The season of repression is in full swing – from exchange companies hoarding dollars to those hoarding sugar, and cross-border smuggling. The latest move is energy distribution companies as the government shows a new resolve to go after high-loss, low-recovery consumers – and put an end to that menace.
There is no denying that the never-ending inefficiency at the distribution level has to go – transmission and distribution losses have remained stagnant at a very high 18 per cent for nearly five years and recoveries have refused to go beyond 90-92 per cent. This is not sustainable, and all crackdowns are welcome. It is clear that this cannot and will not be done overnight, because it requires a lot of technical and technological interventions. The use of smart meters usually goes a long way in reducing transmission and distribution losses – look no further than Bangladesh where distribution losses have halved in less than 10 years – from 18 percent in Pakistan to now in the single digits. The approach required is not just a “crackdown” but something that must be done on a sustained and professional basis.
Unbundling electricity distribution has long been presented as a vital step out of the chaos – and its importance cannot be overemphasized. Again, this needs buy-in from policymakers, preferably from elected representatives, not caretakers, because this requires too much political ownership – otherwise it may backfire.
Then there is the ever-present proposal to “crack down” on electricity use. It’s surprising how this happens year after year, even though it’s clearly not the problem. If anything, Pakistan today needs more and more use cases for electricity consumption, not the other way around. Premature closure of the market is not a solution to the problems that Pakistan’s energy sector itself finds itself today. Decreased industrialization, and hence low economic growth, has put Pakistan behind the curve in terms of per capita electricity consumption. Commercial electricity use represents only 5-6% of the total and the recovery rate is close to 100%, with acceptable transport and unloading losses in the single digits.
What goal can be achieved by reducing electricity use, especially after peak demand months? If anything, this will increase the overall non-refund rate – as the better-paid group will be discouraged from consuming more. Electricity consumption per connection in Pakistan has been stagnant for more than a decade – nothing short of criminal. With electricity demand already difficult to keep up with, due to exorbitant tariffs, suppressing it further is clearly unwise.
More must be done to increase the recovery of agricultural consumers – who are the worst bill payers of all groups. This has not been highlighted much, but the agriculture bill recovery was the lowest at 60 percent in the NTDC regime – in FY22. Here there is another dilemma, with the removal of concessional excise duty on tubewells, where the agriculture category recovery could suffer further . Although the share of agriculture does not exceed 10 percent of total consumption, the share of agriculture in recovery situations is close to 25 percent. While the booming domestic sector should also be treated as a priority, agriculture is low-hanging fruit in terms of the technicalities involved.
The privatization of discotheques should have been done yesterday, but this is not the magic wand that observers want you to believe. Privatization of good goods with losses in trade and development approaching globally acceptable levels, and a recovery of nearly 100 percent in most cases of consumption (except agriculture) – the benefits will be very limited. On the other hand, finding willing buyers for sick products will not be easy – especially when a unified national energy tariff remains the core of pricing policy. Abandoning this would open a can of worms, which Pakistan cannot afford as a federal state. From who generates how much energy and from what fuel source to who wastes the most and who pays the most – this debate should be held in an elected parliament and is not something anyone else should even think about.
For now, the government should try to find ways to reduce the final consumer tariff, without necessarily disrupting what energy producers get. Reducing taxes is the right way. Tariffs at today’s rates will only stimulate more theft, lower recovery rates, and even lower consumption – and then it all goes in circles.