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April 17, 2021

Price of power

Editorial

 
April 17, 2021

The demand for electricity in the summer amplifies both domestically as well as in the business and industrial sectors. At this point then, when we are looking ahead to a very long summer, news that the government may have to increase power tariffs yet again comes not just as a shock but as a blow to people already struggling in an over-inflated economy. By all indications, this hike will be in adherence to the IMF’s demand. It is true that to ensure cost recovery of power generation some hike is needed, but there must be some other options that can prevent an immediate hike. The power sector in Pakistan has been a victim of mismanagement for long but during the past three years or so, this mismanagement has reached an unprecedented scale. As the circular debt issue keeps spiraling out of hand, the government has been unable to devise a comprehensive strategy to tackle major issues in this sector.

The commitment to meet the IMF goals should not be at the cost of putting more burden on consumers. The government’s revenue base has not expanded because of other reasons rather than consumers not paying enough power charges. For example, tax exemptions to businesses and the feudal elite have been preventing the national exchequer from realising its full potential of revenue generation. Then, in addition to circular debt, there is a perpetual issue of ever-increasing losses of state-owned-enterprises (SOEs). The government needs to tackle these issues first, before applying a naked marked-driven agenda. Other conditions of the IMF such as a flexible exchange rate may be to some extent acceptable to implement the agenda partially. The government needs to keep in mind that the common consumer is in a tight financial bind and can hardly afford to pay the existing already-high power tariffs.

As the government is focusing on the strengthening of social safety nets, there is much more that it needs to do, and controlling power tariffs is one of those steps. Moreover, rather than increasing power tariffs, the public financial management system needs immediate attention as it has been in a mess for long. Some major reforms are also needed so that this sector can perform to its fullest potential without affecting common consumers. The recalibration of the circular debt management plan is a good step in the right direction, and it may help – provided the government starts looking at some medium- and long-term measures rather than just responding to short-term challenges. The government should also start negotiating with the IPPs to reduce generation costs that they use to charge more from the consumers. Lastly, we must point out that distribution and transmission losses also create huge financial stress that the government ultimately transfers to the consumers. These are just some of the measures that the government can take to avoid increasing power tariffs at least for now.