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Yet another surcharge on power consumption

High power price basic reason for power theft

Aug 13 - 19, 2001

Sky seems to be the limit for the ever-increasing electricity charges in Pakistan. Recently, the federal government has shown inclination to levy yet another surcharge on power consumption in addition to existing list of taxes, surcharges, duties and meter rent which altogether make a cumulative effect i.e. 4 times than the actual charges.

The new surcharge has been given the name of "Power Sector Development Surcharge" (PSDS) ranging from 25 to 50 Paisa per unit in the consumer end electricity tariff shortly to generate funds for development projects.

This proposed PSDS will add to the strength of a large number of existing levies i.e. Fuel Adjustment Surcharge, surcharge, Additional Surcharge, Meter Rent, Electricity Duty, General Sales Tax. If a consumer fails to pay the electricity bill even for a day beyond the due date, he is required to pay yet another surcharge called "Late Payment Surcharge" as a penalty. An electricity bill amounting to Rs2000 received by a lower middle class consumer indicates that actual energy charges are Rs414 but by virtue of an army of taxes and surcharges escalated the bill to a total of Rs2000/-. How a family, which comes in lower income bracket, can afford pay such an exorbitant price is the question, which leads to many answers. It is said that the major reason for 40 per cent line losses accrued to utility companies i.e. KESC or WAPDA are mainly due to high price of the electricity. It is feared that with the increase in power charges the ratio of line losses will increase further. Zubair Motiwala, President, Karachi Chamber of Commerce and Industry while commenting on ever increasing power charges feels that chain effects on increasing prices of utilities and petroleum products have already rendered the Pakistani products incompetitive in the export market.

It is amazing that on one hand the government has set up the power regulatory body in the name of NEPRA, which is supposed to control the increase in power prices, while the government always find it easy to increase prices through levying tax or surcharges in the energy sector. The price level has already reached to the saturation point. The power sector needs immediate relief in the form of government subsidy lest the 40 per cent line losses (mostly on theft account) may go to the level of 60 or 70 per cent. The electricity prices will have to bring at an affordable level to curtail social crimes and to promote economic activity in Pakistan.

The new surcharge is being levied to be introduced as part of a $1 billion overall power sector restructuring and corporatization programme of WAPDA. This will have a revenue impact of Rs10-20 billion. A Universal Service Obligation Fund (USO) is also being created to provide support through social subsidies for financially unsustainable areas including village electrification.

The PSDS is to cater for development fund requirement of 12 WAPDA companies and to minimize the adverse and sudden impact of tariff segregation of these companies on consumers in different parts of the country. Policy Committee took the initial decision to this effect early this year on Restructuring of WAPDA. The committee is represented by federal secretaries of finance, water and power, petroleum and natural resources, law and justice, Privatization Commission, Planning Commission besides Chairman WAPDA and managing director of Pakistan Electric Power Company (PEPCO).

The WAPDA/PEPCO have recently suggested to the government to impose 25 Paisa to 50 Paisa per unit surcharge in tariff. The government was, however, also looking into the possibility of creating the surcharge through some stand-alone method so that there was no dependency on the Centre.

Under the programme, the government believed that linking the electricity tariff solely to the cost of supply could substantially increase the cost of electricity for many consumer categories and areas. For example, the policy makers believed that this may lead to such a high tariff in Balochistan due to far stretched transmission lines and power generation costs that its low income consumers would find it hard to bear its burden.

To protect such low-income consumers and people living in relatively less developed areas, a Universal Service Obligation Fund would be created. The National Electric Power Regulatory Authority (NEPRA) has already been asked through policy guidelines by the government to make "cost of service" the overall principle for tariff setting with an exception of low income group and agriculture sector.

At present, electricity tariff contained a surcharge, additional surcharge, and fuel adjustment surcharge to meet various expenses. The NEPRA has recently turned down a WAPDA request for a 75 Paisa per unit tariff rise.


It is unfortunate that leaving aside the exceptions, every public sector entity is suffering from huge losses and deficits running in billions of Rupees. PIA is seeking Rs20 billion for its restructuring, WAPDA has sought Rs40 billion for the purpose, and the KESC is also not lagging behind and may be in need of Rs80 billion by the end of the year to meet its financial liabilities. Major cause for these losses obviously are inefficiency, corruption and unwilling workers. Why the genuine consumers are being punished for the crime committed by the corrupt?