Any sector where the government is in the business of fixing pricing, there is some sort of circular debt. Energy is on the top - within it both petroleum and power prices are fixed by government while the recommendations of change, based on fuel pricing and other factors, is the job of regulator - OGRA and NEPRA.
There is no problem when the prices are falling as any government is happy to pass on the impact; while in the other case, it becomes a tough political decision. If you are in opposition, you would lose no chance to malign intentions of the incumbents in days of high pricing, but it hits you back, once you are in power. This is happening with Asad these days - what goes around comes around.
Politics aside, the government should not be in business of fixing prices. This should be left to regulators. In case of power tariffs, back in days of expensive FO and increasing oil prices, the fuel prices were not used to be passed on. Thanks to one of the many IMF programmes, the mechanism was formed where fuel became a pass through item. The PMLN gained popularity in days of improving fuel efficiencies - from FO to RLNG and coal, by passing on the impact of lower average fuel cost to consumers.
Meanwhile, NEPRA lamented to pass on the impact of increasing capacity charge on new plants and to fix the issue of hydel profits. But Dar dared not to. Miftah did not touch the thorny issue close to elections, while caretakers left this for PTI which is facing the music today.
The IMF will bell the cat it seems again, as there are talks of having a mechanism of giving pricing power to respective regulatory institution as right now they pass summary, but government fixes the price. The case is simple for petroleum prices and it should be implemented pronto.
The sensitivity is in power where the equalization of price across the country is not a fair option. There are 10 Discos and K-electric - every company has different efficiency levels and AT&C losses vary considerably. If all the theft, and other inefficiencies are passed to all the consumers, what is the incentive for companies like FESCO, IESCO or LESCO to perform better than PESCO, HESCO and others.
These should be deregulation with different pricing at discos level. Yes, the pending hydel profits and capacity payments need to be passed on to all, efficient discos should be selling at better rates. And the next step would be to allow good discos to move in worse performing discos’ domain for improving situation in bad areas. Not to mention, privatizing discos, should be done concurrently.
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