The dissolution of Pepco

The government’s decision, at the IMF’s behest, to dissolve Pepco will do little to resolve the power crisis.

The government’s decision, at the IMF’s behest, to dissolve the Pakistan Electric Power Company (Pepco) will do little to resolve the country’s power crisis. Ultimately, the government had little choice but to break up Pepco into eight autonomous units that will have the authority to set its own electricity prices. The IMF had held its $11.3 billion-bailout hostage to the government taking this and other steps, such as further increases in the power tariff and the elimination of most subsidies.

The dissolution of Pepco should provide marginal relief to the government. Instead of having a fixed electricity price for the country, prices will now vary by region. But this hardly counts as a panacea to the country’s electricity woes. Pepco was losing nearly Rs250 million annually, a loss that requires far more reform if it is ever going to be controlled. For that to happen, the government first has to decide if it is willing to continue subsidising electricity. Production costs far exceed the price right now, and with the price of oil showing no signs of falling, the government may be forced by the IMF to take the painful step of charging consumers the cost price of electricity.

Placing the burden on consumers, though, should be a measure of the last resort. First, the government needs to get its own house in order. Circular debt in the power sector is now at Rs584 billion and is increasing by over Rs20 billion every month. Energy companies like Sui and PSO are now on the verge of collapse, as their debt accumulates at an alarming rate. The government also needs to urgently invest in upgrading the power infrastructure, thereby reducing crippling transmission losses. Meanwhile, power theft also continues unchecked. Expecting consumers to pick up the slack when inefficiency and incompetence mars every step of the power-production process is not acceptable. For many years, Pakistan has been warned that is on the brink of an energy crisis. That crisis has now arrived and the government has taken only the bare minimum steps to lead us out of it.

Published in The Express Tribune, October 4^th, 2010.