Unsustainable power surcharges

With the power sector circular debt soaring once more as the government nears completion of its term, the ultimate scape-goat will as always be the end consumer. The present government’s focus has mostly and erroneously been on increasing generation capacity while failing to address the more crucial areas of transmission and distribution.

To make for the dismal performance of the distribution companies (DISCOs) and flawed execution of power projects by state-run institutions, it has instead chosen to continue to burden consumers with uncalled for surcharges on electricity. Recall that the PML-N government imposed roughly Rs2.35 per unit surcharges back in 2014.

All of these surcharges are stop-gap solutions designed to provide life support to an ailing distribution system and negligent financial management on behalf of the power authorities. Let’s start with the Neelum-Jheelum surcharge (NJS). The cost estimates for the project have quadrupled since 2002. The original projection was Rs84.5 billion which was subsequently revised to Rs277.5bn in 2012 to accommodate changes in design caused by the earthquake.

Current estimates put the cost around Rs500 billion with the primary component that has resulted in such massive cost escalation being the interest during construction (IDC) component. Sources in the Planning Commission acknowledge that the project has been mismanaged from the start with the original financial targets and geographical surveys undertaken in a flawed manner.

In a bid to cover up its inefficiency the government imposed a 10 paisa per unit surcharge in 2007 which has since been extended in line with the massive cost escalation. Then there is the financing cost surcharge of Rs0.43 per KWh, supposedly to recover debt servicing which is applicable to almost all consumer categories barring a few exceptions.

Last but not the least is the tariff rationalisation surcharge which is basically meant to establish a uniform tariff across all regions. But this has so far resulted in a higher burden on consumers of more efficient DISCOs such as GEPCO and LESCO while sparing the inefficiencies of companies such as HESCO and SEPCO which have abysmal recovery ratios and extremely high losses.

A recent hearing by the power regulator saw the All Pakistan Textile Mills Association (APTMA) and other stakeholders strongly contested the government’s petition to continue the imposition of these surcharges. The association believes the consumers should not be penalised for the government’s failure to reduce the circular debt and its inefficiencies in the power sector. It should also be noted that these surcharges have been legally contested and the apex court has yet to make a final decision regarding their validity.