Pakistan is facing a two-fold energy crisis, leading to load-shedding and rising prices. It is becoming rather difficult to add new generation, while keeping the prices low. Every new unit produced is causing increase in tariff and there seems to be no new generation in near future which can ever reduce the existing electricity tariff.
The so-called efficiency factor, much touted by arm-chair experts, does not have significance in controlling the existing surge in prices. On the other hand, the existing rates are still below the true cost of services per/kWh. It means that every unit consumed specially by the domestic consumers, is putting burden on the national exchequer. And because such usage is more than 48 % of the total, one can imagine the volume of this burden. Consequently, the GoP has to absorb the burden through provision of subsidies much to the chagrin of the MLDAs and even the MoF.
As an explanation, we see that GENCOs and IPPs use a variety of fuels to generate electricity. Making upto 80% of total operating costs, fuel prices greatly affect the price of electricity. After peaking in the early 1980s, fuel prices trended downward until 1999. However, fossil fuel prices have risen considerably since 2003.
Whilst inflation averaged just over 10% a year during 2003-2010 (much over 20% in 2008-09), final electricity prices for domestic and commercial customers are not increasing even consistent with inflation. In real terms (ie taking the inflation into account), domestic and commercial electricity tariffs in Pakistan have in fact declined during the above period. By contrast, prices for industrial and large commercial customers have visibly increased in real terms over this period.
Additionally, the way in which retail tariffs are determined in Pakistan, currently takes no account of the marginal costs of generation, transmission, distribution and retail supply (metering and billing costs). As today's crisis is multi-dimensional in the presence of various stakeholders, the tariff should have the potential to absorb new investments and also give signals for efficient usage. The development of new regulatory framework in order to device new tariff methodology is thus the need of the day.
On the other hand, because of various reasons, the electricity demand-supply gap continues. Unfortunately, the continuing crisis is a cause of much socio-economic anguish in the country. As a solution, conservation resulting in reduced demands, dole-out of 10 million CLFs to lessen lighting loads, additional demand side management (DSM) measures by power companies leading to further reduction in demand, fast tracking of new but delayed IPPs already in the pipeline, effort to fast track the 1000 mega watt two public sector plants under construction at Nandipur and Chicho Ki Malian and the contracting of the 747 mega watt highly efficient Guddu combined cycle plant and lastly induction of 2250 mega watt rental power, were placed on the agenda in mid 2008.
Although, the agenda could not be fulfilled completely, still 1928 mega watt of new capacity has been added during the last two years, which is phenomenonal to say the least. However, because the requirement for new capacity additions that originally stood at 4000 MW, has now accumulated to the figure of 5000 mega watt on account of load growth till late 2010, another 3000 mega watt has still to be arranged. As each MW to be added requires a hefty US $2.00 million in the shape of generation, transmission and distribution systems and additionally entails time periods of anything between 2-3 years (to quote the least), hence there is a need to look into stop-gap measures.
In addition to the above and because both base load or primary generation and the peaking or secondary plants are being run 24/7 (or at least to the maximum availability levels), the cost of generation and in extension the customer-end tariffs are increasing day by day.
On the other hand, the monthly consumption and the demand of the affluent is increasing day by day. And, while these customers are placing inordinate demands on the power system, they keep on castigating the power companies for not being able to deliver and supply power as demanded by them. Additionally, it is seen that more than half a million air conditioning units get added to the customer load each summer and this happens without any information to or approval by the power companies and with a debilitating effect to the power system.
As the demand-supply gap is destined to remain for some more time with bad patches here are there along with some good times, there is a requirement to think of some other innovative means to mitigate the gaps. And for this, the two kinds of power customers in the country need to be kept in mind.
The first category pertains to customers who are increasing their loads / demands at will and are primarily clustered in the residential and commercial domains and can also be listed in the non-productive category. The second refers to industrial and agricultural loads and which normally fully adhere to their originally sanctioned loads.
In some cases-specially for the industry, due to the global financial meltdown, the much higher cost of doing business, BMR activity and introduction of energy efficiency tools, the demands are reducing. In other words, we see that the non-productive category of power customers with low level of discipline is also responsible for increasing their demands at will and this all is resulting in the denial of power to industry and agriculture.
A section of experts is of the opinion that a rationing methodology should be adopted, whereby the approved usage gets precedence over added or increased demands. Explaining the issue, it transpires that the answer may lie in rationing through a tariff having two kinds of rates for electricity usage viz. the first type for historical usage based on approved loads etc and the other one for usage over and above the historical usage.
It will not only protect the existing consumer from price hikes but also guarantee smooth supply to future consumers. More so, when the current methodology is penalising the existing consumer by the addition of expensive thermal units (probably the only option available in the current scenario) and avoidance thereof is depriving the willing consumer who wishes continuity of supplies and then has the financial depth to pay extra for electricity. This is the only reason why all new generation is being opposed by one or the other stakeholders and which then pushes out new investments.
As the statistical data shows that 20% of customers account for 80% of non-compliance in the usage above the historical levels, the majority of the customers will be saved from tariff increases, while the total increase will have to be borne by the non-compliant category alone or by ones who are willingly to pay for un-interrupted supply. According to experts, this special way of rationing will also result in reduced demands through conservation by the above category of offending customers.
The existing billing record of consumers can be used as the ration card, and would show one year historical consumption. As PEPCO has since introduced the time of the day (TOD) variety of electricity meters, the differentiation between the historical and the excess usage can easily be recorded in this kind of equipment resulting in the issuance of the bills based on two rates viz. the one for historical usage and the other for excess recordings. Additionally, to promote energy conservation culture, a rebate may be offered to the efficient consumer by comparing his current consumption with the historical consumption-specially for domestic consumers.
Rationing of this kind can be discontinued after energy surpluses are evident, while it will be of immense value till then. Consequently, industrial and agricultural customers will be provided power in accordance with their normal usage and at rates which can be required to retain today's value. And the burden, if any on account of expensive peaking or secondary generation, will be borne by the customers wishing to use more than their historical levels.
This will, in a way, lead to the elimination of the present subsidies, ensure efficient use, stop continuous hemorrhage, encourage new investments-thus providing the badly needed spinning reserve and possibly lead to a power market and lastly political mileage for the government. Electricity rationing thus is recommended to be considered along with other measures as the solution to the ongoing power crises.