA reduction is due to revision with the IPPs, lower interest rates, and stable exchange rates. These elements are likely to translate into next year’s base tariff, and the reduction will likely continue in the next year as stability is expected to continue.
The other element is TDS, where the Rs1.7/unit reduction is due to the Rs10/liter increase in the PL, and that is also for three months. Oil and commodity prices are expected to be lower due to the imposition of 10 percent Trump tariffs (more are expected) and the trade war between the US and China. That is to make it easier for the government to keep on charging Rs70/liter PL.
The government wants to increase the PL if the oil prices go down (likely outcome) and increase the TDS to lower the electricity prices further. That is a good strategy.
Electricity prices in Pakistan are perhaps the highest in the region, while petroleum prices are the lowest. Pakistan’s primary energy consumption of petroleum is higher than that of electricity, while the latter’s capacity is in surplus.
Plus, the reliance on renewable and indigenous sources is growing. On the other hand, however, Pakistan imports the majority of its petroleum products. Taxing petroleum to lower electricity prices is the correct pricing signal.
The government, however, has a maximum allowance of imposing PL of Rs70/liter. It needs parliament’s approval to increase it further. This should happen in the upcoming budget, and the lion’s share of falling oil and other energy prices should be passed on to the power consumers. That is to help transit transportation to EV from oil, which not only helps utilize surplus electricity capacity and reduce oil bills but also helps improve the environment.
Then, the higher power demand may lower the problem of surplus RLNG import and its handling capacity — both must be bought and run. This is imperative, as gas prices for captive industrial users are becoming exuberantly expensive, and these users have no incentive to move to the grid as the delta is moving in favour of electricity.
However, there are grid constraints. Many industrial consumers complain about frequent grid tripping, especially in Punjab. The problem is less on the KE network.
Those with continuous processes have higher wastage due to tripping, while a few others have machinery compatibility issues. These are required to be addressed. KE (the only private entity) is active in doing so, while the rest of the DISCOs are lagging.
The other problem is that the power sector’s circular debt keeps growing despite lower prices and funded subsidies. This anomaly is due to higher transmission and distribution losses than permissible.
Electricity theft is not being controlled, as some Discos’ recovery continues to be low. Then, the transmission losses are higher than the permissible limits, adding to the circular debt flow.
That is criminal negligence and has the potential to eat away all the benefits. There is no substitute for privatizing and corporatizing Discos. The regulator, Nepra, must be tough on DISCOs to limit their losses. Otherwise, the dream of converting industry and transportation overload on gas and oil to electricity would remain a pipedream.
Copyright Business Recorder, 2025
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