Pakistan’s electricity tariff structure has inadvertently fostered a practice that threatens to undermine the system’s integrity and financial stability. ‘Subsidy mirage’ is an apt term to describe the elusive and illusory nature of the unallotted subsidy that certain consumers exploit. Much like a mirage, this subsidy seems beneficial at first glance but is actually a distortion of the system’s intent.
Pakistan’s electricity tariff structure has inadvertently fostered a practice that threatens to undermine the system’s integrity and financial stability. ‘Subsidy mirage’ is an apt term to describe the elusive and illusory nature of the unallotted subsidy that certain consumers exploit. Much like a mirage, this subsidy seems beneficial at first glance but is actually a distortion of the system’s intent.
In this context, the subsidy is meant to support low-income households by reducing their electricity costs. However, wealthier consumers manipulate the system by installing multiple meters to artificially lower their recorded consumption, thereby qualifying for a subsidy they do not genuinely need. The ‘mirage’ is that these consumers appear to benefit from a subsidy designed for others, but in reality, they are draining resources from those who truly need them, creating a deceptive and unsustainable financial burden on the system. The term captures the idea that what seems like a legitimate benefit is, in fact, a misleading and harmful exploitation of the tariff structure.
The electricity tariff in Pakistan operates on a progressive framework, where the per-unit cost of electricity increases as consumption rises. This structure is divided into several slabs: first, the lifeline consumers, who include residential Non-Time of Use (Non-ToU) consumers having maximum consumption of around 100 units for the last twelve months and current month.
Protected consumers mean Non-ToU residential consumers consuming around 200 kWh per month consistently for the past six months. Then there are unprotected consumers, who are further categorized based on their electricity usage. The idea behind this structure is to protect low-income households from the full brunt of high electricity costs, thus ensuring that essential energy needs are met without placing an undue financial burden on those least able to afford it.
However, the intent behind this structure is being compromised by a growing trend among higher consumption households. These households, keen to avoid the steep costs associated with the higher consumption slabs, have taken to installing multiple electricity meters within a single household. By doing so, they can divide their total electricity consumption across several meters, ensuring that each meter remains within the lower, subsidized tariff brackets.
For example, a household consuming 600 units of electricity might install three meters, with each meter registering 200 units. This strategy allows them to stay within the protected category, securing a subsidy of approximately Rs30 per unit -- a financial benefit that they would not have been eligible for under a single meter.
The consequences of this manipulation are far-reaching. It drains the financial resources of the electricity sector, which is already burdened by significant circular debt and inefficiencies. Moreover, it skews the distribution of subsidies, with wealthier consumers disproportionately benefiting from resources that are meant for those who are genuinely in need. The very purpose of the tariff structure -- to support low-income households -- is being undermined, leading to a system where the rich are increasingly taking advantage of subsidies intended for the poor.
To address the issue of metered manipulation and the resulting subsidy mirage, a comprehensive, multi-faceted approach is required. The first step involves implementing regulatory reforms that tighten the controls around the installation of multiple meters in a single household. Stricter metering policies should be introduced, requiring consumers to provide proof of legitimate need for additional meters.
Penalties for fraudulent installations should also be imposed to deter consumers from attempting to exploit the system. Enhanced monitoring and verification processes are also crucial. Regular audits could be conducted to identify households engaging in this manipulative practice, ensuring that consumers are billed accurately based on their actual consumption rather than an artificially lowered figure.
Another key element in addressing this issue is the introduction of targeted subsidy schemes. Instead of providing blanket subsidies based on consumption slabs, the government could consider offering cash grants directly to Lifeline and Protected Consumers through the Benazir Income Support Programme (BISP) database. By linking subsidies to the BISP, the government can ensure that financial assistance reaches those who are truly in need, thereby reducing the risk of exploitation. This targeted approach would also allow for better allocation of resources, ensuring that subsidies are used more effectively and efficiently.
The use of data integration techniques can further strengthen the integrity of the subsidy system. By leveraging census records and data from NADRA, the government can cross-reference household data with electricity consumption records. This would enable the accurate identification of households that qualify for electricity meters, preventing the duplication of benefits and ensuring that subsidies are not being siphoned off by those who do not need them. By integrating NADRA’s records, the government can also maintain a more accurate count of electricity consumers, ensuring that the subsidy system remains fair and transparent.
Technological advancements, particularly smart metering, can also play a crucial role in addressing Metered Manipulation. Smart meters, which have the capability to detect and report abnormal consumption patterns, would allow for real-time monitoring of electricity usage. These systems could automatically flag households that are engaging in Metered Manipulation, enabling utility companies to take swift action. Additionally, the use of data analytics to identify trends in electricity consumption across multiple meters could help regulators target their enforcement efforts more effectively, ensuring that the system remains robust against exploitation.
In addition to these measures, a more sustainable and long-term solution involves the provision of rooftop solar panels to lifeline and protected consumers. By enabling these households to generate their own electricity, the need for a slab-based tariff system could be gradually eliminated, paving the way for a more equitable and sustainable energy system in Pakistan.
A government-led initiative to provide rooftop solar panels at highly subsidized rates or through interest-free loans could be introduced. This programme could be funded through international climate finance mechanisms such as the Green Climate Fund or through bilateral agreements with countries interested in supporting renewable energy adoption in developing nations. By promoting the widespread adoption of rooftop solar, the government can significantly reduce the reliance of lifeline and protected consumers on the national grid, thereby decreasing their dependence on subsidies.
As the adoption of rooftop solar becomes more widespread, the slab-based tariff structure could be gradually phased out. In its place, a regressive tariff scheme could be introduced, designed to encourage higher consumption among those who can afford it, thereby increasing overall electricity demand. Under this new scheme, households would be incentivized to consume more electricity, as higher consumption would lead to lower per-unit costs -- a reversal of the current structure.
This approach would not only stabilize the electricity sector but also stimulate economic growth by lowering electricity costs for industrial and commercial consumers, leading to increased production and job creation. This, in turn, would help reduce the country’s circular debt and improve the financial health of the electricity sector. The reduced unproductive demand from the residential sector can be utilized for the productive industrial sector.
The issue of subsidy mirage and the resulting unallotted subsidy represents a significant challenge that demands a comprehensive response. Through stricter regulations, restructuring the tariff system, introducing targeted subsidy schemes, leveraging data integration, and promoting the adoption of rooftop solar panels, Pakistan can create a more equitable and sustainable electricity system.
Addressing this challenge is crucial not only for the financial health of the electricity sector but also for ensuring that the country’s energy resources are used in a way that benefits all Pakistanis, particularly those most in need. Through these measures, Pakistan can move towards a future where energy equity is a reality, not just an aspiration, and where the benefits of electricity are shared more fairly and sustainably across all segments of society.
The writer has a doctorate in energy economics and serves as a research fellow in the Sustainable Development Policy Institute (SDPI).
He tweets @Khalidwaleed_ and can be reached at: khalidwaleed@sdpi.org
