FeaturedNationalVOLUME 18 ISSUE # 41

Rising electricity costs and discontent

The streets of Pakistan’s cities have recently become a battleground for a growing wave of public dissatisfaction. The cause is escalating electricity bills that have driven households to the brink of economic despair. The burden of high costs of living, coupled with the weight of indirect taxes embedded in electricity bills, has ignited nationwide protests.

While consumers voice their fury over these financial constraints, political factions eagerly join the fray, seeking to leverage the discontent to their advantage. The government, caught in the crossfire, finds itself facing the daunting task of offering relief to the beleaguered power consumers while navigating the stringent requirements of the IMF programme. As the nation grapples with this dilemma, the broader issue of mismanagement, corruption, and lack of structural reform in the power sector looms large, casting a shadow over Pakistan’s economic stability and the wellbeing of its citizens.

Skyrocketing electricity bills have sparked nationwide protests as countless consumers, burdened by the surging cost of living, took to the streets across major cities to voice their simmering frustration over the increasing presence of indirect taxes on their electricity bills. Several political parties seized the opportunity to capitalize on the mounting discontent. The interim administration led by Prime Minister Anwaarul Haq Kakar is also grappling with the situation.

.The caretaker government finds itself in a precarious position, torn between assisting citizens reeling from inflation without jeopardizing the fiscal targets of the ongoing IMF programme. Such a compromise could prove catastrophic for the nation’s economy, potentially prompting the multilateral lender to suspend or terminate the programme. The escalating electricity costs fundamentally stem from issues of governance and fiscal policy, which successive administrations bear responsibility for. On one hand, the ruling elite have leaned heavily on imposing indirect taxes on fuel and power bills to cover the burgeoning state expenditures, rather than effectively taxing influential sectors like retail, real estate, and agriculture due to their significant political influence.

On the other hand, these leaders have consistently failed to implement reforms within the energy sector to curb escalating theft and the losses experienced in the power and gas sectors. Instead, they have opted to periodically hike prices to recoup lost revenues from honest consumers. Unquestionably, the spiraling costs of fuel and energy have inflicted severe harm on working-class families, salaried households, and industries alike.

A substantial portion of the electricity bill, at least a third, comprises taxes and government fees. Similarly, nearly a quarter of the petrol price is composed of taxes and levies. These levies cannot be eliminated or even partially reduced without securing an IMF exemption. At best, the government can offer consumers the “option” of paying their bills in installments, a decision that was made by Shehbaz Sharif last year. However, this is hardly a solution; it merely postpones the impending crisis for consumers. The toxic combination of inflation, economic recession over the past couple of years, and inequitable tax policies have placed households under renewed strain.

Inflation, which disproportionately affects low- and middle-income families, remains alarmingly high, exceeding 28 percent. Soaring fuel and food prices have taken the most significant toll, leaving tens of millions struggling to make ends meet. Unable to cope with the escalating cost of living, exacerbating societal inequalities, many individuals are contemplating risky moves to leave the country.

Considering the authorities’ apparent reluctance to amend their flawed fiscal and tax strategies and make the difficult choices required to overhaul the energy sector, it’s likely that working-class families and salaried households will continue to endure hardship for far longer than the leadership would like the public to believe. It seems successive governments may have failed to grasp the issue of circular debt within the power sector from the perspective of consumers.

The fiscal year 2022-23 stands as yet another illustration of this problem. Despite raising prices twice in compliance with the IMF’s upfront conditions, all the resulting revenue gains were offset by the same persistent inefficiencies, theft, and losses incurred by power distribution companies. This led to a substantial increase in circular debt, totaling Rs 789 billion, equivalent to Rs 66 billion per month.

This indicates that not only were the efforts to negotiate tax and subsidy agreements with the IMF in vain, but more crucially, people’s lives were made miserable without any tangible improvements. This burden was not initially borne by consumers. The corruption and inefficiency within the power sector, and thus the circular debt, are direct consequences of the breakdown in government-bureaucratic machinery.

However, since the consequences naturally fell upon consumers, who were already grappling with the worst employment and inflation situation in the nation’s history, their dissatisfaction is palpable. They rightfully feel that their sacrifices have yielded no results, and the cycle is destined to repeat. This is precisely what concerned individuals, including this viewpoint, cautioned against as the government hiked prices without initiating essential reforms. Now, as the country finds itself in the midst of another IMF programme, stricter conditions are almost certain to be imposed by the lender.

Initially, prices were raised by Rs 7.91 per unit, followed by an additional Rs 8 per unit, and later a debt servicing surcharge of Rs 3.23 per unit. Subsidies for the agricultural and industrial sectors were also withdrawn. These escalations pushed prices beyond Rs 50 per unit, resulting in headlines of lower-income consumers receiving electricity bills that exceeded their monthly salaries. Nonetheless, the situation appears to have regressed, with political leaders and civil service departments offering no substantial solutions when confronted with the many challenges facing distribution companies.

Throughout the previous year, they merely increased the cost of power supply without addressing the underlying issues that drained it and contributed to the debt. They haven’t managed to reduce losses, meet revised targets, combat theft, or improve bill recovery rates. There’s no indication that any party that assumes power will be able to rectify these problems, despite the widespread certainty that the IMF will demand further tightening in the future.

Pakistan’s leaders must embrace fiscal responsibility. In the present economic and financial climate, adjusting taxes and subsidies accomplishes little if structural reforms aren’t undertaken as a preliminary step. The unfortunate narrative of the power sector underscores that comprehensive reform of government policy and civil service operations is imperative before progress can be made in rectifying the sectors they aim to improve.

The longer these reforms are delayed, spanning all levels of government, the more ordinary citizens will suffer needlessly. It’s evident that regardless of how dire the circular debt situation has become over the years, and no matter how critical Pakistan’s economic circumstances are, governments have failed to demonstrate the necessary resolve to enforce extensive reforms.

This disposition has exhausted its viability. The nation’s reliance on bailout agreements is tenuous at best. Should Pakistan continue to struggle with internal disarray, external funding sources may become elusive. Furthermore, the government should consider the potential reactions of ordinary citizens if pushed beyond their limits.

Pakistan stands at a critical juncture, where the convergence of rising electricity costs, mounting inflation, and an impending economic crisis demands immediate attention. The cycle of escalating prices without essential sectoral reforms has left the public disillusioned and exhausted. As the country’s leaders attempt to balance fiscal goals with public welfare, it is imperative that they recognize the urgent need for comprehensive reform within the energy sector. Without substantial changes, the burden on ordinary citizens will persist, sowing the seeds of deeper discontent and potential upheaval. The nation’s future hinges on its ability to confront these challenges head-on, instigate meaningful change, and ensure that the power sector becomes a pillar of stability rather than a source of public distress.