Helpless consumers are all set to bear the brunt of hefty increase in electricity tariffs during the current month. This is despite the fact that the marginal cost of producing electricity in terms of dollars (fuel charge) is decreasing, the proportion of domestic fuel is rising, and the overall composition of the power mix is becoming more ecologically friendly. The biggest problem is the capacity tax, which now accounts for 65% of the base rate in terms of payment.
According to Power Division sources, the regulator has proposed an increase in the base price of Rs.6.9 per unit that will be applied to customers all across Pakistan. The cost of power increased by up to Rs 8 per unit at the beginning of the previous fiscal year, which some people may not have internalized.
It is important to remember that while the base tariff increase is one component, there are other related fees that are retroactively added to the bills, such as Quarterly Adjustments and Fuel Charge Adjustments. As a result, consumers are paying more both for the electricity they consumed this month and for use from past months.
An increasing proportion of consumers are being forced into energy poverty as a result of rising costs. According to estimates, 30% of the country’s customers use up to 300 units each month and are dependent on subsidies to keep electricity prices low.
Power tariffs in Pakistan are consistently high due to several factors, such as:
- The increasing cost of imported fuel, especially LNG, which is used for power generation. According to the Central Power Purchasing Agency (CPPA), the prices of LNG in the international market were jacked up from $8 to $42 within one year and the LNG is not available for spot purchasing.
- The fuel price adjustment (FPA) mechanism, which allows NEPRA to increase the electricity tariff based on the variation in fuel prices. For example, NEPRA has increased the electricity tariff by Rs. 7.90 per unit for May 2022 under FPA.
- The lack of cheap and renewable energy sources, such as solar and wind, which could reduce the dependence on expensive imported fuel. According to NEPRA, cheap electricity is possible only because of green fuel.
- The poor governance and management of the power sector, which leads to inefficiencies, losses and circular debt. According to Member NEPRA Sindh, Rafiq Shaikh, bad governance is the real problem of the power sector that needs to be solved.
As a result of these factors, the power tariff in Pakistan is expected to reach Rs24.8 per unit by October 2023, which is almost double the average price of electricity in 2019-2020. This will put a heavy burden on the consumers and the economy of the country.
In order to save us from a potentially fatal situation, substantial strategic interventions must be planned for and put into action. It might be too late when it occurs.
