Tariff hikes

The PTI government seems to have settled on a single-step approach to solving all kinds of structural issues: increase the cost of public utilities. The same approach has now been witnessed in the power sector after the Economic Coordination Committee increased the power tariff by 10 to 15 percent for most power consumers. There is some good news for small industrial, commercial and household consumers: there has been no increase for households using less than 300 units and industrial/commercial units using less than five kilowatts. The best news has been reserved for the agricultural sector, which has received extraordinary relief after the government decided to reduce the tubewell tariff from Rs10.35 to Rs5.35 per unit. However, if you happen to be a commercial or industrial consumer using more than 5KWhs, then the rise is tariff is a significant 20 percent. The decision will be finalised in a meeting of the federal cabinet but is expected to sail through.

The increase in tariffs is the result of two separate moves: Nepra allowed a 20 paisa increase per unit while the ECC approved a Rs1.4 per unit increase. The cumulative impact will be around Rs1.6 per unit, which will push electricity tariffs up by around 15 percent. The opposition has opposed the tariff increase, calling it a product of the ‘economic mismanagement’ of the PTI government. Let it not be forgotten that a hike in electricity prices is also one of the conditions of an expected IMF bailout package. During negotiations this month, the IMF had made it clear that Pakistan would need to take tough and unpopular decisions. It seems the government has decided to cede ground before even agreeing to an IMF programme.

The problem in all this is that the electricity tariff increase is supposed to help address the circular debt problem in the power sector, but in reality is not a solution to the actual problems. The power generation and distribution system remains structurally inefficient, with the generation side burdened with high purchase costs as well as capacity payments in case certain power generation units are not used. The distribution side of the arc shows a transmission system that loses a significant amount of electricity produced. The government will claim that it has delayed the decision as much as possible, and that it was out of choices, but what is really being witnessed is the absence of a coherent plan to solve the structural problems in the power sector. What the country really needs is a proper resolution of the problems in the power sector. Increases in the tariff are mere cosmetic dressing, which leave the actual problems untouched.