Not that smart

The government has made a bold but necessary decision: it has decided to terminate a loan agreement with the Asian Development Bank to install Advanced Metering Infrastructure (AMI) meters, also known as smart meters, across the grid. Paying a $1 million penalty fee has allowed the government to terminate the $5 billion loan but it will result in millions saved in sunk costs on an unnecessary upgrade. The bold decision seems to come from a recognition that that this was not the biggest priority for Pakistan’s ailing electricity distribution grid. Instead, the government has asked the ADB to divert the $1 billion first tranche into more critical issues in the distribution networks. It remains to be seen whether the ADB will be open to changing the terms of the loan – with some experts predicting the ADB could ‘blacklist’ the distribution network from further funding. In itself the need for loans to improve the distribution networks is a downhill slope, especially since the government plans to privatise the power sector. Government officials have said that they would prefer such spending to be undertaken by private-sector firms, instead of the state. In any case, smart meters are a luxury item, which do little to improve the actual problems in the grid, instead making much more detailed information available on consumption patterns.

The need for accurate information is more essential in a grid where the electricity sector has the capacity to fulfil the full demand. In the current situation, the distribution grid has a capacity limitation, which means that a certain amount of power outages are essential to prevent the whole system from collapsing. Already, the government has financed a move to Time of Use meters; this would be another additional cost without the cost of the ToU meters being recovered in the loss making sector. The other problem with the smart meters is at the consumer end. The meters only work for a highly conscious electricity consumer, and do not benefit low-income consumers. The other major concern is that they eliminate the need for meter readers, which would result in thousands of jobs in the power sector being lost. The job cuts could be seen as an advantage but given that the changes were planned through an ADB loan, this would involve a significant premium on any so-called benefit that might be achieved. The so-called saving on labour cost is also an advantage in the first world, where labour is expensive. In Pakistan, such meters would be more expensive than the labour costs saved. Globally costs have continued to exceed estimates and the benefits have been insignificant in comparison. In Canada, for example, households in British Columbia actually voted against the installation of such meters. Pakistani officials have asserted that the programme will prevent power companies and consumers from bleeding dry, with 17 percent interest rate loans. This does not mean that the problem of overbilling in the system will be solved soon – but a long-term sunk cost has been avoided. It has required bold thinking, and the same must be displayed to bring positive improvements to the ailing power grid.