FeaturedNationalVOLUME 16 ISSUE # 12

Another electric shock

The government has hiked the power tariff for the fourth time, when people are already struggling to cope with the adverse effects of the pandemic and expected relief after renewed agreements with the Independent Power Producers (IPPs). The 15pc increase in the base power tariff of distribution companies, besides monthly “fuel charge adjustments,” will not only inflate power bills but also lead to price hikes of food and daily-use items.

In Pakistan’s recent history, no government has increased prices of electricity by 15pc in one go. It is also disturbing that the government had hinted at cutting power tariffs after signing “landmark” agreements with the IPPs. The government had said the agreements would ensure the provision of cheap electricity to consumers on a sustainable basis. Instead of relief, the power tariff was increased by a whooping 15pc, which could have been increased in phases, if the government had been serious about the plight of the common people. In March 2000, the government had announced freezing gas and electricity tariffs to check skyrocketing prices of essentials.

The massive power tariff hike is the fifth in the PTI government. The government increased power prices four times in its first 11 months. Gas and power tariffs almost doubled for the common people in 18 months of Prime Minister Imran Khan’s rule. He himself has admitted his government’s disappointing performance on price control, especially after sugar and wheat flour crises hit the country recently. Food inflation continues to be the biggest challenge for the government and people. Rising prices of essential kitchen items have affected millions of lower-middle-income households across the country. In the last two years, food prices have increased by more than a third. The government has left the people at the mercy of hoarders and profiteers. It is really a difficult time for a large number of people, who have lost their jobs, as businesses struggle to cope with the effects of the health crisis. The government’s inability to check food prices has worsened their plight.

Justifying the hike, the government said it had avoided putting the whole burden on consumers as the actual hike could have been Rs8-9 per unit instead of Rs1.95 per unit. Addressing a press conference, Federal Energy Minister Omar Ayub Khan said the tariff had been increased despite tough economic conditions due to compulsions arising out of the “landmines” left behind by the previous government with ill intentions. He claimed the government was taking measures to control “compulsory payments” and acting as a “shield,” otherwise the tariff increase would have been around Rs8-9 per unit. Under the decision, it will be the first time in almost two decades that the base tariff for lifeline consumers using up to 50 units per month would be increased. The minister claimed the past Pakistan Muslim League-Nawaz (PML-N) government had not passed on prior years’ adjustments in the tariff worth Rs227b that should have been recovered by 2019. It required the PTI government to increase the average base tariff by Rs2.61 per unit but Prime Minister Imran Khan decided against putting the huge burden on the consumers at the outset. Therefore, the government increased the tariff by only 23 paisa per unit at the time and had to absorb Rs2.38 per unit as subsidy amounting to Rs247b. Last year, the government provided a Rs473b subsidy to the power sector despite an economic crunch and Covid-19 to protect the consumers.

It is a fact that the PTI government inherited an unsustainable level of capacity payments from the PML-N government. According to the government, the agreements inked by the previous government in the power sector were based on bad intentions and corrupt practices and the increase in the electricity tariff in one year alone (2019-2020) on account of compulsory capacity payments would have been Rs2.18 per unit but the government decided to increase the rates by Rs1.95 per unit in 2021. The annual capacity payments to the independent power projects (IPPs) stood at Rs185b in 2013, Rs468b in 2018, Rs642b in 2019, Rs860b in 2020 and would reach Rs1.455 trillion in 2023. According to the government, it has taken initiatives to improve the power sector and reduce the flow of circular debt. It hopes to reduce the final burden on the sector by Rs836b over the next 20 years.

Besides the common people, the power tariff hike will also hit the industrial sector. Exporters say the decision of raising the electricity tariff by 15pc and closing down captive power plants would devastate local production and exports besides sabotaging the government’s efforts to enhance exports. In a joint statement, the Businessmen Group, Karachi Chamber of Commerce and Industry (KCCI) and Pakistan Apparel Forum said it was not the right time to impose “anti-business and anti-export” decisions — especially because exports were picking up and exporters were getting a large number of orders. The power tariff hike will also affect the performance of general industries which are an important part of the supply chain of export-oriented industries. Consequently, it will also have a devastating trickle down effect on trading, wholesale and retail networks. It would also make Pakistani products less competitive than those from India and Bangladesh.

The government has once again increased the power tariff to overburden people instead of reforming the power distribution system. Huge theft, line losses and corruption in the system mean increased tariffs for people. The government has completed its half term and it is enough time to take stock of the situation and fix problems. However, it continues to blame the past rulers for their corruption and inefficiency. The statements, devoid of action, are mere hollow slogans, which do not impress the public anymore. People need action and results. They desperately need price cuts, jobs and business opportunities. The government cannot blame the past governments for the recent increase in prices of essentials. It has taken some measures to reform the economy, but their positive results have not reached the common people.