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Domestic consumers being asked to bear the largest increase and all the consumers forced to pay for the inefficiency of the utilities

Dec 11 - 17, 2000

The National Electric Power Regulatory Authority (NEPRA) has allowed tariff increase to WAPDA, which will also be applicable on the Karachi Electric Supply Corporation (KESC). However, KESC still has to go through the ritual. The Authority has allowed the WAPDA to increase/decrease tariff on the basis of fuel price without going through formal proceedings. It seems that NEPRA totally ignored the huge transmission and distribution (T&D) losses being incurred by the utility as consumers have been forced to pay for the inefficiency of the utility, which is not fair.

The NEPRA has allowed an average increase in tariff which comes to 4.78 per cent, against 19.70 per cent demanded by WAPDA. The increase allowed in the tariff of the industrial consumers has been restricted to only 13 paisa per kwh. As a consequence, the increase in tariff for other customer classes ranges from 13 to 22 paisa per kwh. The impact of the increase in tariff will be passed on to the consumers after the month of Ramadan.

The Authority has rejected Ministry of Water and Power's petition to allow WAPDA an increase of 64 paisa per kwh in the average electricity tariff but allowed WAPDA's tariff to be adjusted automatically on account of variation in fuel prices on quarterly approval basis. This arrangement will allow WAPDA to maintain its financial viability by avoiding regulatory lag on account of filing the tariff petition. It will also benefit the electricity consumers of any reduction in fuel prices which will be promptly transferred by the utility without waiting for a full scale tariff review. The increase due to automatic tariff adjustment allowed in any quarter would be restricted to 3 per cent and the balance compensation, if any, will be deferred to the next quarter.

At the end of each financial year, NEPRA will carry out a detailed review of the tariff and determine the tariff for the next year after thoroughly examining all costs and expected revenues of the utilities and considering the views of interested/affected consumers as per rules.

The WAPDA's claim of recovering over Rs 17 billion through increase in tariff, due to increase in fuel prices since the last determination in June 2000, has been restricted by NEPRA to only Rs 5 billion. The balance amount has to be recovered from a reasonable portion of its receivables, reduction of the losses, projected increase in sales revenue for the current financial year and other factors outlined in the determination.

While distributing the burden on individual customer classes, NEPRA has excluded domestic customers using up to 50 units in a month as well as commercial customers and public lighting from any increase.

However, sector analysts strongly believe that making the decision in favour of WAPDA, the Authority ignored the ground reality. Global crude oil prices after touching the highest have already started receding. OPEC has increased the quota of members and supplies from Iraq are also expected to increase. Therefore, prices of furnace oil and other products are bound to come down as the price of crude oil is expected to move within a bandwidth of US$ 20 to 25 per barrel. They also say that the interim relief was enough to take care of increased furnace oil cost in the past and there was no need to allow hike in tariff. They strongly believe that since there is no evidence that GoP/utilities have ever reduced the fuel price/electricity tariff due to reduction in international prices of crude oil, a cap on tariff would have been a more prudent decision.

These analysts say that the real problem of state-owned utilities (WAPDA as well as KESC) is huge and out of proportion T&D losses and not the fuel cost or power purchase from IPPs. The recent increase in fuel price was a temporary phenomena because the utilities were allowed interim relief.

At no point, a fact should be ignored that both WAPDA and KESC suffer from inefficiency, mismanagement and corruption. Therefore, it may not be wrong to say that NEPRA has endorsed their inefficiency and consumers are forced to pay for that. Unless operational efficiency is improved, no other measure, including increase in tariff, can improve cashflow of these utilities.

The KESC should get electricity at a lower cost from WAPDA because it (WAPDA) is propagating the philosophy of selling electricity to bulk buyers at a discount. KESC is still the largest bulk buyer of WAPDA and if it buys even larger number of units, as proposed earlier, it would be the biggest buyer. On top of any argument, is it not inherent right of consumers in KESC's franchised area to get 10 per cent of electricity produced at hydel power plants at cost? They deserve this not only as their inherent right but also because industrial units located in Karachi are the major supplier of products for upcountry market and also because they contribute heavily towards fuel freight pool, for the transportation of other POL products.