The government is passing on the power transmission and collection inefficiencies to those consumers who actually pay their electricity bills. Obviously, this is far from ideal as good consumers (who pay their bills) are made to suffer on account of bad consumers. But, the reality is different as the power sector subsidies are becoming too high and the principle decision, in line with IMFs direction is to increase tariffs in a staged manner to slash the subsidies.
The quantum of power sector subsidies was Rs464 billion in FY12 and was reduced to Rs310 billion in FY14.But the government had to make further adjustments to meet the FY15 target of Rs185 billion. In order to do so, November bills included Re1 for 301-700 units and Re0.5 for 700 plus units consumption under the name of universal obligation fund.
Besides this, the debt servicing cost of settling circular debt was exceeding Rs27 billion and to curb it, a surcharge of Re0.3 per unit was imposed on estimated 90 billion per annum units consumption of electricity in the country. Its good to cut the subsidy as people of Pakistan have to pay one way or the other for inefficiencies, but the better way is to charge directly to electricity consumers rather than burdening all the tax payers.
This hurts more knowing that the PMLN had settled Rs500 plus circular debt (roughly half in cash), upon assuming the national government settlement, and within eighteen months the amount has again risen to Rs300 billion while the power sector receivables are approaching Rs600 billion. Now the consumers are paying Re0.3 extra for every unit consumed for servicing of earlier settlement, sooner or later, additional surcharge will be imposed once again after the finance ministry clears the new mountain of circular debt. And the cycle goes on.
One may wonder, why no meaningful efforts are being made to curb the losses? On the other hand, the inefficiency allowance of discos has increased from 13 percent to 15-16 percent by raising tariffs to marginally decrease subsidies. Recently, an additional loan of Rs40 billion was sought for the power sector receivables to ease PSOs financial crunch and in turn normalize supply of petrol and furnace oil.
Simply put, consumers have to foot the bill for governments inability to manage energy related affairs. The receivables of power sectors that, if not settled, become circular debt are this time primarily from the privately owned IPPs and they are entitled to service charges (KiBOR plus 4%) on late payments as per power purchase agreement. Someone has to pay this cost; either the tax payers or honest electricity consumers. Why can the government not do a decent job in ensuring an end to the constantly resurging circular debt?
Then there are controversies on the tariff determination of various independent power producers. A few IPPS were installed with dollar-based guaranteed return of 17 percent; but they are making returns of 30-40 percent in rupee terms. How can this happen? Is this due to shortcomings in NEPRAs methodology or have the IPPs owners inflated their fixed costs? Whatever, it is, the sufferers are the electricity consumers who are paying for hefty returns of IPPs, who are paying for higher transmission losses and who are paying for thieves.
Right now, is the best time for doing away with subsidies given, that oil prices are down significantly. Yet no action appears on the horizon in this vein.
There is no explanation for long hours of loadshedding during winter months despite increasing tariffs and falling input prices. According to NTDC data, the peak load generated for the country (minus K-electric) on 19th Jan 2015, was 8,617 MW as against the demand of 12,115 MW which resulted in loadshedding of 3498 MW.
The hydro availability was 965 MW for that particular day as water levels are low in winters so a fraction of 6,773 MW generation capacity is available. While the IPPS generation capacity is 8,353 MW, WAPDA thermal capacity is 4,720 MW and nuclear can produce 950 MW. Thus overall capacity available is 14,988 MW while the maximum generation was mere 8,617 MW. Why?
The government is charging consumers through the roof, yet it has failed to provide electricity even as generation costs are lower than they have been in years! This has got to be the epitome of mismanagement.
The math is simple - today FO at $35,000per ton (without GST) is even making cost of low efficiency thermal generation plants at 8 cents per unit (assuming 230 grams of FO consumed in production of 1kwh electricity) and to add O&M charges of 1 cent, overall cost of one unit produced by FO based plant comes at 9 cents. On the flip, the government is charging 12-13 cents per unit (and now adding more surcharges on it), but still cannot meet low load of winters.
The PMLN leadership should understand that consumers are even willing to pay a high price despite globally receding energy costs. All they need to do, provide electricity; is that too much to ask?