FeaturedNationalVOLUME 18 ISSUE # 42

The scandal of inflated electricity bills

Electricity charges have gone sky high because the power sector is in a total mess. Years of neglect, mismanagement, theft and corruption have come home to roost. Successive governments have made wrong decisions to jack up prices, while individual politicians have lined their own pockets. The ordinary consumer is the ultimate sufferer.

Higher and higher unit prices and rising tax burdens are behind the ballooning electricity tariff. As is well known, bills are divided into two parts — amounts payable to the distribution companies and amounts payable to the government. The National Electric Power Regulatory Authority is charged with determining both the tariff for each DISCO as well as a uniform tariff based on inter-DISCO tariff rationalisation. As a result, consumers end up paying the same amount irrespective of the cost of electricity for each DISCO.

For bill preparation, consumers are divided into different categories such as lifeline, protected, unprotected and those that have Time of Use (ToU) meters. Consumers who use less than 100 units a month for the last 12 months are lifeline consumers, while those who use up to 200 units consistently for six months are protected consumers. If the consumption goes above 200 units for even a month, the consumers will become part of the unprotected category. Consumers who have a sanctioned load of 5 kWh or higher have ToU meters, which are also known as variable rate meters. These meters have two separate numerical displays — for off-peak hours and on-peak hours . Thus, there are two different tariffs for them — off-peak and on-peak, the timings for which differ for each DISCO and season.

Electricity bills have become inflated because apart from containing per unit cost, they are burdened with various additional charges such as Quarterly Tariff Adjustment (QTA) and Fuel Charge Adjustment (FCA)/Fuel Price Adjustment (FPA) which are based on higher cost of power generation due to higher prices of fuel in the international market. There are also surcharges to pay for the power sector’s debt servicing and circular debt.

The cost per unit goes up further due to the electricity duty imposed by the government. Then comes sales tax of 18 percent, Rs 35 PTV fee and income tax as well as federal excise duty and other undefined taxes. Besides, the cost of free units allowed to different categories of WAPDA and other government employees and theft and pilferage are also recovered from the consumer.

As a result, the average national tariff has gone up to around Rs 50 per unit excluding taxes and the impact of fuel price adjustment. There are many complex factors involved in the surging cost of energy, one of which is poor energy mix. No effort has been made over the past five decades to increase the generation capacity of hydel and renewable energy power plants. At present, the share of hydel power in the total energy is less than 30 percent.

Pakistan’s power generation installed capacity has gone up from 19,566 MW in 2007-08 to over 41,000 MW in 2023 but this increase is based on expensive imported fuel, instead of cheap hydel source.During the period under review, the share of coal was 17.7 percent, indigenous gas 5.4 percent, RLNG 18.55 percent, nuclear 13.5 percent, wind 4.3 percent and solar 0.7 percent. So, the real culprit is imported fuel for which the sole responsibility lies with the government of the day which made the wrong decision.

Another mistake committed by the government was ignoring investment in distribution and transmission lines, while setting up thermal-based power plants. Thus, the country has an installed generation capacity of 45,000 MW, but the transmission system cannot handle more than 26,000 MW.

Another bugbear of the power sector is capacity payment to power producers which means that the government is bound to pay a fixed amount irrespective of the quantity purchased from them.

All former governments installed Independent Power Plants (IPPs) based on imported fuel without taking into account the future impacts. At present the country has 45,000 MW installed capacity but actual generation is around 26,000 MW during peak time. So, the consumers are paying capacity payments for the remaining IPPs. The agreement with the IPPs was a criminal decision taken by various governments and they should be taken to task for this blunder.

Another matter of concern is transmission losses which contribute to higher electricity rates. These losses have been up to 40 percent for distribution for some discos. Earlier, the Nepra had allowed 12.5 percent losses to be recovered from the consumers. Later, it allowed power distribution companies to recover 15 percent losses from the power consumers.

The power sector is unimaginably inefficient and corrupt. Nepra, instead of pressuring the power distribution companies to bring efficiency to reduce losses and theft, allows discos to put additional burdens on the consumers. The low recovery of electricity bills from government departments adds to the woes of ordinary consumers.

The short-term solution to the problem lies in reducing the burden of taxes on the electricity bills. In the long term, the agreement with the IPPs should be scrapped and the share of hydel and renewable energy should be increased in the power mix.