EDITORIAL: Despite successive revisions in base tariff and imposition of all kinds of surcharges, which together have made electricity unaffordable for a very large number of people, the power circular debt is a belligerent devil that remains out of government’s control.
The circular debt has been “curbed” at Rs2.3 trillion, according to the authorities. But the increase in it is evident from the fact that the power regulator, Nepra, has notified Rs 3.28 per unit actional quarterly tariff adjustment (QTA) for all consumer categories (except the lifeline consumers), including KE, for the next six months till March 2024.
The overall impact is reported at Rs200 billion, including Rs136 billion for additional cash flow to Discos. This is an unending cycle.
Interestingly, the power division has posted the National Electric Plan (NEP) 2023-27, which is approved by the previous government. The plan is aimed at, among other things, ensuring, albeit partially, the recovery of growing capacity charges payable to IPPs (independent power producers) through fixed charges to all consumers.
This shows that the government is finding it difficult to finance the growing capacity charges, which are due to the addition of a number of new power plants in recent years and a sharp decline in rupee value.
The plan states, among other things, that fixed charges shall be progressively incorporated in the tariffs of all consumer segments, except consumers of the protected category. Such fixed charges shall duly account for, inter alia, the share of capacity cost in the cost of service, market interventions, consumption behaviors and affordability of consumers.
The aim is to collect fixed charges of at least 20 percent of fixed cost by Fiscal Year 2026-27.
The question is: what is the basis of collecting these fixed charges and would it be a fixed charge on consumption or sanctioned load? As per experts, the government cannot levy fixed charges on consumption as it militates against the rationale of levying fixed charges, and consumers may move the court to get a decision against the government step.
Hence, it should be on sanctioned load. The fixed charges are perhaps designed to recover the basic cost of electric service, independent of how much energy is used.
There could be three categories of such consumers. One with closed shops, factories, or houses, and they have certain sanctioned load but do not consume it. If they must be burdened with fixed charges, then they may ask for temporary disconnection.
The second is solar power category where consumers are already using sanctioned load. If fixed charges are to be applied on these, they might completely quit the grid by installing batteries to store energy and complimenting these with generation sets, as a result of which Discos will be losing this segment of good consumers.
The third category (mainly industrial) comprises of those consumers who have their own captive and alternate means of producing energy and they go to the grid when they actually need it, while Discos are always required to ensure availability of certain load for them. Here higher fixed charges make sense, as this may eventually compel them to use more grid and help the government lower the charges of capacity cost per unit.
There are already fixed charges for commercial and industrial consumers based on sanctioned loads. The idea perhaps is to enhance charges significantly. This is likely to be on the sanctioned load or actual maximum load for the said month.
Going forward, sanctioned load may not be a good variable to bill charges. The fixed charges are likely to be calculated on maximum load (or demand) based on previous months’ consumption calculations. In this manner, fixed charges will gradually catch up with the capacity cost borne by the government.
The government and its electricity regulator need to have more clarity on the issue. They are also required to find a plausible answer to question how the fixed charges are to be applied. In the large scheme of things, this move will transfer government inefficiencies and its poor judgment, resulting in incorrect and irresponsible decisions (for example, adding too much capacity in too little time) onto the unsuspecting consumer who is already buried beneath the pile of garbage of choices made by those in power.
Practically, if this policy is not applied with care and prudence, the good consumers will start completely disappearing from the national grid, which will exacerbate the problem. Someone must wake up to the fact that it is hard to find a viable solution to this issue without developing a competitive electricity market and carrying out sell-off of beleaguered Discos.
Copyright Business Recorder, 2023