Power consumers and subsidy

During a briefing to a meeting of the Economic Co-ordination Committee of the Cabinet (ECC), the Ministry of Water and Power acknowledged that the bulk of the reduction in subsidy is through the levy of a tariff rationalisation surcharge. A look at the budgetary allocation of subsidy to the sector reveals that there has been a steady decline in allocations: in 2012-13, the last year of the tenure of the PPP-led coalition government, the budgeted subsidy to Wapda/Pepco was 122.7 billion rupees which was revised upward to 419 billion rupees; in 2013-14 the budget allocated 165 billion rupees while actual disbursement was 245 billion rupees; in 2014-15 around 156 billion rupees was earmarked while actual release under this head was 185 billion rupees; in 2015-16 the budget allocated 98 billion rupees and disbursed 117.8 billion rupees and in the current year 95.4 billion rupees has been budgeted under this head.
The K-Electric situation reveals that the difference between what was budgeted as subsidy in 2012-13 by the PPP-led coalition government, 22.5 billion rupees, was comparable to what was budgeted during the Sharif administration, 22.6 billion rupees for the ongoing year; however, actual disbursement under this head was higher during the Sharif administration, 53.5 billion rupees last year, compared to 45 billion rupees released during 2012-13.
Two observations are necessary to understand the reason for the overall decline in subsidy to Wapda/Pepco. First and foremost, the international price was on a downward trajectory during the period under review. In 2013, international price of oil declined from over 100 dollars a barrel to a little over 92 dollars a barrel by the final quarter of the calendar year - and plummeted to less than 50 dollars a barrel by early November 2016. Hence the need for subsidy naturally declined. But apart from this, as acknowledged by the Water and Power Ministry, the Sharif administration, through the levy of a tariff rationalisation surcharge, did not pass on the entire decline in the international price of oil and products to consumers. This is reflected by the constant manipulation of the sales tax levy on petroleum and products ranging from over 40 percent on diesel to 17 percent on petrol during the past three and half years.
Secondly, the Sharif administration began to rely heavily on this sector to meet its budgeted shortfall in revenue, over-optimistic by all standards, and this has entailed, as per the Water and Power Minister's briefing to the ECC, the levy of varying charges. For example, a total bill of 5000 rupees would have a levy of 1000 rupees as tariff rationalisation surcharge (20 percent of the actual electricity consumed) and 150 rupee in financial cost surcharge.
These additional taxes on consumers account for a decline in the power sector debt burden on the national exchequer - from 2.4 percent of Gross Domestic Product to 0.7 percent of GDP in 2014-15 though independent economists are agreed that 0.1 to 0.2 percentage points may be due to overstating the GDP growth rate by the Dar-led Finance Ministry. And, given that this surcharge raises the cost of production relative to other regional countries, may well account for the persistent decline in exports over the past three years and a rise in cross border smuggling.
The Water and Power Ministry is at pains to maintain that it has been engaged in revenue-based load shedding or cutting off power supply to those feeders where the bulk of the bills are unpaid; and noted in July 2016 that losses have been reduced by 1.2 percent due to improved governance - from 19 to 17.8 percent. Analysts, however, argue that this decline is partly due to over-billing. However, by the third week of August, Khawaja Asif, the Minister for Water and Power, in a written response to the National Assembly acknowledged that the numbers of units lost was 16,325 million kilowatt hours (M.kwh) in 2013-14. The number soared to 16,744 in 2014-15 and recorded 16,762 in 2015-16. This brings the total loss to 49,831 M.kwh. Details of 10 Discos revealed that Peshawar recorded the highest loss, followed by Lahore Electric Supply Company and Multan Electric Power Company. And finally, analysts state that the flow of circular debt declined to 320 to 330 billion rupees from December 2014 to June 2016 but power sector loans have risen to 370 billion rupees.
To conclude, the general analysis is that the energy sector performance has not visibly improved, however, its financial situation has improved due to a massive decline in the international price of oil which was not all passed onto the consumers - a policy that has had and continues to have severe repercussions on the country's exports.