TARIFF HIKE TOLLS

SHABBIR H. KAZMI
July 13 - 19, 2009

The way electricity tariff has risen in the country over the years often confuses the analysts. Some of the experts are of the opinion that tariff hike has only proliferated electricity theft. They also say that the successive governments have failed in resolving power crisis but the performance of the present government is most deplorable. The lingering power crisis is not because of reduction in generation capacity but only due to mismanagement. On top of every thing, constant blurring of politicized statements creates more confusion than providing any sustainable solution.

It is true that during the last one decade price of crude oil has skyrocketed to high US$147/barrel but it is not the only cause of tariff hike, it is mainly due to rampant power theft and non-payment of bills by government, semi-government and autonomous bodies. While the utility companies just cannot disconnect supply to most of the defaulting entities, mounting circular debt has also affected operations of IPPs. Transmission and distribution (T&D) losses mostly comprising of theft have been lingering around 40%. Instead of utility companies overcoming this issue, they have been resorting to tariff hike. Ironically, the government has been condoning this gross mismanagement - to be precise rampant corruption by allowing tariff hike. Even the National Electric Power Regulatory Authority (NEPRA), given the mandate to protect the interest of all the stakeholders of the power sector has been protecting the interest of only one stakeholder, utility companies.

Experts are of the opinion that electricity theft goes on only because of the corrupt employees of the utility companies. It is a strong ring of operators, which have become a monster and even the top management appears helpless. New connections are refused on the pretext that 'demand exceeding supply' but official kundas are encouraged in the name of temporary connections. It may also be remembered that these official kundas are on top of unofficial kundas operating under the patronage of the corrupt employees of the utility companies.

The quantum of theft is evident if one looks at the periodical reports. In case of KESC, the number of units billed is almost equal to the number of units generated by the utility and whatever quantum is purchased from IPPs and PEPCO goes straight towards T&D losses. This persistent and significant hemorrhage turned the KESC virtually insolvent and in an attempt to ensure minimum supply the successive governments have been injecting billions of rupees annually. Various restructuring efforts and even its privatization and injections of billions of rupees by the new management have failed in improving the financial health of the company. It is necessary to clarify that PEPCO faces even more precarious situation.

While Punjab and NWFP enjoy the advantage of hydel power, costing less than a rupee as cost of generation KESC is entirely dependent of thermal power generation be its own or bought from the IPPs. The government has never passed on the advantage of low cost hydel generation to Karachi, the hub of all the industrial and commercial activities and also having a population of nearly 20 million or more than one tenth of country's population. Since average cost of power generation at KESC is much higher as compared to PEPCO, it certainly deserves subsidy to keep the tariff comparable with the tariff being charged by DISCOS operating under the umbrella of PEPCO.

Another, but most important factor responsible for persistent hike in electricity tariff is declining share of hydel generation in overall electricity production. It was not a distant past when the hydel share was more than 60%, which has reduced to about 25% now. It is mainly because Pakistan failed in constructing hydel generation facilities and under the dictation of international lenders, IPPs mostly based on fossil oil have been established. However, blaming the international lenders may not be right because they are also driven by the policy of inducting private sector in power generation, transmission, and distribution. It is true that the tariff being charged by the IPPs is high but distribution companies have to accept that if T&D losses are contained to less than 10% for PEPCO and less than 5% for KESC substantial reduction in tariff can be achieved. The logic is simple 'any person/entity using electricity must pay the cost' and unless this rule is followed, neither the operations of utilities can be improved nor the tariff can be reduced.

Some of the areas in Karachi having ethnic concentration are notorious for power theft. There is no doubt that electricity tariff is high but theft is not the solution. It may be true that some people do not pay but other have to pay even higher - for the units they consume as well as for the units pilfered. The government must help the KESC in recovering the outstanding dues and also in removing all sorts of kundas. How can a company whose 40% production is pilfered survive?

Public representative must also help in convincing the consumers to pay the bills rather than telling them not to pay the bills. To make power utilities self-sustaining their cash flow has to be improved by containing T&D losses. If the rampant theft prevails on adding new generation capacities, revamping transmission and distribution networks and above all reducing tariff would not be possible.