Consumers get electric shock

The government hiked electricity tariff by 7.6 per cent for all categories of consumers under a condition slapped by the IMF.

The government on Wednesday hiked electricity tariff by 7.6 per cent for all categories of consumers under a condition slapped by the IMF. The decision takes effect from July 1 (today).

The increase is over and above the 60 per cent hike, which the consumers have witnessed from September 2008 to January 2010. It would put an additional burden of Rs52 per month to consumers using 100 units of electricity.

According to an official notification the electricity prices have been increased for the consumers of all power distribution companies, including the Karachi Electricity Supply Company (KESC) with effect from July 1 (today), the first day of the new financial year.

A 7.6 per cent hike would jack up average power tariff by 52 paisa per unit. The new average tariff per unit would be Rs8.75. The decision would fetch the state coffers Rs46 billion during the course of the year in the name of recovering full cost of electricity generation.

However, the government is ignoring the fact that the gap between the generation and consumer cost is chiefly because of power theft and inefficiency of the heads of power distribution companies who are well protected by their political masters.

“It is a disastrous decision, which will encourage electricity theft,” said Dr Ashfaque Hasan Khan, former adviser to the finance ministry. He said that the increase should have been linked with a reduction in line losses. Dr Khan said that the government should give a target to all electricity distribution companies to reduce their line losses by 3 to 5 percentage points or their heads should be sacked.

The line losses in case of five distribution companies are as high as 40 per cent. One per cent line loss means Rs6 billion in lost revenue. The government gave a target to all companies to reduce the losses by two percentage points. Interestingly, according to former finance minister Shaukat Tarin, the losses have increased by the same percentage and these well-connected heads of the distribution companies are sitting on their positions.

The government of Pakistan had entered into an agreement with the World Bank, the Asian Development Bank under the umbrella of the International Monetary Fund to increase power tariff by 24 per cent in three phases. It implemented the first two increases of 6 per cent in October and 12 per cent in January but delayed the last 6 per cent of April on political grounds. The outcome is now 7.6 per cent increase.

The government claims that it delayed the decision till the time the power supply situation is improved. “Now when power generation capacity available with Pepco’s national grid has improved by about 2,000 MW, electricity tariff is being raised with effect from July 1 by 7.6 per cent across the board,” the official release states.

The financial deficit of the power sector is estimated at over Rs200 billion by the ministry of finance. The government’s policy of recovering the full cost means the tariff will go up by at least 34 per cent during the course of the fiscal year 2010-11, as it has not allocated power subsidy for this fiscal year.

Independent experts are opposed to the strategy. They say that the tariff and revenue increases do not depict 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 system line losses.

Published in The Express Tribune, July 1^st, 2010.