Power surcharge: no short cuts, please

Pakistanis may soon face another unannounced hike in power rates as the government has given written assurances to the Asian Development Bank that it will impose new surcharges on electricity consumers, including a circular debt reduction surcharge, in return for a $300 million loan. This means the government is punishing consumers for its own poor showing. One recalls that the government has already imposed a tariff equalisation surcharge and Neelum-Jhelum surcharge on consumers, denying them benefits of the reduction in crude oil prices in the international market. Despite this, it could still not eliminate the circular debt, which has again resurged to over Rs400 billion due to inefficiencies, mostly ascribed to the government’s poor policies. As things stand, the right to impose surcharge has already been challenged in the courts, as the National Electric Power Regulatory Authority Act does not empower the government to impose such surcharges. To get around this, as per requirement of the ADB loan agreement, the government proposed amendments to the NEPRA Act to get clear powers to impose new surcharges. Finance Minister Ishaq Dar argues that application of surcharges starting from 2019 are expected to reduce the stock of circular debt from Rs375 billion to Rs240 billion in two years, and the combination of full cost-recovery tariff and surcharges could bring it down to Rs65 billion by the end of fiscal year 2021. This is wishful thinking and suggests that the government is only trying to buy time.

Power sector inefficiencies have to be tackled head on. The privatisation programme in the sector remains a puzzle. After failure to privatise power distribution companies, the government came up with a new plan to divest shares through the Pakistan Stock Exchange. Dar has assured both the IMF and the ADB that his government would divest the shares of Faisalabad, Islamabad and Gujranwala power distribution companies. And yet one recalls that the privatisation of the power sector was rolled back because of opposition from within the government and therefore questions abound here too as to whether the government is indeed committed to this. A long-term approach is needed to solve the problems in the power sector. The government should not rely on short cuts.

Published in The Express Tribune, July 10^th, 2017.

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