ELECTRICITY PRICES

S.KAMAL HAYDER KAZMI,
(feedback@pgeconomist.com)
Research Analyst
, PAGE
Oct 18 - 24, 2010

Presently, Pakistan is facing the worst energy crisis and price hike of its history. On one hand, increase in the oil prices is severely affecting the common masses and consistent rise in electricity prices and shortage of electricity are playing havoc with the industries and common persons on the other. The government has already announced a sizable reduction in power subsidies. The tariff increase was introduced in a gradual manner. The government and the international lenders estimated that the power tariff would need to be increased by a cumulative 50 per cent during the next fiscal year.

Electricity generation from the hydro and thermal source has witnessed an increase of 5.6 per cent growth during July-March 2009-10 compared to five per cent decline in July-March 2008-09.

After growing negatively since 2007-08, the electricity generation has started to grow positively during fiscal year 2009-10. The composition of electricity generation suggests the stagnation in shares of hydro and thermal sources in the electricity generation with share of thermal remaining larger than of the hydro source.

More recently, Nepra notified that the prices of up to 50 units had been raised by 21 paisas for domestic consumers and now the new price per unit was 2 rupees. On the other hand, consumers who use more than 50 units will have to pay Rs4.80 per unit. Similarly, the government has increased the tariff from Rs1.47 to Rs6.18 per unit for industrial consumers. Owners of agriculture tube-wells, who consume less than 50 units, will now have to pay Rs3.86 per unit. If the consumption is more than 50 units, then per unit price will be nine rupees. If monthly consumption is between 100 to 300 units, then consumers will have to pay Rs11 per unit.

The consumers in Khyber Pakhtunkhwa have been exempted from the rise in electricity prices due to the recent flood devastation in the province.

During July-March 2009-10, the growth in number of consumers has increased by 4.5 per cent against the 4.2 per cent rise in same period last year. Moreover, the longer-term analysis of group wise consumers exhibits that the share of domestic consumer remained the highest with more than 80.0 per cent of total number of consumers in the respective years.

The Pakistan Electric Power Company (Pepco) had earlier sought a 48 per cent increase in power tariff to bridge the Rs180 billion gap in power production costs and the money paid by utility consumers. This demand had put the economic managers in a difficult position. They explored all possible options, including tariff restructuring through elimination of subsidies, to bridge the gap in power production costs and recovery.

CIRCULAR DEBT RESOLUTION

On 01-06-2009 Rs214 billion
On 30-06-2009 Rs216 billion
On 18-05-2010 Rs120 billion

Other options to remove deficit of Rs180 billion include introduction of major reforms to eliminate line losses, electricity theft and inefficiency in the system through investment to upgrade obsolete equipment. The government is likely to introduce a mix of reforms, such as partial increase in power tariff, reduction in all kinds of losses and elimination of subsidies can help reduce the Rs180 billion gap.

The circular debt problem plaguing the power sector stems from a disparity between cost and tariffs of electricity. The inability to increase consumers' energy tariff prior to fiscal year 2007?08 even though generation cost kept increasing gave rise to substantial cost-tariff differential.

As the subsidy element grew, large amounts of circular debt were created whereby power-producing companies were unable to receive payments from distribution companies, in turn the power producers could not make payments to the fuel suppliers. In addition, the net position of overall circular debt declined from Rs190,953 million in July 2010 to Rs103,939 million in the month of April 2010.

FUTURE OUTLOOK

Electricity has become the necessity of today's life and today we cannot think of life without electricity. Pakistan' electricity consumption has increased over the years, but successive governments failed to make expansion plan in line with population growth. As a result, the country now needs a huge supply of electricity, and has very few power generation plants that can cope up with the demand. The government has announced plans to set up power plants and build dams to help generate power, but building power plants afresh takes a lot of time and a lot of money, which this cash-strapped government will not be able to pay for on its own. The government must implement not just the power-saving proposals but also look towards building power plants and tapping into alternative energy resources.

ELECTRICITY CONSUMPTION BY ECONOMIC GROUPS
(% SHARE) ( JULY-MARCH
)

YEAR DOMESTIC COMMERCIAL INDUSTRIAL AGRICUL-TURE PUBLIC LIGHTING BULK SUPPLY TRACTION SUPPLY TO KESC
2008-09 42.20 6.40 25.20 13.30 0.50 4.90 0.01 7.50
2009-10 42.15 6.45 23.92 14.03 0.57 4.92 0.01 7.94