Given increasing delta between the cost of electricity production and what is being charged to the consumers (on average), there is no other option left for the governmentbut to raise power tariffs. Since it is a politically tough decision where the government is the price setter;any delays in decision makingwould require even bigger jumps in prices.Which is what is happening now! The average base tariffs – netting for FPA and other adjustments, have increased by Rs7.91 to over Rs26 per unit.

It is a big and painful increase for all consumers. But it would also not be easy for distribution companies to collect. Industry experts fear that theft would increase and there would be challenges in recovering the whole increase. That would put some strain on the circular debt. However, the growth in circular debt would be much higher if there were no increases. For instance, if the incremental collection of K-Electric is supposed to be Rs140 billion, conservatively there might be slippage of another Rs10 billion to recovery losses.

The growing losses cannot be ignored. And the growing pain of honest paying consumer cannot be ignored. Lesser the increase in tariff, intuitively less would be the increase in theft. There seems to be an inverse correlation between the cost of electricity to the recovery ratio. This is true world over. Lately, the theft is even increasing the developed word. According to a report, in UK the power thefts have increased by 13 percent while the average bill of the consumer is increased by 30 percent.

Here the increase in Pakistan is 42 percent and that in effect could even be higher increase considering higher FPA and other adjustments. The law-and-ordersituation in Pakistan is even worse. Here the recover would be a challenge and disconnection would not be an easy job for the distributor.

For example, kunda system works well in different areas of Karachi. K-Electric has limited staff and execution capacity. Such problems were solved by K-Electric in its early days by increasing the load shedding in areas of low recoveries. But there is a limit to such measures. And its unfair for the honest paying consumer in high theft area.

Government needs to deal with the issue holistically. There are no two ways about the fact that the cost should be recovered or budgeted as subsidy. The growth of the circular debt needs to be arrested. That is and should be the top priority. However, the solution should not be confined to mere passing the on the cost to the consumers. Rather the work should be done on lowering the cost as well.

For that, the transmission losses need to be minimized by improving the grid handling capacity of discos. The way K-Electric is doing in Karachi. The other need is to lower the production of electricity on expensive fuels in days of high prices and the government should avoid the use of inefficient plants running on Furnace oil. Then the focus should be on limiting the captive use in domestic and commercial areas – as this mostly run-on imported fuel. And curtailing imports is the top macroeconomic agenda.

Not allenergy production has the same cost. The marginal cost of producing electricity on hydel and nuclear is a tiny fraction of that produced on imported coal or on LNG bought at spot. The government should completely avoid buying LNG at spot or importing Furnace oiland should refrain from imported coal till the prices are high.

For that, load needs to be managed. Government is doing it by having load shedding across the country or in most parts. But rich people and commercial spaces use generators which run on diesel and petrol. These generators are highly inefficient and run on imported fuel. The marginal cost is high and borne by the consumer himself. This should be discouraged. Government can limit the sale of diesel in jerry cans. The government or distribution companies can run public campaigns.

A better option is to limit the business hours. The shopping malls and markets should be encouraged (or mandated) to work from 7am to 7pm. Marriage halls should have strict limits of closing at 10pm. Private lightening at farmhouses and homes should have the same policy. Schools and offices should have four working days. The air conditioning should be mandated to run at 26 degrees in commercial spaces.

The government must have its writ and should stand firm on saving and conservation measures. Otherwise, the tariffs would soon be required to increase further.