Making the tough calls: Outgoing govt leaves tariff increase to interim setup

Will ask caretaker cabinet to cut subsidy, raise electricity price by 12%.

ISLAMABAD:

As political considerations stalled energy sector reforms in the just completed government’s tenure, the Ministry of Finance is pinning its hopes on the upcoming interim setup, expecting it to increase power tariffs by at least 12% to avoid a complete system breakdown in peak summer.

The power sector no more remains financially viable as the finance ministry is bearing 57% of the generation cost, both directly and indirectly, say top officials of the ministry. They say the ministry is preparing a summary for the caretaker cabinet, which will be asked to reduce per unit electricity subsidy to sustainable levels.

“For us, the sustainable level is Rs2 per unit subsidy against current subsidy of Rs3.08 per unit,” said an official, speaking on condition of anonymity. Less-than-required recoveries, theft and technical losses are not included in the Rs3.08 per unit subsidy.



This subsidy is based on the previous average generation cost of Rs11.89 per unit. The National Electric Power Regulatory Authority (Nepra) has also finalised a new price that has further widened the gap between average determined price and notified price that end consumers pay.

At present, the federal government is paying tariff differential subsidies equal to 26% of the generation cost. Apart from this, power distribution companies are making 11.4% less recoveries from the consumers while line losses, including technical losses and theft, stand at 19.6%.

The losses on account of less recoveries and theft are piling up in shape of inter-corporate debt, which the government partly cleans when the entire system is on the verge of collapse. In the past five years, the federal government paid Rs1.4 trillion in power subsidies including three attempts to clean balance sheets of power companies.

For the current fiscal year, the finance ministry had set aside Rs185 billion for power subsidies. But, according to officials, by mid-March the ministry has already paid Rs251 billion and conservative estimates show that the subsidies will cross Rs300 billion by June.



The Planning Commission has, however, estimated the power sector subsidies at Rs600 billion for the current year. The estimates also include losses on account of theft and unsatisfactory recovery.

Officials pointed out that the existing financial health of power companies does not allow them to generate more than 8,500 megawatts of electricity. Country’s generation capacity is 16,261MW compared to peak demand at 18,562MW in April, 20,173MW in May and 21,051MW in June, according to the Planning Commission.

This will lead to a shortfall in the range of 10,062MW to 12,551MW in the next three months, triggering massive load-shedding across the country. Small towns and rural areas are already facing 12 to 14 hours of load-shedding, which will peak at 18 to 20 hours, the officials warned.

In five years of its tenure, the PPP-led coalition government increased power tariffs by more than 135%, but this hefty rise could not tackle the shortage. The sector continued to bleed in the wake of corrupt practices as leakages plagued the system from the purchase of furnace oil to power generation. The political leadership also compromised on merit as it appointed a junior grade officer to head a power company, the officials added.

An official of the Planning Commission said only few people that had been appointed on merit on the board of directors of power distribution companies have been kicked out, quietly.

The final blow to the reforms came just three days ago when Prime Minister Raja Pervez Ashraf appointed Wapda Chairman Syed Raghib Shah as Chief Coordinator of Power Sector. Through one executive order he reversed the reforms process that had been initiated 20 years ago. This may put in jeopardy about a billion-dollar loan that the Asian Development Bank is processing for the power sector, the officials added.

Published in The Express Tribune, March 23^rd, 2013.

Like Business on Facebook to stay informed and join in the conversation.