Electricity: Use more, not less

The crackdown season is in full swing – from exchange companies hoarding dollars to those hoarding sugar, and smuggling at borders. The latest entry are the power distribution companies where the government has shown a newfound resolve to absolutely go after high loss low recovery consumers – and put an end to the menace.

There is no denying that the unending inefficiency at distribution level needs to go – as T&D losses have stayed stagnant at a very high 18 percent for nearly five years and recoveries refusing to go over 90-92 percent. This is not sustainable, and all crackdowns are welcome. Clearly, it cannot and will not be done overnight, as it takes a lot of technical and technological interventions. Use of smart meters usually goes a long way in lowering T&D losses –look no further than Bangladesh where distribution losses have been halved in less than 10 years – from Pakistan-esque 18 percent to now in single digits. The approach needed is not quite a “crackdown” but something that needs to be done on a sustained basis, and professionally.

Unbundling electricity distribution has long been presented as a vital step to get out of the mess – and the importance cannot be overemphasized. That again, needs a buy-in from policymakers, preferably from elected representatives, and not caretakers, as this is something that will require a lot of political ownership – or else could backfire.

And then there is the ever-ready suggestion for a “crackdown” on electricity usage. It is amazing how this keeps coming back, year after year, despite clearly not being the problem. If anything, Pakistan today needs more and more use cases for electricity consumption and not the other way around. The early market closure is not a solution to the problems Pakistan’s power sector finds in itself today. Low industrialization and in turn low economic growth, have already put Pakistan way behind the curve in terms of electricity consumption per capita. Commercial use of electricity is barely 5-6 percent of the total and the recovery rate is close to 100 percent, with acceptable T&D losses in single digits.

What objective would be achieved by limiting electricity use, especially beyond peak demand months? If anything, this is going to increase overall non-recovery rate – as the best paying category would be discouraged from consuming more. Pakistan’s electricity consumption per connection has stayed stagnant for over a decade now – which is nothing short of criminal. With electricity demand already struggling to keep up, due to exorbitant tariffs – suppressing it more is clearly ill-advised.

More efforts need to be put in to increase recovery from the agriculture consumers – who are by the worst bill payers of all categories. It does not get highlighted as much, but agriculture bill recovery was the lowest at 60 percent on the NTDC system – in FY22. Here is another dilemma that now with concessional tubewell tariffs abolished – agriculture category recovery could suffer more. With only 10 percent share in total consumption – agriculture’s share in under recoveries is close to 25 percent. While the domestic sector under recovery must be dealt with as a priority too, agriculture is a low hanging fruit in terms of technicalities involved.

Privatizing discos should be done yesterday, but it is not the magic wand that observers would want you to believe. Privatizing the good ones with T&D losses at near universally accepted levels, and recovery close to 100 percent for most consumption cases (minus agriculture) – the benefits would be very limited. Finding willing buyers for the ailing ones on the other hand, will not be easy – especially when uniform national power tariff remains the core of the pricing policy. Letting go of that will open a can of worms, that Pakistan as a federation can ill-afford. From who generates how much power, from what fuel source to who wastes more and who pays the most – that debate needs to be had in an elected parliament and not something anyone else should even think about.

For now, the government should try and find ways to lower the consumer end tariff, without necessarily disturbing what the power producers get. Lowering taxes is the way to go. Tariffs at today’s rates will only incentivize more theft, lower recovery, even lower consumption – and then it all goes in a loop.