GROWING ELECTRICITY CRISIS AND RISING TARIFFS

SHABBIR H KAZMI
(feedback@pgeconomist.com)
June 14 - 20, 20
10

The menace of electricity and gas load shedding is on the rise despite frequent and substantial rise in tariffs. There can't be any doubt that energy crisis is the outcome of inefficiencies, wastages and above all rampant pilferage. The policy planners do not understand that hike in tariff can not improve the financial condition of companies responsible for the distribution of electricity and gas. The bad governance is adding to inter-corporate debt (commonly known as circular debt) and pushing the entities part of energy supply chain towards bankruptcy. Injection of fresh equity and/or providing subsidy has not benefited the poor. Though money is given to the electricity and gas supplying companies to keep the small consumers immune from adverse impact of rise in tariff, the 'fat cats' eat every thing and nothing is left for the deprived consumers.

Till yesteryear Wapda was called 'white elephant'. Its power wing was turned into corporatise entities and put under management of a holding company Pepco to facilitate privatisation of these entities. While Pepco has failed in ensuring privatisation of the corporatised entities it has also proved worse as compared to Wapda. One of the policies of Pepco of issuing daily bulletins about supply and demand seems only a pile of lies.

Added to this are the appearances of its top officials on television channels and giving completely misleading information. For ages these officials have been saying that supply is getting closer to demand but duration of load shedding now stretches from 8 to 16 hours. It may be following limited outages under announced load shedding program but there is no end to unannounced load shedding.

Though the minister for water and power and Pepco officials hold the previous government responsible for the current energy crisis, they have failed miserably in operating the available facilities efficiently. Power plants are being run at lower capacities to save fuel. In fact the suppliers are not willing to supply the required quantity of fuel because of the outstanding debt. The statements of the minister and Pepco officials that circular debt is the outcome of not recovering the full cost from the consumers are beyond comprehension.

Crude oil prices have reduced to half from its peak of $147/barrel but tariff has been increased by 60 per cent over the last two years despite that the size of circular debt has been rising. The present size of circular debt is estimated around Rs220 billion despite issues of TFCs worth Rs180 billion during last one year. Ironically, Nepra has also become subservient because it allows tariff increase with retrospective effect. This increase comes under fuel adjustment.

If they believe that by reducing fuel consumption at power plants they can save billions of rupees they are totally mistaken. In fact with the rise in load shedding the number of units billed also goes down. Added to this is the burden of running smaller and inefficient generators by the consumers. The common complaint of bill paying consumers is that while they suffer from the worst load shedding people using Kundas enjoy cost free electricity. It may be noted that Kunda culture has thrived with the connivance of staff of the utility companies.

The purpose of creation of Nepra has been defeated completely. The authority was created to protect the interest of all the stakeholders but has become the sole protector of the interest of power generation, transmission and distribution companies and has no regard for the consumers whatsoever. Though regular hearings are held before allowing hike in tariff, the final verdict is always in the favor of utilities and not even the least concession for the consumers. If only the point of view of utilities has to be listened, this could be done without holding hearings and wasting millions of rupees of tax payers' money and precious time of the consumers.

In these pages it has been pointed out repeatedly that the present energy crisis is not due to demand and supply gap but the bad management of the available resources.

Transmission and distribution losses of both the Pepco and KESC hover around 40 per cent, which mostly comprises of theft. The UFG losses of gas marketing companies also exceed 8 per cent mainly due to depleting pipelines and also due to theft. If these pilferages are contained revenues of the utilities will increase substantially and there will be no need for frequent hike in tariffs.

Cash flow of the utilities can not be improved without containing theft. However, utilities can not undertake the exercise of removing kundas without the help of law enforcing agencies, providing them the security cover. In this regard following 'carrot and stick' policy can yield positive results. It is known to all that kundas are the product of denying new connections by the utilities. Therefore, in the first phase consumers should be encouraged to get their connections regularised. The utilities should bear the cost of meters and should also not insist on imposing any penalty. Most of these domestic kundas fall in the category of small consumers and are willing to pay a reasonable tariff.

The real culprits are the kunads of commercial and industrial consumers. The key reason of pilferage is exorbitant tariff. Ironically, the policy of charging higher tariff from commercial and industrial consumers provides the incentive for pilferage. Supplying them uninterrupted supply at affordable cost would encourage them to pay the full bill in time. One of the ways of curtailing cost of doing business is reducing electricity tariff and the objective can not be achieved unless each and every consumer learns to pay the bill.

Privatisation of the KESC has not helped reducing woes of the consumers. While the new management says it has inherited a highly depleted infrastructure, it is also a fact that unless T&D losses are curtailed injection on new equity and providing billions of rupees from the national exchequer can not bring the company out of the mess. The entity has become top heavy, which is also causing unrest among the workers. The new management must realise that spending billions on developing management information system remains unfruitful unless the problems are identified rightly and the lines staff takes corrective measures.