Paying a hefty price

Raises in gas and electricity tariffs have severely impacted domestic consumers

Paying a hefty price


hree items that trigger inflation in Pakistan besides a devaluation of the rupee are food, electricity and fuel. Prices of all agricultural products and manufactured items rise whenever electricity tariffs and prices of petroleum products are raised. Electricity and natural gas are utilities consumed in every household. When electricity rates are revised, there is a severe impact on household budgets. The recent hikes in gas tariffs for domestic consumers have had a nominal impact on the pockets of lower middle class consumers and a tolerable impact on middle class households. It may be noted that two decades ago there was no gas loss (theft) in the gas distribution system. Now the unfound gas (theft) exceeds 12 percent. Natural gas is mainly used as kitchen fuel in households, rich or poor, who have piped natural gas connections. Gas consumption in the kitchens is nominal. Revised tariffs have therefore not had much impact on the gas consumed as kitchen fuel.

Currently, the household bill of kitchen burners ranges from Rs 260 to Rs 450 per month. The gas bills inflate when room heaters and geysers are used. The tariff rises non-linearly to discourage such use. Tariff revisions will therefore have a greater impact on affluent consumers. Another point worth noting is that piped natural gas connections are available to less than 30 percent of Pakistani households. The rest use other kitchen fuels like LPG, coal or wood, which are more expensive than piped gas. The consumers of these alternate fuels tend to be poor. A household lacking access to natural gas consumes an 11 kg LPG cylinder for kitchen fuel per month, which costs around Rs 3,000 – nearly eight times the monthly bill for a similar household.

Following some hefty revisions of tariffs, electricity now accounts for a major slice of household budgets in Pakistan. Some households are constrained to sacrifice their other basic needs as living without electricity is not an option. Power tariffs too are non-linear, rising with higher consumption. The utilities have fixed different slabs for this purpose. The impact of higher tariffs on low-end consumers can be judged from the following example. A Lahore Electricity Supply Company consumer paid Rs 2,804 in March 2022 for the consumption of 170 units. In March 2023, the same consumer was charged Rs 5,206 for the consumption of 166 units. The nominal tariff for the bill is Rs 18.50 per unit. This means that the electricity charges were Rs 4,168. 83 while Rs 1,037.18 related to government taxes.

A household lacking access to natural gas consumes an 11 kg LPG cylinder for kitchen fuel per month. It costs around Rs 3,000 – that is around eight times the average natural gas bill for a similar household.

A lower middle class family consumes 150-200 units per month during winter and 300-400 units during summer, using a fan and maybe even a room cooler. The tariff rises for bills above 300 units. This means that the same consumer will have to pay Rs 10,000 to Rs 15,000 per month during summer peak. There are two types of domestic power tariffs in Pakistan. One is for three phase meters used by the middle class and affluent citizens. For these the day time tariff is almost double the tariff fixed for consumers having single phase connection. The tariff for three phase meters is even higher for peak use hours (from evening till 11pm). Since the tariff for three phase connections is higher and rises above the basic tariff with every increase in consumption every 200 units, consumers on three phase connections are paying almost the same bill in winter as they were paying in summer two years back. This summer, many consumers will live in misery, being forced to stop or drastically reduce the use of air conditioners.

The rationale for gas and power tariff revision is that both power and gas distribution companies operating under state control suffer huge losses. The losses are due to the inefficiencies and corrupt practices, including theft, in these companies. The ‘losses’ in both gas and power systems have increased over the years. The tariffs were also increased periodically, particularly for electricity. On many occasions the tariffs were raised to cover the cost of inefficiencies and corruption, so much so that now provisions have been added in the tariff to recover past thefts of electricity. Nowhere in the world are consumers penalised for thefts committed by others. Successive governments have failed to restructure the power sector transparently.

The state produces some electricity but the bulk is produced by the private sector. The state has given a sovereign guarantee to buy power from these producers. The power the state buys is distributed to power distribution companies that supply electricity to the region assigned to them. Line losses in the system average at 19 percent; the global norm is 6 percent. The power distribution companies operating in the system fail to collect around 12 percent of the bills from the consumers. These include both private and government sector consumers. Thus, out of 100 units bought from private producers, the distributors actually collect bills for 69 units. When the power distributors fail to pay for the electricity to the power purchaser, which is also a state owned entity, it fails to pay the private sector power producers. The private sector power producers withhold the payments of fuel suppliers that are also public sector petrol and gas companies. This has resulted in a ‘circular’ debt that now runs into trillions of rupees. It stands to reason that the gas and power tariffs should not be less than the production and distribution costs.

The International Monetary Fund had asked the government of Pakistan to eliminate the ‘circular’ debt in power and gas sectors and had suggested tariff hikes. The IMF would have no issue if power and gas sectors are made transparent and ‘circular’ debt gets paid. Bringing transparency in power and gas sectors is the only prudent way to ultimately bring down power and gas rates.

The writer is a senior economic reporter

Paying a hefty price