How to reduce high electricity tariff?

It is no gainsaying that the government has completely failed the citizens of Pakistan by mismanaging the electricity generation and distribution. This government-made crisis is immeasurably hurting every aspect of the society. But there is no sign of any realization of the magnitude of the crisis on the part of the present government which through its 5 years of rule did nothing to resolve it.

The electricity tariff is directed upwards with no reason why it is being increased day by day. Somehow back in 2003 at least there was a bit of sense that it needed to be reduced, and a Task Force was formed to see into it. The Alternate Solutions Institute submitted a paper presenting its view on the nature of the crisis and suggested certain long-term policy measures. I wrote that paper, and afterwards also I wrote a number of articles on the electricity crisis. 

In this post, read that story first: 

HOW TO REDUCE HIGH ELECTRICITY TARIFF?

The Water and Power Development Authority (WAPDA) is one of the monopolies which have made a hell of Pakistan. A few months back, a responsible official of WAPDA admitted that: power rates in Pakistan are very high. On another occasion, Secretary Federal Ministry of Water and Power stated that: pubic concern is increasing due to unaffordable electricity tariff whereas life is now dependent on cheap and reliable energy. He admitted that: high electricity tariff is badly affecting general public and industrial and agricultural sectors of the country which demands an immediate need to bring the tariff down. 

In view of this situation, Federal Government constituted a Task Force to study the issue of High Electricity Tariff in full perspective and formulate concrete proposals/recommendations for possible reduction in the Tariff. The Task Force is required to submit its report within two months. As the Task Force wished to associate the experts/specialists as well as general consumers by ‘soliciting public comments,’ an ad to this effect was published in the daily newspapers inviting members of the public to give their opinions/suggestions on the possible measures to reduce the Electricity Tariff by July 31, 2003. 

Taking advantage of this opportunity, the Alternate Solutions Institute, Lahore, submitted its view of the problem of High Electricity Tariff in which an end to the monopoly of WAPDA and KESC was suggested and the role of market in bringing the tariff down is highlighted. 

Givenbelow is the text of the paper submitted to The Chairman Task Force, Private Power &

Infrastructure Board, Islamabad.

In response to your ad in the newspapers dated July 6, 2003, Alternate Solutions Institute, Lahore, is pleased to offer the following opinions/suggestions on the issue Electricity Tariff.

1. No economics has as yet discovered or devised a method to determine the price of a product or a service in the absence of a market where an open competition exists. Or, the monopoly determines the prices arbitrarily since it cannot know the price at which customers will willingly be purchasing its product or service. Under a monopoly, customers have to buy perforce the product or service provided by the monopoly at any price. As, a monopoly exists beyond and outside of the market; the prices of its products and services are not determined by the market and in the market, rather it determines, and, thus, distorts the make-up of the market. Same is the case with WAPDA and KESC.

2. So, the question of ‘suggesting possible measures to reduce Electricity Tariff’ is an uneconomic one. 

3. However, as far as the high electricity tariff is concerned, let us first look at the causes existing outside and within WAPDA and KESC.

a. MONOPOLY of WAPDA and KESC over generation and distribution of electricity.

b. Absence of competition.

c. Non-billing or non-payment of bills in most of the areas of the country which include especially NWFP, Azad Kashmir, and Baluchistan. ‘Kundi System’ (stealing of electricity) in many areas with or without the connivance of the WAPDA and KESC staff.

d. Unskilled and incompetent staff.

e. Top to bottom corruption in WAPDA and KESC.

f. Running of WAPDA and KESC unlike a business.

g. Taxes, surcharges, etc. other than the electricity tariff.

h. Unjust contracts with IPPs (Independent Power Producers) to buy electricity at a fixed non-market rate.

4. Removing these causes may result in reducing the high electricity tariff. Although, it is not easy to do away with the present scenario because so many interests are vested in it, but a policy of de-regulation for power sector might be a good step to start with.

5. In view of the above considerations, it is suggested that:

I) As a first step, the distribution of electricity be privatized at small scale. The parties that distribute electricity in their respective limited areas will ensure billing and its payment. This will extraordinarily minimize electricity theft and non-payment, and by making the staff accountable and efficient, will result in better customer services. 

II) Private parties be allowed to generate and distribute electricity independently of WAPDA and KESC. This will create an environment of competition forcing WAPDA and KESC to provide cheaper electricity and better service to the customers.

III) Government be asked to eliminate or reduce the taxes and surcharges on the use of electricity by WAPDA and KESC customers.

IV) The contracts with IPPs be declared null and void, and WAPDA and KESC be stopped from purchase electricity from IPPs and they be asked to sell and distribute electricity on their own. Though, this will incur WAPDA an immediate loss but in the long run by creating competition will result in reduced electricity tariff.

[This paper was written and submitted in July 2003.]

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