About two weeks ago, it seemed as though the IMF had ended all hopes of a substantial reduction in electricity tariffs before the upcoming summer months when electricity usage is at its peak. The Rs8.0 per unit reduction in electricity tariffs Prime Minister Shehbaz Sharif was expected to announce on March 23, reportedly contingent on IMF approval, never materialised. Luckily, there has been a turnaround. Following a consensus with the International Monetary Fund (IMF), Prime Minister Shehbaz Sharif on Thursday (April 3) announced a reduction in power tariffs for domestic and industrial consumers by Rs7.41 and Rs7.69 per unit, respectively. While not as high as the Rs8.0 per unit cut many initially expected, this is still a substantial cut and many households are now breathing a sigh of relief. Aside from enabling households to save some more of their money from the country’s ever-expanding utility bills, the cut also offers industries a chance to boost production and, hopefully, exports too. The latter is a point emphasised by the PM, who also promised a further reduction in power tariffs next month after implementing structural reforms in the loss-ridden power sector. Reports claim that the IMF that the country’s economic team successfully persuaded the IMF to permit the use of higher petroleum levy collections for tariff reductions.
While this does no favours to the millions of motorists in Pakistan, electricity bills have often been an even more painful expense, drawing the people’s ire whenever they rise in a way that fuel prices do not. In that sense, the bargain with the IMF was both economically and politically astute. All this being said, the power tariffs for both residential and industrial consumers are still quite steep and Pakistan’s power sector is still broken and far from fixed. The prime minister admitted as much when he criticised the inefficiency of state-owned power plants (Gencos), pointing out that Rs7 billion was being spent monthly on their security despite zero output. He also highlighted how the DISCOs are Rs600 billion in losses, calling for the power minister and other officials to curb theft and inefficiencies. Then there is the nation’s seemingly never-ending IPP struggle and the circular debt. While the government has revised agreements with IPPs, reportedly saving over Rs3,500 billion over the next 15 years, and there are plans to eliminate the Rs2.393 trillion circular debt, this will not be the first administration to be stumped by this challenge.
One hopes that it does not come to that but it must be acknowledged that this is often what has happened in the past. Rather than powering the country forward, the power sector now holds it back, burying the people under an unsustainable level of debt. If this is truly to be Pakistan’s last IMF programme, the issues plaguing the power sector will need to be resolved on a long-term basis. Greater efficiency, less theft and privatisation are likely part of the answer, but so is expanding the country’s renewable energy repertoire. In this context, the government’s move to adjust net metering rates at the cost of solar consumers is not a step in the right direction. Shackling consumers to a grid that state power companies and the government itself acknowledge are failing helps no one and it is also unwise to shift so much of the burden for fixing the power sector’s financial woes onto the people. The government might have bought some time with this reduction in the power tariff, but victory over the country’s energy woes remains distant.