Government’s insatiable appetite for power tariff increases

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VIADr. Shahid Rahim
SOURCEDaily Times
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Our government’s latest increase in electricity tariff is problematic for a number of reasons. More than anything, it clearly demonstrates that it has nowell-thought-out solution in hand todeal with power sector issues other than taking the path of least resistance-further squeezing those faithfully paying electricity consumers who are already struggling miserably under the heavy burden of an endless streak of electricity tariff hikes in the country.

There are news reports also that the government through its Economic Coordination Committee of the Cabinet (ECC) has approved increase of power tariff by 26 paisa to meet an IMF conditionality against the15 paisa raise that was recommended to it by the National Electric Power Regulatory Authority (NEPRA). This recent raise is on top of the Rs.1.83 per kWh increaseapproved by NEPRA during the first week of November 2019. This decision, therefore,casts serious doubts on the much trumpeted independence of NEPRA as the government conveniently bypassed the regulator when it thought this to be expedient.

Also Read: Nepra okays Rs1.83 per unit increase in electricity tariff

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A critical consideration when fixing tariffs of public utility services such as electricity is their “affordability” for the general public as well as productive sectors of the economy. When the prices of these services risebeyond a few percent of the monthly income of residential consumers, these start to have a punishing effecton their lives as families are compelled to cut corners on some of their other basic needs including food, health, and education. Such price increases also render the products of industrial, agricultural, and commercial consumers lesscompetitive in the market leading to losing their market share and, in extreme cases, even driving them out of business.

Like the invested costs of the installed power plants, the wrong decisions of the previous regimes that have led to these investments are also sunk and no amount of chest beating by the present rulers is going to reverse these. Wisdom, therefore, demanded that instead of digging graves as to who was responsible for the current mess in the power sector and why, the government needed to focus onmaking efforts to ameliorate the current crisis and lead the nation to a more affordable, secure, and sustainable energy future.Unfortunately, the government appears frozen in historyand unable to move forward as 15 months into power, and it’s still clueless as to whatit shouldbe doing to resolve thepower sector issues which are worsening with every passing day.

Pakistan’s power sector problems are quite well-known and also clearly documented. If asked, even a layman in Pakistan would tell that our power sector is currently ailing from three critical issues: (i)pervasive inefficiencies and gross mismanagement; (ii) lack of recovery of a substantial portion of the billed amount from some consumers; and (iii) a rapidly spiraling up circular debt. The first two in the above list are chronicand have been with us for quite some time; the third oneis relatively new, but is rapidly exacerbating.

One can, therefore, safely assume that these issues and their criticality werenot hidden from a political party that has been vying for power for the past 22 years.Once coming to power, it was expected to quickly put its own plan into action to plug the holes that have beenconstantly bleeding this sector and take effective measures to transform it on more solid and viable footings. All we have seen, however, are tall promises and run-of-the-mill solutions that can, at best,be termed Band-Aids and quick-fixes, devoid of any deeply thought out vision, strategy, or plan. Although not the instigator for it but a key contributor to the rapidly burgeoning circular debt in the power sector is the gradually shrinking consumption base in the country. The average electricity consumption in various consumer categories is continuously on the decline for the past few years. The actual reasons for this can only be determined through proper research but it can be argued on intuitive grounds that electricity consumers in the country either may be tightening their belts under the burden of exorbitant power rates or switching to alternative modes of power supply such as solar photovoltaic systems or other distributed sources of power to reduce or eliminate their dependence on supply from the national grid.

In the medium to long run, the government should plan to blend the emerging new distributed energy resources in the grid, including the renewable power generation technologies, as despite the new market trends

On these columns, we have been repeatedly highlighting that unlike the past when they were solely dependent on grid supply, electricity consumers now have many alternative options and choices available to them. They can reduce their electricity requirements by investing into energy efficient fixtures and appliances or demand-management technologies. They can also invest in small-scale distributed and renewable power generation technologies on their side of the meter to reduce or even eliminate their dependence on the national grid. As such, they are no longer prisoners of the utility grid as they have been in the past. In the above changed and still evolving landscape, utility’s grid-supply will have to be kept reasonably attractive in terms of its reliability, quality, and price to keep the existing consumers tied with the grid and not seek alternatives means to it. As such, thoughtless increases in rates are bound to further narrow the continuously shrinking gap between grid supply and its alternatives, thus inducing more and more consumers to consider and opt for alternative means to meet their electricity demands. Government’s recent decision to offer reduced rates to some electricity consumers on their extra consumption on top of their last year’s winter consumption records is a welcome first step, but may not be sufficient by itself to keep the consumers tied with the grid and not desert it. Additional, imaginative, attractive, and stable tariff packages will have to be devised todiscourage such trends. There is also a compelling need to conduct load research in the country to properly comprehend the patterns of electricity demand and the various reasons that are forcing consumers to reduce their demand andare encouraging some of them to seek alternatives to grid supply. The results of these research studies should provide the government and the regulator an information base to devise attractive and flexible grid access and usage tariff schemes that encourage consumers to remain linked with the national grid and discourage deserting it. In the short run, the government will be better-off to stimulate electricity demand in the country. It can accomplish this objective by incentivizing existing consumers to maintain or increase their demand on the grid and by extending grid supplies to new consumers as according to reports 40 to 45 percent of the population in Pakistan is still without electricity. This will expand the consumption base and will serve to dilute the killing effects of continuously rising capacity charges in the electricity tariffs.

Absolute discretion

In the medium to long run, the government should plan to blend the emerging new distributed energy resources in the grid, including the renewable power generation technologies, as despite the new market trends, grid supply still remains much superior to independent and stand-alone power generation options for individuals, industries, and business enterprises. The key to accomplishing this goal, however, will be how imaginative, creative, and flexible our government’s future power sector policies and institutions are in unlocking their tremendous potential for the nation. tariff

The writer is a freelance consultant, specializing in sustainable energy and power system planning and development

(This news/article originally appeared in Daily Times on December 4th, 2019)

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