Power price shock

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The average power tariff is set to cross the Rs50 mark for almost all consumers if the government approves the increase suggested by the National Electric Power Regulatory Authority (NEPRA). Approval is almost certain, since the rate increase is part of the new deal with the IMF. However, that bit of information will do little to soften the blow on the masses, who are already struggling to pay for anything amid high inflation and non-existent economic growth.

While some analysts are also blaming the dollar exchange rate, the rupee has actually strengthened significantly since the IMF deal was announced, and while it remains erratic, the value is bound to settle well below the record highs we saw in recent weeks. However, factors such as line losses, high interest rate and inflation have also caused the cost of production and distribution to rise, necessitating the increase. Electricity distribution companies had also requested a tariff increase from NEPRA to ensure their own viability. Unfortunately, the power distribution companies (Discos) have failed to reign in so-called’ line losses’ to improve their viability and are all too happy to stick the public with the bill. Their market monopolies give them little incentive to improve distribution infrastructure and collection, and successive governments have failed to address this problem.

This is why it remains unlikely that prices will go down anytime soon. Despite Nepra’s assurances that any future fuel price reductions or improvement in the dollar rate will quickly be reflected in the electricity tariff, Discos and inefficient power producers will find ways to palm at the pie before benefits can be transferred to consumers.

The power sector remains the embodiment of the country’s circular debt problem, and continually rising prices are an effect of the government’s failure to address it. Though the incumbents offered up a debt strategy some months ago, it is not reassuring to see that instead of plugging holes, high taxes and tariffs remain the preferred solution.

Published in The Express Tribune, July 17th, 2023.

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