Power companies juice consumers for deficit

ISLAMABAD: Serious management issues in electricity distribution companies have led to a deficit of billions of rupees in the power sector over the years and the government is determined to recover the sum from consumers by increasing tariffs, a policy, that according to experts may not be a permanent solution.

The financial deficit of the power sector is estimated to be over Rs 200 billion by the Ministry of Finance. The government’s policy of recovering costs means tariffs will go up by at least 34 per cent during the course of the next fiscal year. The first hike of 7.6 per cent will be is set to be imposed in July. Independent expert are opposing the strategy.

They say that the elasticity of tariff and revenue increase does not accurately depict the encouraging trends. Their analysis shows that one per cent increase in electricity rates is not adding one per cent revenue in the Pakistan Electric Power Company balance sheet due to theft and line losses.

Currently, the gap between the cost of electricity generation and the end consumer’s price is about Rs3 per unit. They say that if the government decides to recover this difference from consumers it will increase prices by up to one-third but a deficit will exist again after one month due to theft.

Adnan Mazari, front man for the International Monetary Fund (IMF) in Pakistan has reportedly said that Pakistani consumers are being penalised because of poor governance.

Officials in the Finance Ministry have said the IMF is pushing the government to eliminate the root cause of the power sector’s deficit, which they say is inefficiency on the part of electricity distribution companies whose line losses are as high as 40 per cent. The worst performers are Quetta Electricity Supply Company, Hyderabad Electric Supply Company, Peshawar Electric Supply Company and Karachi Electric Supply Company. Experts predict the Multan Electric Supply Company is also in trouble.

One per cent line loss means a loss of Rs6 billion. Instead of grilling the heads of these companies the government is more interested in recovering this amount from the consumers who by no means are responsible for the losses, except perhaps the consumers of Federally Administrated Tribal Areas, Peshawar, select consumers in Karachi and a few companies.

By reducing 15 per cent line losses the government could easily save up to Rs100 billion which means consumers would not be subject to at least 18 per cent tariff increase.

Principal Economic Adviser at the Ministry of Finance, Saqib Sherani is of the opinion that the tariff increase will result in inflation. “The problem is bad governance. There are some serious governance issues in the power sector that shows that there are vested interests.”

Two month ago Minister for Water and Power, Raja Pervez Ashraf asked the heads of the distribution companies to reduce their line losses by at least 2 per cent in two months or be ready to face the axe.

However, according to a senior official in the Ministry of Finance’s corporate wing, line losses have increased another two per cent. He says Pepco would park losses in Fata and no one could do anything. An insider says many of the heads have been appointed directly by top guns in the government and they have ‘full protection.’

The World Bank has forwarded a performance contract for the heads of distribution companies to the government, which is currently with Secretary Finance, Salman Siddique but no action has been taken to follow it up. Experts have suggest that line losses could be reduced a significantly if the government were to withdraw the facility of free electricity to Wapda employees. The managing directors of these distribution companies should directly be made responsible for increase in losses.

There is also a need to replace the obsolete transmission infrastructure, which is also a cause of line losses. The government should crackdown against illegal connections irrespective of political compulsions.

Published in The Express Tribune, June 28^th, 2010.