Power hike

The much-dreaded hike in electricity tariffs arrived on Wednesday after Nepra announced an average Rs1.27 per unit increase in the cost of consuming electricity. The tariff increases will not affect the poorest of consumers but will differentially affect bigger power consumers. The net effect on the economy will be a transfer of Rs130 billion from the economy to the power sector. We have already noted that the latest World Bank report on South Asia’s power sector warns against using tariff hikes as a way of sorting issues in the electricity sector. The impact of the electricity price increase is going to be significant and is likely to have an impact on the already dwindling economic growth. Even the profits that the power sector accrues are being kept inside the power sector, instead of being transferred to consumers. Around Rs146 billion in net hydel profits is being arranged as a loan to Wapda to pay Khyber Pakhtunkhwa and Punjab, which should mean that the power sector now owes power consumers, although this is not how it will show up in the records. One must question why profits in the power sector, when they are made, do not translate into relief for the public.

The larger question is whether there will be a more serious approach to solving the structural problems in the power sector. The PTI government has had enough time in power to have decided to take a more serious approach to solving the power sector’s problems. Nepra itself wanted to increase tariffs by around Rs4 per unit, but the government decided not to transfer the full amount. However, one can expect further electricity price hikes in the coming future to cover the gap.

The only ones to have survived the increase are agricultural consumers, exporters and those receiving the industrial support package. It is important to keep a number of sectors protected, but there seems to be insufficient grounds for not extending the same to all power consumers. The trouble is that the tariff hike in itself does not offer a solution to the ailing power sector. It is able to offer only a cushion, which has not prevented the rise of circular debt at an astonishing pace, nor on the government’s need to rely on loans to bridge gaps in the power sector. The power sector cannot be fixed with a one-step solution: transferring the cost of all the structural issues to consumers. The government will need to come up with a coherent plan to deal with the power crisis.