Power tariff up; Pepco dissolved

Government on Friday dissolves bleeding Pepco to follow crucial IMF diktat and also hikes electricity prices by 2%.

ISLAMABAD: The government on Friday dissolved the bleeding Pakistan Electric Power Company (Pepco) to follow a crucial IMF diktat and at the same time also hiked electricity prices by another 2 per cent.

The dissolution of the 18-year-old company clears the way for the restoration of the currently suspended $11.3 billion IMF bailout programme.

The dissolution would also pave the way for an independent power tariff regime for each distribution company aimed at equalising the difference between the cost of electricity generation and end-consumer tariff. The difference stands at around Rs3 per unit.

As a first step the government on Friday announced to increase the electricity prices by another 2 per cent, resulting in a 4 paisa to 26 paisa per unit increase in tariff, depending upon the consumer category.

With the unbundling of the umbrella company (Pepco), the government also announced financial and administrative autonomy to eight power distribution companies during the next six to nine months.

The liberalisation has been carried out under the umbrella of the IMF. The last leg of the energy sector reforms would be the setting up of independent power tariff regimes, a way to kick the government out of the business of controlling tariffs to appease voters by picking up the subsidy.

The prime minister had in principle approved the energy reforms package on September 28 after the IMF told the government that it would not restore the bailout programme without the implementation of both the reformed General Sales Tax and energy sector reforms.

The government has already announced its agreement with the provinces on the implementation of the reformed GST.

The IMF resorted to the energy sector reforms, as the government has been bearing the losses incurred by Pepco despite fiscal constraints. “Last year Pepco caused a loss of Rs250 billion,” said Raja Pervez Ashraf, Federal Minister for Water and Power. He said the government also formed a steering committee to oversee transition from a controlled regime to a liberalised one.

In the first instance, he said, the government would give administrative and financial autonomy to four efficient power distribution companies – Islamabad, Faisalabad, Lahore and Gujranwala.

Nonetheless, experts doubt if the unbundling of Pepco would stop the bleeding. The root cause is the subsidy the government is picking on account of difference between the costs of production and selling. These subsidies have been accumulating under the head of fuel cost and line losses due to the inefficiency of the power distribution companies.

The government’s decision to increase power tariff by another 2 per cent is tantamount to penalising the consumers for the inefficiency of the distribution companies whose heads are still on lucrative jobs despite failing to reduce the losses, the main cause of skyrocketing electricity prices.

The recent increase would be effective from October 1st, the first day of the second quarter of the current financial year. With the latest surge, the electricity prices have increased by 70 per cent since September 2008.

According to an official notification, the electricity prices have been increased for the consumers of all power distribution companies including Karachi Electricity Supply Company and would be applicable to all consumers, including those falling under the life line category that use up to 50 units per month. The increase would result in a minimum 4 paisa per unit and a maximum 26 paisa per unit increase, depending on the consumer category.

The average tariff would be now over Rs9 per unit. The tariff was revised under the pretext of recovering the additional fuel cost during the fourth quarter of the last financial year. The Water and Power Ministry in its handout said that despite increasing the tariff the government was still bearing the difference between the cost of electricity generation and the end-consumer’s tariff. It did not disclose the volume of subsidy. According to Raja Ashraf, line losses of Hyderabad, Multan, Peshawar and Quetta power distribution companies were very high, which must be capped to improve electricity supply.

“There is a need to reform the whole energy sector and I am a non-believer of giving targets,” said Dr Nadeem ul Haq, Deputy Chairman Planning Commission. He said that a DISCOs Conference has been convened in Islamabad for coming Monday.

Published in The Express Tribune, October  2^nd, 2010.