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August 30, 2018

Power tariffs


August 30, 2018

The impact of the devaluation of the rupee is set to be felt on electricity tariffs. Power distribution companies have reportedly petitioned Nepra for a 63 paisa per unit increase in tariffs due to fuel price adjustments. The Central Power Purchasing Agency has claimed an additional cost on the basis of the 2015-16 base tariff, instead of the 2014-15 benchmark. Coming amidst a renewed demand from the former caretaker energy minister Barrister Ali Zafar for breaking up DISCOs into smaller units, the question of how the PTI government will approach the power-sector crisis in the country is becoming more important. Little is clear about how the next government will attempt to address the significant challenges within the power sector – of which keeping consumer tariffs low seems to have become the lowest priority. Till the 1970s, provision of cheap electricity was seen as a developmental imperative for the state. Electrification became a key way for Pakistan to ensure that it was leaving the dark ages behind and becoming a modern industrial economy. The project has now been long dead, but the new government could choose to revive it.

Instead of promising to do more of the same set of failing policies better, the new government could choose to be bold. Power-sector legislation and regulations in the last three decades have been designed to benefit private companies, rather than the public or any idea of national development. The creation of more DISCOs seems to be underpinned by a simplistic economic logic of ‘small is better’. The unbundling policies of the 1990s, which followed the same logic, have a major role to play in the circular debt crisis of today, in which distribution companies, generation companies, fuel suppliers and the government are all in debt to each other. Currency devaluation was always going to push electricity prices up, given Pakistan’s imported fuel-reliant power mix. Only around 30 percent of the electricity in the grid is generated through renewable sources, including wind, water and sunlight. The fuel cost for both furnace oil and LNG-based generation units has gone up, which requires a legitimate adjustment in the tariffs under the current regulatory framework. There is little that can be done – except for the government deciding to provide a subsidy, which is unlikely given the state of fiscal unrest and promises of austerity. Under the current status quo, further price increases for electricity consumers are to be expected.

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