Problems with power tariffs

We know there is a big difference between the cost of generating electricity and the cost at which it is being sold. But we are not sure exactly how big this difference is because the manner in which the cost of generation is calculated is disputed between the finance ministry and the power bureaucracy. We also know that large amounts of money are not recovered by distribution companies due to theft or clients who believe they are under no compulsion to pay, such as political personalities and their relatives, government offices, military etc. We do not know the exact size of these "recoverables" as they are known in the parlance of the power sector, but we know they are substantial. We also know that a lot of the electricity that is generated never reaches any customer due to the poor state of the power distribution infrastructure — these losses are known as "technical" losses. The accumulated costs of theft, mounting recoverables and technical losses are often included in the "cost of generation" by the power bureaucracy, thus placing the burden of making these payments on those people who honestly pay their bills every month.

Policy should never be made in the dark. Policy making should also not be confused with politics. It will take more than press conferences, photo ops, and dramatic “announcements” to address the power crisis. We are saddened to note that after two and a half years in power, nobody in this government has been tasked and empowered with taking ownership of the steps needed to resolve the power crisis — steps outlined in the energy policy devised by the Shaukat Tarin team and reiterated during the “energy summit” earlier this year. We are concerned that Pepco does not have a recognisable figure as a chief financial officer (CFO) to this date, even though its problems are primarily financial. We are also saddened to see the government continue to find reasons for why independent boards of directors cannot be installed in the distribution companies where the majority of the losses are being incurred. We are equally saddened to see that all credible third party evaluations being done on any power sector initiatives have to be done by outside agencies such as the Asian Development Bank, since the government appears to lack credible institutions of its own to provide quality feedback. In fact, we are saddened to see the widespread lack of action towards resolving the problems of the power sector.

Without transparency and sound ownership of the problems plaguing the power sector, no announcements made by the government are credible. Without calling upon credible and empowered people to step forward and serve in key positions across the public sector power bureaucracy, such as a CFO for Pepco and independent boards for power generation and distribution companies, no meaningful implementation of any reforms can be carried out.

Therefore, before hiking tariffs any further, it is reasonable to expect the following from the government: Make public the amounts of money that are recoverable by each distribution company, along with the identities of the clients who are refusing to pay;  Make public the technical losses incurred by each distribution company; Make credible progress in advancing power sector reforms, which includes the unbundling of Pepco, and the appointment of independent boards for distribution companies, so consumers are assured that steps are being taken to rectify the problems that are leading to such large scale losses in the system; Hold the present officials in the ministry of water and power accountable for their failure to bring down losses in two and a half years. Accountability should begin at the top.

Without these steps, it is not possible for consumers to know whether they are being asked to pay more for the rising cost of generation or for the cost of the inefficiencies of the system. Therefore, we believe that only after these steps have been taken is the government entitled to ask consumers to pay more for their electricity.

Published in The Express Tribune, October 26^th, 2010.