In Pakistan, the energy sector stands as both a pillar of progress and a stumbling block to prosperity. At the heart of this conundrum lies the inefficiency and instability of electricity distribution companies (Discos), which hinder the nation’s growth trajectory and perpetuate the cycle of economic stagnation.
Since the unbundling of the all-powerful and vertically integrated behemoth called Wapda in the late 1990s resulting into myriad of generation, transmission and distribution companies, on the premise of across-the-board privatization of these smaller and easy to manage bodies.
Unfortunately, privatization couldn’t move beyond divestment of GoP shares in the KESC and the remaining entities suffered poor governance in terms of less-than-desired BOD choices and selection of senior management on considerations other than merit and transparency. However, amidst these challenges lie opportunities for transformation and renewal, beckoning policymakers to chart a new course towards energy sustainability and economic prosperity.
The dilemma of energy distribution
For years, Pakistan’s energy sector has grappled with the burden of a so-called rationalized national uniform tariff system, which undermines efficiency and incentivizes operational inefficiencies. Under this regime, well-managed Discos shoulder the financial burden of their less efficient counterparts, stifling innovation and progress. To break free from this cycle, the energy value chain must undergo a fundamental restructuring, starting with the dismantling of the national uniform tariff.
Electricity bills an instrument to generate tax revenues
One of the most bizarre and unfortunate aspects of energy sector supply regime in Pakistan is the abuse of monthly electricity bills as a tool to collect various taxes and fees from the captive power consumers. No regional country is collecting tax revenues through energy bills.
But then no regional country is having worse tax-to-GDP ration than us. So, we are continuing with this practice since ages. Currently, there are at least 9 different types of taxes being collected through monthly electricity bills like Electricity Duty which is a provincial duty levied to all consumers ranging from 1 to 1.5% of variable charges; General Sales Tax is levied on all consumers at the rate of 17%; PTV license fee is being charged at the rate of Rs 35 from domestic consumers while commercial consumers are paying Rs 60 every month; Financing Cost Surcharge is being levied @ Rs 0.43 per KWh to all consumers except lifeline domestic consumers; Extra Tax is being charged to industrial and commercial consumers at the rate of 5 to 17% who are not registered with the FBR as active tax payers; Further Tax is being charged at the rate of 3% to all consumers having no Sales Tax Return Number; Income Tax is being charged to consumers at various rates depending upon applicable tariffs and the amount of electricity bills; and finally the Sales Tax which is being charged at the rate of 5% to commercial consumers on bills up to Rs 20,000 and 7.5% on bills exceeding Rs. 20,000.
In addition to these taxes, there are a mindboggling GST, Income Tax, Excise Duty, Extra Tax, Further Tax and Sales Tax being charged on Fuel Price Adjustment. It can’t get any messier than this one. In a word, the weakness of tax collection regime in the country is being compensated through overburdening the hapless power consumers. If we reduce this unwanted tax burden, it will provide a much needed fillip to our industrial and commercial sectors with a great spin-off in the form of resultant increase in the tax revenues and a big respite to our domestic consumers.
Empowering efficiency through financial accountability
As mentioned in one of this writer’s earlier articles, one solution involves linking theft and losses directly to provincial budgets, thereby incentivizing greater accountability and efficiency at the regional level. By aligning incentives and responsibilities, provinces can take ownership of their energy distribution networks, driving improvements in recovery rates and operational performance.
Additionally, a structured sharing mechanism for transmission and distribution losses among federal government, respective provincial governments and all employees of the Discos can provide a gradual transition towards greater financial sustainability without imposing undue burdens on any single entity.
Unlocking Potential through privatization and innovation
The path to energy reform also includes embracing privatization and innovation as catalysts for change. For Discos burdened with inefficiencies and financial strain, long-term concession contracts with private sector partners offer a pathway towards operational excellence. These partnerships can leverage private sector expertise and capital to modernize infrastructure, improve service delivery, and enhance revenue collection.
Conversely, Discos with relatively better performance metrics can explore full privatization, unlocking new opportunities for investment and innovation. By embracing smart metering technologies and streamlined processes, these companies can optimize operations and reduce transmission and distribution losses, ultimately delivering more affordable and reliable electricity to consumers.
Navigating complexities with forward-thinking strategies
As Pakistan navigates the complexities of energy reform, it must adopt forward-thinking strategies that balance short-term challenges with long-term benefits. This includes proactive engagement with stakeholders, including employees, communities, and investors, to ensure alignment and buy-in for reform efforts. Moreover, policymakers must remain vigilant in addressing regulatory hurdles and legacy issues that may impede progress, fostering an environment conducive to investment and innovation.
A call to action for energy sustainability
In conclusion, the transformation of Pakistan’s energy distribution sector is not merely a necessity but a moral imperative. By dismantling outdated systems, embracing privatization and innovation, and fostering a culture of accountability and transparency, Pakistan can unlock its true potential as an energy powerhouse. The time for action is now, as we stand on the cusp of a new era of energy sustainability and economic prosperity. Together, let us power Pakistan towards a brighter future.
Copyright Business Recorder, 2024