How we got here | Political economics

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PAkistan inherited a tiny but transparent electricity sector from the British. It was operated mainly by the private sector. Electricity theft was unknown.

At the time of independence in 1947, total electricity generation in what is now Pakistan stood at 61 MW. It now exceeds 33,000 MW. Access to electricity was clearly a privilege, not a right. However, the prices were affordable. Electricity generation at that time was dominated by the private sector. Karachi received electricity from the private Karachi Electric Supply Company. There was a power station in Chaman and another in Peshawar. The Campbellpur Electric Supply Company was part of the Rawalpindi Electric Supply Company. The Multan Power Supply Company was operational. Together, these companies produced 61 MW of electricity.

The situation changed dramatically after the commissioning of the Mangla dam and then the Terbela dam, both built by the state with loans from the World Bank. Electricity production suddenly increased from just over 150 MW in 1965 to over 3,000 MW in 1973. The government then became the country’s main electricity supplier. The electricity sector was developed and financed by the national budget and the tariff was determined on the basis of the cost of production. The cost of financing the construction was not recovered from consumers. It turned out to be an unsustainable model.

Another largely overlooked fact was the mode of consumption. Electricity distribution companies continued to install transformers etc. depending on the load allowed in this area. The sanctioned charge of almost 80% of households was much lower than the actual consumption. It is common knowledge that few households owned air conditioners five decades ago. A large number of middle-class families now use air conditioners in the summer. Washing machines, especially automatic washing machines, were also rare in the 1970s. Today they are a common feature in urban homes. The microwave oven is another addition to the energy-consuming gadgets. With the increase in electronic gadgets, the actual load has increased. Only a fraction of consumers informed electricity distribution companies of the increased load. Accordingly, the sanctioned charge remained unchanged. It was left to distribution companies to upgrade transformers after complaints of frequent shutdowns due to overloading. Distributors still lack accurate data on the electrical load needed in the areas they serve. This results in erratic power and frequent damage to power supply equipment.

The impact of power load changes can be judged by the fact that in 2010 it was calculated that mobile phone charging alone consumed 62 MW. Former PEPCO Chairman Basharat Ahmad Cheema estimates that after the skyrocketing use of cellphones, the current usage of cellphone charging is nearly 200MW. The steady increase in electricity demand has not been accompanied by increases in electricity generation capacity.

The state eventually added fuel oil plants to overcome the shortages, but that was not enough. During this time, the government’s finances came under severe strain and it was unable to add additional generating capacity from its resources. Then came the independent power producers. To attract investment in power generation, the state guaranteed that all of their output would be purchased at a fixed rate of return. The tariffs agreed with sovereign guarantees were applied at the beginning of the period to cover the financial cost of the projects plus the profit. The guaranteed rate of profit on the investment was over 18% (more than the interest paid by commercial banks on term deposits). The price was set in US dollars. This meant that with each devaluation of the rupee, the rupee rate would increase.

Until 2000, the electricity sector was managed by the Water and Power Development Authority. It had 147,000 employees of which 9,250 were highly qualified professionals. In 2000, the electricity division was separated and reorganized into several electricity distribution companies managed by the Pakistan Electric Power Company (PEPCO). Professional staff have not been transferred to distribution companies. The professionals had addressed the problems encountered by consumers and suggested corrective measures to improve the system. Distribution companies without professional resources were unable to fix the problems, and regular upgrades were also missed. In the meantime, the electricity tariff was steadily increasing.

Consumers were not prepared to bear the steep price increases. This has resulted in electricity thefts which have increased with each increase in the electricity tariff. The theft requires the connivance of the personnel of the electricity distribution companies. Every increase in the electricity tariff also increases the income of corrupt officials. Those who consume stolen electricity consume it abundantly since they only pay symbolic bills and a few bribes. In some parts of the country, electricity theft enjoys political patronage. The theft is counted as distribution losses which are among the highest documented in the world. Additionally, distribution companies have been unable to collect electricity bills worth Rs 1.6 trillion. Private sector defaults are worth more than Rs 1 trillion. Public sector departments also owe power companies Rs 600 million. Why private sector default was allowed to grow while supply continued uninterrupted is a mystery.

Today, electricity theft is a national problem. Losses in KP, Balochistan and Sindh further increased after recent increases in electricity tariffs. In the 1990s, the largest fraction of theft in the country was recorded in Kasur. While KP and Sindh have higher percentage losses, Lahore Electric Supply Company still has higher absolute numbers than Sindh, Balochistan, Azad Kashmir and Gilgit Baltistan. It is because of electricity theft and non-collection of 10-15% bills that the state is unable to recover the cost of electricity. It regularly defaults on payments to independent power producers despite the sovereign guarantees granted to them.

He has to pay every time they call sovereign guarantees. The government seeks to insulate itself from these payments by ordering public sector companies such as Pakistan State Oil, SSGDC and SNGPL to supply fuel to these companies without expecting payment. Their contributions are released by the PPIs when the government releases certain payments to them. These public sector companies have thus accumulated acute financial problems. The so-called circular debt in the electricity sector crossed Rs 2.6 trillion.

The idea that hydel energy is cheap is wrong. The electricity tariffs produced by the Mangla and Tarbela dams did not take into account the cost of building these dams. Hydel energy is good in that it does not pollute the air, but it costs almost the same as LNG or coal generators. The electricity tariff produced by Basha-Diamer Dam was calculated in 2009 at Rs 8.56 per unit based on its construction cost. In 2021, after the estimated construction cost escalated, it rose to Rs 14.50.

All efforts over the past decade to reorganize electricity distribution companies have failed. The boards of these companies are appointed by the state. Sometimes nominations do not follow transparent merit. Privatization is a potential solution but does not guarantee the availability of electricity to all consumers. A possible interim solution is to keep these companies in the public sector and hand over their management to the private sector for the sake of transparency and the eradication of theft and corruption.


The writer is a staff member of The News International


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