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| Price of electricity is price of misgovernance |
In July of this year, the outgoing federal cabinet made a significant decision by approving a 25.5% increase in the base electricity tariff. This move had far-reaching consequences, leading to higher electricity bills for millions of consumers in August and sparking nationwide protests.
The surge in electricity prices can be attributed to four main factors, all stemming from mismanagement within the power sector:
Indirect Taxes: One issue contributing to high electricity costs is the inclusion of indirect taxes within the electricity bills. This practice has become a burden for many households, as the government struggles to collect taxes from influential elites.
Losses in the System: Theft, technical line losses, and non-payment of bills are responsible for inflating electricity prices. Theft, both by individuals and commercial consumers, is widespread, facilitated by corruption within public-sector electricity distribution companies.
Expensive Production: The bulk of Pakistan's electricity comes from Independent Power Producers (IPPs) who were promised high rates of return and capacity payments in the 90s. Poor contract management and corruption have led to consumers bearing the burden of these costs.
Cost of New Plants: The cost of generating electricity in new plants, required to meet increasing demand, often exceeds what should be the least available cost. Consumers end up paying more due to strategic reasons and government reliance on indirect taxes.
Addressing these issues requires comprehensive reform in the energy sector. Immediate measures include finding alternative revenue sources or implementing spending cuts to subsidize electricity for those consuming less than 200 units. However, these are temporary solutions.
Long-term reform should focus on phasing out indirect taxation, improving revenue collection through data analytics, overhauling the governance of distribution companies, and privatizing them with a robust regulatory framework. A seasonal pricing policy for electricity and gas should be developed, along with strict adherence to the least cost principle for new capacity installation.
The government should subsidize prices only for those most in need, ensuring fairness in subsidy distribution. Ultimately, deep-rooted energy sector reform is essential, dependent on effective governance, integrity, transparency, impartiality, and evidence-based decision-making.
Addressing these challenges requires a commitment to transformation and the recognition that these attributes are pivotal in shaping Pakistan's energy future.
